Gold Silver Report 24 August 2015

Gold saw support from uncertainty in both China and the U.S. this week, leading it to end near its biggest high since January. Speculation over the devaluation of the yuan and weak factory data from China raised market uncertainty, while, despite some strong housing data, the U.S. Fed’s meeting minutes hinted at a delayed rate hike, forcing the U.S. dollar down and supporting gold.

Price and Charts Snapshot:

On Monday gold built on its biggest weekly rise in three months, buoyed by weaker-than-expected U.S. data and lingering uncertainty over the implications of China’s recently yuan devaluation. Analysts speculated that the weakening Chinese currency could prompt a postponed U.S. interest rate hike.^[1] On Tuesday however, gold fell as the U.S. dollar rebounded, following some upbeat U.S. housing data, reversing the fears of a delayed interest rate increase. U.S. housing starts rose to a nearly eight-year high as builders ramped up single-family home construction while a six-year low in copper prices caused spot silver to be the worst-performing precious metal, dropping up to 4%; its worst since July 7.^[2] On Wednesday, the U.S. Federal Reserve held its monthly meeting, and the minutes hinted at a decreased likelihood for a September interest rates hike, pushing the greenback lower and helping gold prices reach a one-month high, with the trend appearing to continue into Thursday and Friday.^[3] On Friday, gold did ease somewhat, after an earlier rally to a six-week highs eventually ran out of steam, but was supported by safe-haven demand after weak factory growth in China. China’s factory sector shrank at its fastest in almost 6-1/2 years as domestic and export demand dwindled. Nevertheless, by the end of the week, the yellow metal remained on track for its biggest weekly gain since mid-January.^[4]

Gold saw some support this week from the mixed uncertainties over China’s yuan devaluation and poor factory performance. Some analysts suspected it would only be a short term trend, such as Fawad Razaqzada at Forex.com saying “We are of the view that this latest bounce is merely a counter-trend move inside a larger bearish cycle.”^[5] This view was supported by overall solid jobs growth, rebounding retail sales and a housing sector on the mend in the U.S., suggesting the Federal Reserve would be on track to raise interest rates by September.^[6]

However, things changed when the minutes of the Fed’s monthly meeting hinted that the rate hike may be delayed, pushing back speculation toward a December rate hike instead. Meanwhile, as speculation over the yuan devaluation continued, weak factory data from China dealt another blow to global markets, further boosting safe-haven demand for precious metals such as gold, helping the metal to see off the week with a big overall gain.