Precious Metals Tumble on an Easing of Geopolitical Risks

Precious metals retreated Friday as reduced geopolitical risks spurred long liquidation in precious metals as Dec gold fell to a 1-week low and Dec silver dropped to a 5-week low.

Geopolitical risks eased in the Middle East, which prompted long liquidation of precious metals, after Dow Jones reported Friday that Saudi Arabia moved to impose a partial cease-fire in Yemen, which may soothe regional tensions with Iran. Friday's U.S. economic data was mostly stronger than expected and hawkish for Fed policy, which is negative for precious metals.

Aug durable goods orders rose +0.2% and +0.5% ex-transportation, stronger than expectations of -1.1% and +0.2% ex-transportation. Also, the Aug core PCE deflator rose +1.8% y/y, right on expectations but the fastest pace of increase in 8 months. In addition, the University of Michigan U.S Sep consumer sentiment rose +1.2 to 93.2, stronger than expectations of +0.1 to 92.1.

On the positive side for gold is the decline in the 10-year UK gilt yield Friday to a 3-week low of 0.469% on signs the BOE may soon move to boost stimulus measures. BOE policy maker Sanders, considered one of the most hawkish members of the BOE, said that Brexit uncertainties may force the BOE to cut interest rates even if the UK avoids a no-deal Brexit.

Weaker-than-expected European economic data on Friday was dovish for ECB policy and bullish for gold prices after Eurozone Sep economic confidence fell -1.4 to a 4-1/2 year low of 101.7, weaker than expectations of -0.1 to 103.0. Also, the German Aug import price index fell -2.7% y/y, weaker than expectations of -2.6% y/y and the biggest decline in 3 years.

Ongoing U.S. political turmoil is also supportive for gold prices after House Speaker Pelosi late Tuesday announced a formal impeachment inquiry of President Trump and as developments emerge on the Ukraine controversy.

Ongoing trade and geopolitical tensions, along with dovish central bank expectations, sparked fund buying of precious metals as long gold positions in ETFs rose to a 6-1/2 year high Wednesday and long silver positions in ETFs rose to a new record high on Sep 2.

More recently, however, fund liquidation reduced long silver positions in ETFs to a 6-week low on Tuesday. Big Picture Gold-Silver Market Factors: Bullish factors include (1) the action by the world's central banks to continue cutting interest rates and boosting stimulus measures as trade tensions take a toll on global growth, (2) low global inflation that is dovish for central bank policies, and (3) safe-haven demand due to trade tensions, Brexit, and global geopolitical risks involving Iran, North Korea, and Venezuela.

Bearish factors include (1) the forecast by FOMC members in the Fed-dot plot for no more rate cuts in 2019-2020 and then a +25 bp rate hike in 2021 and a second rate hike in 2022, (2) the recent rally in the S&P 500 to an all-time high, which reduced safe-haven demand for gold, and (3) concern that a slowdown in the global economy will crimp demand for industrial metals, including silver.