Precious Metals Rebound as Stocks Fall on Doubts About a U.S./China Trade Deal

Dec Comex gold GCZ19 this morning is up +2.5 +0.17 and Dec silver SIZ19 is up +0.027 +0.16.
Precious Metals Rebound as Stocks Fall on Doubts About a U.S./China Trade Deal

Precious metals recovered from overnight losses and moved higher as stocks gave up overnight gains and turned lower on pessimistic trade news. Trade doubts emerged after CNBC reported that the mood in Beijing about a U.S./China trade deal is pessimistic after President Trump nixed a rollback on tariffs of Chinese goods. Precious metals had earlier opened lower in overnight trading as U.S. stock index futures rose to record highs on trade optimism after the Chinese Commerce Ministry said Chinese Vice Premier Liu spoke with U.S. Treasury Secretary Mnuchin and Trade Representative Lighthizer on Saturday in "constructive discussions" to address each side's core concerns of phase one of the trade deal.

Another positive for gold prices was the action by the PBOC to boost stimulus measures in an attempt to spur lending and boost domestic growth. The PBOC today cut the interest rate on its seven-day reverse repurchase agreement by 5 bp to 2.50% from 2.55%, the first cut in the reverse repo rate in 4 years.

Also boosting gold prices today was a lackluster monthly economic report from the Bundesbank that was dovish for ECB policy as the report said, "the weak phase of the German economy is expected to extend into Q4, but it will probably not worsen significantly, and total output could just stagnate."

Finally, today's decline in the dollar index to a new 1-week low is positive for metals prices.

A negative for gold prices is hopes that the UK Parliament will be able to pass a Brexit deal, which reduced safe-haven demand for precious metals, after Prime Minister Johnson told the Sunday Telegraph that "all 636 Conservative candidates standing at the Dec 12 election have pledged to me that if elected they will vote in Parliament to pass my Brexit deal."

Fund liquidation of gold continues to undercut gold prices as long gold positions in ETFs dropped to a 1-3/4 month low on Friday.

Trade and geopolitical tensions, along with dovish central bank expectations, sparked fund buying of precious metals as long gold positions in ETFs rose steadily over the past four months to last Tuesday's 6-3/4 year high and long silver positions in ETFs rose to a new record high on Sep 2. In the short-term, however, fund demand for gold and silver has fallen as long gold positions in ETFs fell to a 1-3/4 month low last Friday and long silver positions in ETFs fell to a 3-month low last Friday.

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