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Gold Rush Puts XAU/USD at Fresh Highs, US CPI higher than expected

Mauricio Carrillo

The gold rush, bonanza, the king Salomon mines, yes, but it is all about risk aversion my beloved FX Emperors.

Fears of a global recession are rising all over the markets as investors are digesting Hong Kong violent protests, Argentinian electoral results, and the 2-year to 10-year yield spread which has narrowed to 4.68 points on Tuesday.

Risk aversion is on the market, and it is fueling gold and silver to fresh highs.

Are bonds ready to signal recession?

One of the most critical recession signals in the market is the difference between 2-year and 10-year bonds. Well, the yield between these two bonds has narrowed to only 4.68 basis points on Tuesday, driving the curve to its flattest level since 2007, adding more risks to potential inversions.

Remember that inversion in the 2-year and 10-year bonds is a critical indicator as it has preceded every recession over the past 40 years.

The market is also watching the 30-year Treasury bond as it is trading near to its all-time low at 2.116. In that framework, fears of a recession are fueling gold and silver to fresh highs.

US CPI reports faster core inflation than expected

Prices in the United States rose faster than expected in July as the Bureau of Labor Statistics reported a 0,3% increase in prices between June and July. Inflation rose 1.8% from July 2018, above the 1.7% expected by market.

However, the more important CPI ex-food and energy rose 2.2% YoY in July, above 2.1% expected by market.

Hong Kong and Argentina political turmoils add pressure to markets

Protests in Hong Kong with the close of one of the most important airports in the world have sparked concerns about political stability in China. Everybody remembers what happened in Tiananmen square in 1989, something that would put China in a delicate position if it occurs again.

China is in the middle of a trade war with the United States. Every movement from both countries is being watched closely.

In this regard, USD/CNY is advancing again on Tuesday after a brief setback on Monday. The yuan is performing near to its weakest level against the dollar since March 2008. USD/CNY is 0.13% positive on Tuesday at 7.070.

In Argentina, the overwhelming victory of the Peronismo against current president Mauricio Macri in the first round of election left the country in uncertainty as another government from party-backed by Cristina Fernandez de Kirchner would delay the recovery of the country. Stock markets and the peso in Argentina were collapsing on Monday, and fears of default are over the table.

Gold jumps to fresh highs since April 2013

XAUUSD daily chart August 13

Gold advanced on Tuesday as investors are in a rush for the metal due to its safe heaven condition. However, XAU/USD is now moving back down to more moderated prices.

XAU/USD jumped to trade as high as 1,535 on Tuesday, its highest level since April 2013. But, US CPI is pushing prices down, and it is currently trading at 1,521, 0.66% positive on the day.

The unit is well supported by the 1,520 area, which previously acted as a resistance.

Silver breaks above 17.30 and trades at 18-month highs

XAGUSD daily chart August 13

After several sessions testing the 17.30 area, silver finally broke above that level, and it jumped to trade as high as 17.50, its highest level since January 2018.

Silver is now trading off highs at 17.35, in a consolidation pattern but still adding a 1.90% daily gain.

Technical conditions remain favorable for the metal with the 16.80 acting as strong support and now the 17.20 level working as a new floor for another bullish leg.

This article was originally posted on FX Empire