Spot gold has resumed its downtrend following yesterday’s brief pause. The yellow metal is off another 1% and trading at 19-month lows as the dollar continues to gain on trade and emerging market turmoil.
Turkey doubled tariffs on some U.S. imports and threatened to boycott U.S. electronics. The USD-TRY rate dropped back below 6.00 intraday, a more than 15% drop from Monday’s record high at 7.0861 on news of a $15 bln investment from Qatar. However, the U.S. has all the leverage in this particular battle.
Credit default swaps on Turkey have surged in recent months, reaching levels last seen during the global financial crisis in 2008. This presents substantial risks for countries and private banks with exposure to Turkey. Spain and Italy are viewed as being particularly at risk, which has contributed to recent euro weakness against the dollar.
“Spain’s BBVA, Italy’s UniCredit, France’s BNP Paribas, Dutch bank ING and Britain’s HSBC are the most exposed to Turkey and vulnerable to its free-falling currency,” according to an Reuters article. History suggests that if these banks truly get in trouble, they will be backstopped either by the local central bank or the ECB.
Let’s remember though that central bank largess over the past decade-plus is a significant contributing factor to the current crisis in Turkey. As the accommodations are scaled back and the central banks move toward policy ‘normalization’, there are other emerging economies that are ill-prepared for the consequences.
While gold continues to trade like a commodity for the most part, it is most certainly providing a safe-haven in Turkey. Bloomberg reports that gold futures volume has more than doubled on the Borsa Istanbul, while the price of gold in lira has risen more than 40% year to date. At the high earlier in the week, gold was up more than 70%!
“This is consistent with gold’s status as a safe haven and will likely be mirrored on the physical market with demand increasing for jewelry and gold bars,” said Jonathan Butler, precious metals strategist at Mitsubishi Corp UK Plc. Amid mounting worries about contagion, the rest of the world’s view on gold may return its long standing status as a safe-haven.
At this point though, there’s no point in trying to catch the falling knife that is gold. The 78.6% Fibonacci retracement at 1174.71 has been pressured. If this level gives way, a full retrace to the 1122.61 low from 15-Dec-16 would gain considerable credence.
A rebound above former support at 1204.52/72 is needed to ease short-term pressure on the downside, but this level is well protected at this point. The 1191.96/1194.20 zone provides a minor intervening barrier on the upside.
Silver has plunged through the measuring objective at 14.78/76 that was mentioned in yesterday’s report. Secondary support at 14.60 has given way as well, shifting focus to the 14.00/13.97 level. However, scope for a challenge of the 2015 low at 13.64 is gaining credence with each support level negated.
Resistance at the 15.11/15.24 zone is out of play, protected by minor levels at 14.95/98 and 15.05. Traders are likely to view any short-term uptick as yet another selling opportunity.
Platinum plunged to another near-10-year low, setting up a challenge of 732.50 low from October of 2008. If this level gives way as well, platinum will be at a near-15-year low as the broad-based commodities rout continues.
Palladium extended to the downside, reestablishing the dominant downtrend and exceeding short-term targets at 869.06 (19-Jul low) and 836.56 (127.2 % retrace of the recent corrective move). The 827.05 low from 07-Jul-17 is the next support to watch.
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