We see a retracement in both the flight-to-safety assets as the market digests this postponement and shifts its focus towards macroeconomic data points.
The S&P GSCI rose 2% in August, recovering to close to its high from February on a cheerier global economic outlook, with the eurozone coming out of recession and China’s manufacturing sector improving from a contraction to an expansion mode. Commodities in general have underperformed compared to the US equity markets, except for energy.
The S&P500 is up close to 15% this year, the NASDAQ up 19% and the Dow 13%. In contrast, precious metal gold is down 17% and silver is down 21% for the year.
WTI crude mirrored the US equities with a return of 16% year to date. Technically WTI looks bearish without momentum, we should see WTI consolidate further supported by $104.
The Oil - Brent Crude price surged in August on the catalyst of increasing Middle East tensions and the implications of the attack. As fears of the possible retaliation from Syria fade, Brent is retracing from its high of the year. This is unsurprising given that although global growth has been looking better than before, comparing global manufacturing PMI with Brent it is clear growth is still muted.
Technically we see $112 levels as a strong support area and resistance at $114.50. We would expect consolidation within this range. In the event that Brent stays above the support level and breaks $114.50, bringing the next target level to around $116.
Gold prices captured the attention of investors as they spiked up last week due to fears over Syria and the dumping of Asian currencies. The uncertainties in both these instances had buyers flocking towards the precious metal. While we all expect the Fed to address tapering in September, there will be little expectation of a low interest rate for an extended period of time.
Money managers and speculators have increased their net long positions on gold by 34% according to the CFTC. Prices in August gained 6.3% while equities fell. Physical demand for gold never waned and continued to be buoyant from buyers in Asia seeking a store of wealth. The broad selloff of Asian markets added to the attraction of gold. As their risks dissipate, we expect prices to further consolidate towards support levels of $1350.
Silver outperformed gold in August with a 19.5% gain versus 6.5%. Silver jumped 2.9% fuelled by China’s HSBC manufacturing PMI, confirming the sector is improving with a 50.1 read in August. This comes after the official manufacturing PMI released on Sunday showed an expansionary mode of 51.
There was speculation that a better Chinese economy would stoke demand for metals with industrial use such as silver and copper, causing both prices to jump. Technically, silver needs to close above $24.50 to sustain its upward momentum.
Failure to do so could see silver trapped in a trading band of $23 to $24.50.