Precious Metals Mangled

08/13/2020 9:59 am EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

Gold has finally corrected, reports Adam Button who discusses what this means for forex and other sectors.

Precious metals took a sharp fall that turned into one of the largest declines in years as predicted by Ashraf Laidi earlier in the week.

Too much new money and too many weak hands was the story of the last leg of the gold market. A reversal in Treasury yields on increasing supply led to a rush to the exits and a 6% decline in gold and 15% drop in silver.

The drop undoubtedly means an end to this chapter in the gold rally. There is no major support until $1,800 so the decline isn't necessarily over but a period of consolidation is overdue.

More broadly, the drop in gold came alongside a series of reversals from Treasuries to yields. Stocks held up before the S&P 500 fell 0.8% late in the day with tech doubling the declines.

Tech stocks attempted a recovery when Tesla (TSLA) rose 6% following its 5-1 stock split announcement.

In Washington, the urgency for another round of stimulus has turned to deadlock. President Trump will now try to push through an executive order that will pay $300 per week instead of $600 per week in special benefits and won't require states to chip in. Treasury Secretary Mnuchin said it would take two weeks to get the checks out and that will mean a lean month for consumers.

Forex Update

The euro (EUR) and Swiss franc (CHF) are the top performers against the U.S. dollar. The New Zealand dollar (NZD) and Japanese yen (JPY) are lagging as indices attempt to retrace late Tuesday's losses. U.S July CPI came in as expected. 

In the market, the days ahead will show if metals are a canary in the coal mine or separate from broad sentiment. The FX reaction so far has been tepid, but AUD/USD is at the lows of the month (and August is typically a poor month for AUD/USD).

NZD/USD is another spot to watch as it goes back into lockdown after a family contracted the virus from an unknown source.

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