The rally in gold takes a pause, even as stocks tumble for a fourth consecutive session on elevated coronavirus worries. The yellow metal is trading more than 3% off the 7-year high that was established on Monday at 1689.35.
On Tuesday, the Center for Disease Control warned of a possible coronavirus outbreak in America, sending the stock market reeling once again. The market took little solace in reports from U.S. health officials that they were hoping to start human trials on a coronavirus vaccine in 6 weeks.
Amid mounting risk aversion, one might expect gold to remain on the bid, but a correction like we're seeing today is not unheard of. As investors bail out of commodity funds and ETFs, they are in effect selling gold. Additionally, sharp losses in stocks frequently cause investors to liquidate profitable positions to cover margin calls.
Continue to view setbacks as buying opportunities. I'm watching support defined by the 1618.98/1611.41 zone, which happens to correspond with the 9-day SMA.
Silver is trading more like an industrial metal today, erasing much of the past week of safe-haven driven gains. The white metal is being hit hard by growing fears of severe drops in Chinese demand for autos, electronics, and photovoltaic cells.
Spot Silver Daily Chart
Silver traded briefly below the 20-day SMA, but the 50-day held. Further tests of the downside may be in the offing and I suspect the haven crowd will continue to buy on dips within this year's range.
That being said, the risks to Chinese and global growth pose a formidable headwind to any metal that derives the majority of its demand from industrial use.
Platinum is a case in point; having tumbled more than 4% today and more than 9% since last week's high at 1018.16. The 61.8% retracement level of the rally from 863.50 (12-Nov-19 low) to 1041.45 (16-Jan-20 high) has been violated. Platinum is also poised to close below the 100-day SMA for the first time this year.
I'd look for silver and platinum to be rather choppy and broadly defensive for the short to medium term as the coronavirus crisis plays out. At this point, if you're looking for a safe-haven, gold is most definitely the preferred choice.
Palladium is perhaps expectedly the exception to the rule. As we've noted in recent videos, Chinese auto demand has plunged 92% versus last February. That's a startling number and will unquestionably impact the demand side of the equation for palladium,
However, palladium has been in a structural deficit for years and that is likely to continue even with the loss of Chinese auto demand. A corrective/consolidative phase is arguably overdue, so we may have indeed seen at least an interim high last week at 2842.50.
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