Spot gold is trading defensively again this morning, weighed by a firmer dollar and broad commodity sector losses associated with the latest escalation of the trade war. More than 61.8% of the recent corrective rally has been retraced, leaving the key 1237.83/1236.45 support level (03-Jul, 12-Dec-17 lows) vulnerable to a retest.
Base metals have been especially hard-hit, with copper and nickel tumbling 3%, while zinc was off by as much as 6%. Risk-off sentiment is also weighing on global shares. At this point, the precious metals continue to trade more like commodities than safe-havens, although their haven aspects may be limiting the downside somewhat.
The Trump administration has issued a list of an additional $200 bln in Chinese goods to be subjected to a 10% tariff. China was quick to respond. "China is shocked by what the United States did. To defend the core interests of the nation and the fundamental interests of the people, the Chinese government will, as always, be forced to take necessary countermeasures,” said a Ministry of Commerce spokesperson.
The spokesperson went on to say that “the United States is hurting China, hurting the whole world, and hurting itself.” China is expected to file another complaint with the WTO as well.
U.S. wholesale sales surged 2.5% in May, well above market expectations of +0.6%. This latest solid economic news has bolstered expectations for a fourth Fed rate hike in December. Prospects for further Fed tightening has been an additional tailwind for the dollar.
The recovery in the dollar has been muted by today’s 25 bps rate hike and stronger growth forecast from the Bank of Canada. The loonie rose in reaction relative to the dollar.
Reuters also reported that a source told them that some ECB members see a rate hike as early as July of next year. Mario Draghi has previously suggested that the ECB would be keeping rates at historic lows through next summer. If true, the prospect of a July hike would be only minimally more hawkish. While the euro firmed initially, most of those gains have already been retraced.
While the dominant feature on the dollar index chart remains the double top formation, a close back above the 9-day moving average (94.40 today) would result in a third consecutive higher close. A short-term rise above 94.62/66 (50% retrace and 20-day MA) would suggest that the recent corrective phase might have run its course.
The inability of gold to clear the 20-day moving average on the rebound and the subsequent magnitude of the retracement suggests potential back to the 1237.83/1236.45 lows. The likelihood of such a move would increase if the dollar resumes its rally. At that point, fresh 13-month lows would have to be considered.
As noted in yesterday’s commentary, the silver chart was looking rather negative. Now that any support from the gold market seems to be evaporating, a retest of the 03-Jul low at 15.78 seems to be at hand. If this level gives way, the more formidable 15.61 level (12-Dec-18 low) would be in play.
Platinum has fallen to new lows for the week. Minor chart support at 834.00 was breached, clearing the way for a challenge of the halfway-back point of the recent corrective rally at 827.89. The latter has been pressured, but remains intact as of this writing. Penetration would favor further probes below 800.
Palladium remains defensive at the lower end of the recent range. While technically neutral, the overall complexion of the metals and commodities markets makes me inclined to sell into upticks within the range.
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