Black Monday for silver and gold down

The week begins with significant falls in most of the risk assets, starting with the Asian market, where Standard Chartered, Barclays, HSBC and Deutsche Bank will register falls of more than 4% in the stock market this Monday after the publication during the weekend of a series of information prepared by the International Consortium of Investigative Journalists (ICIJ) in which it is stated that these banks did not establish the necessary controls to prevent money laundering through their system.

The previous situation affected the futures markets of Europe and the United States that were operating at a low level, pointing out that at the opening they would open with a strong downward gap, provoking the flight towards assets considered as safe havens such as sovereign bonds (T-Bond and Bund) as well as gold and to a lesser extent, silver.

However, other events overshadowed the picture, as European stock markets fell sharply due to fears of a resurgence of coronavirus, whose increase in infections in the region casts doubt on economic recovery. See the graph below:

Covid evolution in Europe and USA

Since mid-July/2020, the number of new cases in Europe has begun to rise, with Spain leading the way with a rate of 300.5 new cases per 100,000 inhabitants in the last 14 days, followed by France with a rate of 185.8, the United Kingdom with 69.3, Italy with 33.5 and Germany with 25.8.

Prime Minister Boris Johnson has called it a second wave and stricter quarantines have been adopted in areas across the country, with London possibly next on the list.

The above situation has negatively affected the Euro and the Pound Sterling, which are 2 of the 6 components that make up the dollar index (DXY), both representing close to 75% of the composition of such index, causing a strong appreciation of the dollar. See graph:

Evolution of the dollar index

The appreciation of the dollar index, was not only induced by the worsening of the health crisis in Europe, but also by a statement by the president of the European Central Bank Christine Lagarde at a public event, where she said:

"The appreciation of the euro obviously has a role in different areas, and as far as monetary policy is concerned, it exerts a downward pressure on the level of prices".

After such statements, traders unwound their positions in euros to buy dollars, as they see that the currency pair does not exceed 1.19 dollars per euro.

These events, the health crisis in Europe and the depreciation of the Euro, caused falls in raw materials, weighing down the prices of gold and silver, since a weaker Euro reduced the purchasing power of the purchase of commodities.

Evolution of Gold

Evolution of Silver

As you can see, gold and silver move in the opposite direction of the dollar index.

It is important to note that the strength of the dollar is due to the exchange of other currencies into dollars with the ultimate goal of seeking refuge in U.S. sovereign bonds, which are considered the quintessential risk-free assets, which puts upward pressure on them. See graph:

Evolution of the 10-year sovereign bond

In the graph below, it can be seen that gold approached the 1,885 us$/oz support at 10:40 am (New York time), respecting the lower band of the September projections of Axl Capital's econometric model.

Gold approaching supports according to AXL Capital's econometric model

Pin It