Precious Metals Close Higher On Dollar Weakness And Ramped-Up U.S./China Tensions
Dec Comex gold (GCZ20) on Wednesday closed up +11.7 (+0.60%), and Dec silver (SIZ20) closed up +0.092 (+0.34%).
Precious metals prices on Wednesday moved higher on a weaker dollar, simmering U.S./China tensions, and heightened risks of no-deal Brexit. Gains in gold were limited on a sharp rally in stocks, which curbs the safe-haven demand for gold and positive ECB comments that may reduce the need for additional stimulus measures.
Heightened U.S./China tensions are bullish for the safe-haven demand for gold but bearish for trade prospects and industrial metals demand. President Trump said he intends to curb the U.S. economic relationship with China and threatens to punish any U.S. companies that create jobs overseas and to forbid those that do business with China from winning federal contracts. In addition, the U.S on Tuesday announced that is has banned imports from three companies in China's Xinjiang region over China's alleged repression of the Uighur Muslim minority group. The U.S. Customs and Border Protection Agency said it would also ban imports from six other Chinese companies that operate in the cotton, textile, and apparel industries by the end of the year for using "convict labor and forced labor to produce the garments it manufactures."
Gold prices have support on heightened risks of no-deal Brexit. UK Prime Minister Johnson said that he "won't back down" on his threat to walk away from Brexit talks without a new trade deal. The Brexit talks have been at an impasse for months, and the UK needs to secure a trade deal with the EU by the end of this year or tariffs, quotas, and customs checks will be reimposed on the UK economy.
A bearish factor for gold was Wednesday's Bloomberg report that said ECB policymakers have become more confident in their forecasts for an economic recovery in the Eurozone and may not need any additional stimulus measures. ECB officials with knowledge of the matter said that the ECB at this Thursday's policy meeting would revise up its Eurozone GDP and private consumption forecasts for this year. The officials also said that in their view, additional stimulus beyond the current 1.35 trillion-euro ($1.6 trillion) emergency asset-purchase program doesn't appear warranted from their current perspective.
Wednesday's global economic data was mixed for metals. The U.S. Jul JOLTS job openings rose +617,000 to a 5-month high of 6.618 million, stronger than expectations of 6.000 million. Conversely, Japan Aug machine tool orders fell -23.3% y/y, the twenty-third consecutive month that orders have declined but the smallest drop in 1-1/2 years.
Slack global price pressures are negative for gold demand as an inflation hedge after China Aug PPI fell -2.0% y/y, weaker than expectations of -1.9% y/y.
Precious metals prices have ongoing support from the Covid pandemic that has curbed global growth prospects and prompted the world's central banks to maintain or even expand their QE programs, which is bullish for gold demand as a store of value. The Covid virus has now infected 27.776 million persons globally, with deaths exceeding 902,000.
Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Long gold positions in ETFs on Tuesday rose to a new record high of 3,408.02 metric tons (data since 2002). Also, long silver positions in ETFs rose to a new record high of 897.10 million troy ounces Aug 25.
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