Spot gold edged to a new 7-session high in overseas trading, but has since retreated into the range. A bounce in the dollar off of trendline support provided the weight. Focus today is on ECB policy and the easing of trade tensions between the U.S. and Europe.
The ECB held steady on rates as was widely expected. The pledge to wind down QE by the end of the year was reiterated. Mario Draghi’s press conference begins shortly and I suspect the press will want further clarification on plans not to start raising rates until the end of next summer; especially in light of yesterday’s trade talks.
While there is still a fair amount of global uncertainty with regard to trade, yesterday’s rather amicable meeting between President Donald and Jean-Claude Junker may embolden more hawkish members of the governing council. I’d expect Draghi to continue to highlight growth risks and keep the ‘first rate hike card’ pretty close to the vest.
What’s great about the thawing of trade tensions is that the U.S. press played it as Mr. Trump wresting concessions from Junker. In Europe, Junker is being hailed the hero for making Trump “blink.” Whatever the reality, there was seemingly give-and-take on both sides. That’s what negotiations are all about.
Will this success get China and our other trading partners to the negotiating table before further escalation? That remains to be seen, but the message from yesterday is that deals can indeed be brokered.
Commodities rallied in relief late yesterday, buoying the metals complex. The platinum group metals in particular posted solid closes.
Gold has been a bit of a laggard. More money than commodity, it didn’t get the same boost yesterday and is trading lower on the day this morning.
While gold did close above its 9-day MA yesterday, it has retreated to that average (1228.98) today, leaving the more important 20-day MA (1241.15) well protected. The intraday high at 1235.25 now provides an intervening barrier.
The dominant trend remains bearish and a bear flag may be forming. A close back below that 9-day MA today would favor further short-term tests of the 1211.52/1204.72 lows.
Gold continues to take its queues from the dollar. The dollar index bounced off a minor trendline. While the greenback still shows some signs of topping, it just can’s quite seem to seal the deal amid persistent expectations of four rate hikes in total this year.
DXChart
The FOMC meets next week. While no change in policy is expected, recent data and the perceived easing of trade tensions probably means there’s no reason to adjust guidance at this point.
Silver has retreated to its 9-day MA as well (15.52) after setting a 7-session high overnight. A close above the 20-day MA (15.77) is still needed to lend some credence to a bottoming scenario. Until then, the downside remains vulnerable to further tests.
Platinum closed above the 20-day MA yesterday, but has retreated to this moving average (833.17) today. The lack of upside follow-through left the 858.89 high from 09-Jul untested and reinforces the notion that short-term gains are corrective in nature.
Palladium has pulled back into its range as well, but remains generally well bid at the high end of the recent range. As noted yesterday, over the past 7-months, we’ve seen some pretty impressive corrections in palladium within the dominant downtrend. This one has already run 9.6% from low to high.
Each of the previous rallies resulted in a lower high and ultimately a lower low. This correction may still have some room to run, but the trend here remains bearish as well.
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