Spot gold has stabilized somewhat in the wake of yesterday’s tumble to new 17-month lows below $1200. The yellow metal continues to be weighed by dollar strength, which is being driven in large part by flight out of emerging currencies.
The plunging Turkish lira has been in the spotlight lately, but most emerging currencies are under some pressure as contagion fears mount. The Wall Street Journal reports, “[E]merging markets have $2.7 trillion in U.S. dollar-denominated debt that comes due between now and the end of 2025.”
The concern is that acquiring dollars to pay-off that debt is going to be increasingly expensive, driving up the risk of default. As those risks rise, the emerging currencies come under even more pressure.
The Indian rupee hit a new all-time low against the dollar earlier today. Further deterioration of the rupee seems likely, which should spark heightened demand in gold-centric India.
Additionally, strong seasonal demand for gold typically emerges in Q4, ahead of the Indian wedding and festival season. According to GFMS, India bought 75 tons of gold in July, a 44.2% increase over July 2017. That’s a good early indication that we may see strong demand from India into year-end, which should help gold find a bottom.
The Zaner Daily Metals Newsletter notes “the net spec and fund long in the gold market last week declined to only 8,234 contracts.” Positioning in the futures and options market suggests a correction is due. “The smart money commercials have their smallest short position in years, while dumb money commercials have their biggest short position in decades. Both are signs a bottom is coming,” said Todd “Bubba” Horwitz in a Kitco commentary today.
Gold is oversold at this point and arguably cheap at these levels. However, upticks in recent months have consistently disappointed.
Former support at 1204.52/72 marks initial resistance and protects the 9-day moving average at 1207.82. The more important 20-day moving average (1217.32 today) is well protected at this point. A close above this level is still needed to ease pressure on the downside.
Silver is also consolidating yesterday’s losses. Focus remains squarely in the downside in the wake of yesterday’s tumble. A measuring objective off the recent consolidation pattern suggests potential to the 14.78/76 level. Below that, 14.60 attracts.
Here too, former support at 15.18/24 now offers initial resistance. The 9- and 20-day MAs are protected at 15.29 and 15.38 respectively. A breach of the latter on a close basis is needed to set a more positive short-term tone.
Platinum is consolidating at the low end of yesterday’s range. The 10-year low at 795.02 (19-Jul) remains intact at this point, but remains vulnerable.
Palladium eked out a new 4-week low at 884.86. The 100-week moving average at 881.53 and 876.76 (78.6% retracement of the recent corrective rally) are the next supports I’m watching. A close below the former would not only clear the way for a retest of the 859.06 low from 19-Jul, but would favor a continuation of the downtrend toward 836.56.
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