Spot gold has turned defensive as resurgent trade tensions lifted the dollar. The yellow metal was unable to sustain yesterdays brief probe above $1200 and is now trading about 1% off the corrective high.

Gold set a 7-session high at 1201.63 on Wednesday, but ended up closing lower on the day following the release of minutes from the most recent FOMC meeting. The Fed essentially confirmed that a 25 bp rate hike is in the offing for September. Such a move has been baked into the cake for some time now, with the CME’s FedWatch tool suggesting a 96% probability of September rate hike.

However, the market did take note of the Fed’s concerns about trade. "[A]ll participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks,” according to the minutes. The CME’s FedWatch tool shows that the probability of a December rate hike has tempered to 62%, from 66% yesterday and 69% a week ago.

20180823 CME FedWatch Tool

As if on queue, U.S. and Chinese trade tensions ratcheted higher this morning, even as trade delegations from both sides met in Washington. The U.S. initiated previously threatened tariffs of 25% on 279 additional Chinese exports, totaling $16 bln. The Chinese responded immediately, imposing $16 bln in tariffs on U.S. exports, including coal, diesel fuel, automobiles and medical instruments.

At this point, we have opposing forces influencing the dollar: A further rise in trade tensions is buoying the greenback, which has been viewed as a safe-haven. Meanwhile, diminished prospects for a fourth rate hike this year weighs.

These forces are having the opposite impact on gold and the higher trade tensions seem to be winning out, at least today. Gold has retreated to the 9-day moving average (1287.92 today) on dollar gains, leaving the 20-day MA (1202.88 today) protected. Yesterday’s high at 1201.63 now provides a good intervening barrier.

The strategy of selling at the 9-day MA with risk above the 20-day MA may still bear fruit.  A breach of Fibonacci support at 1185.83 (38.2% of the recent bounce) would highlight the halfway back point at 1180.95. The latter is protected by Monday’s low at 1182.80.

A degree of caution is warranted though, given the sizable speculative short position that has developed in the futures market. The precious metals are ripe for a rebound, but at this point, the trend remains your friend.

Silver has already fallen to a new low for the week and taken out minor chart support at 14.59 (17-Aug low).  We had noted the comparative weakness in the silver market and thought that recent positive price action appeared corrective in nature.

20180823 Silver Hourly Chart

Just over 61.8% of the rally from 14.33 to 14.87 has already been retraced, returning a measure of credence to the dominant downtrend. A more convincing penetration of the 14.537 Fibonacci level would bode well for a retest of the 2½-year low at 14.33.

The breakout of the ascending wedge chart pattern, suggests potential may be deeper yet. Persistent strength in the gold/silver ratio is another confirming factor as it moves back toward 82.00.

Platinum gains faltered above the 9-day MA and has now retraced more than half of the recent corrective gains. If the 61.8% retracement level at 772.90 gives way as well, the recent near-10-year low set last week at 754.03 would be back in play.

Palladium remains comparatively well supported, trading within yesterday’s range.  The fact that cars were on China’s list of new tariffs is perhaps cause for concern, but reports of movement toward a NAFTA accord may be offsetting.


Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Group LLC, unless otherwise expressly noted.