Spot gold is consolidating just off its 1-year low. The yellow metal is trading within yesterday’s range ahead of today’s Fed policy decision.
The Fed is widely expected to hold steady on policy and guidance. This would suggest that two more rate hikes remain on tap into year-end. There is also an expectation of three additional hikes in 2019.
However, a flattening yield curve in this late-cycle economy is not without some risks. The latest talk of escalation in the trade war between the U.S. and China further amplifies growth risks.
President Trump threatened yesterday to slap a 25% tariff on an additional $200 bln worth of Chinese goods. This was a sharp increase over the 10% tariff proposed early in July.
China called it “blackmail” and said that it would retaliate. So while trade tensions have recently eased between the U.S. and Europe, the trade war with China seems to be intensifying.
The more significant monetary policy decision will come tomorrow from the BoE. A 25 bps rate hike is anticipated, despite a slowing economy and persistent Brexit concerns. Starting a tightening cycle may in fact make things worse, but the BoE likely feels it is behind the tightening curve.
On Friday, we’ll get U.S. jobs data. Median expectations for nonfarm payrolls is +187k and unemployment is expected to tick back down to 3.9%. This morning’s robust ADP report — +219k on expectation of +180k — perhaps creates some upside risk for the payrolls number.
The yield on the 10-year note regained the 3-handle after ADP came out. However, the dollar’s reaction has been muted thus far. The inability of the dollar to gain any upside traction may be helping to prevent a move to new cycle lows in gold.
Key support in the yellow metal at 1204.72 (10-Jul-17 low) remains well protected. Intervening support is well defined by the 19-Jul low at 1211.52. This level is further bolstered by the midpoint of the multi-year 1046.18/1375.17 range at 1210.67.
I’d like to see gold rally out of this area, helped by the seasonal influence, but it’s just not showing me much here. We may have to see a push below $1200 to spark more significant buying interest.
We continue to watch the 9-day moving average (1225.20 today). A close above the 20-day moving average (1235.06 today) is needed to lend some credence to the bottoming scenario.
Silver is consolidating within yesterday’s range, but has retreated to its 9-day MA (15.47 today). The inability to sustain upticks above 15.50 leaves the downside vulnerable with a potential bear flag forming. A breakout would project silver to the 14.87 level.
A rebound above 15.66/67 (20-day MA and Friday’s high) is needed to ease short-term pressure on the downside. Such a move would suggest potential back to $16.00.
Platinum trading remains choppy. Despite yesterday’s close back above the 20-day MA, platinum is right back on the defensive today. That’s a repeat of last week’s price action as we warned yesterday. With last week’s highs at 845.10/27 intact and new 2-week lows established, the upside remains protected and the trend remains negative.
Palladium fell back to the 910.43 level intraday, a new low for the week, after failing to sustain its close above the 20-day MA. While the 38.2% retracement level of the recent rally at 910.02 has contained the downside thus far, traders continue to view short-term positive price action as selling opportunities within the dominant downtrend.
I think we can discount positive technical events in the PGMs unless we see confirmation of the moves in gold and silver.
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