Spot gold is straddling the $1200 level as conflicting fundamental forces play out. The dollar firmed modestly within the recent range, but the short-term tone remains generally weak, which is helping to underpin the precious metals.
While North American trade tensions have moderated somewhat this week, the trade war between the U.S. and China continues to foster global uncertainty. Emerging market worries — which are tangentially associated with trade tensions and the haven appeal of the dollar — are on the rise once again.
The Turkish lira tumbled to pressure its recent record lows against both the dollar and the euro. The Indian rupee also fell to a new record low against the greenback. Additionally, Banco Central de la República Argentina (BCRA) raised the policy rate by 1500 bps to 60% from 45% after the Argentinean peso plunged nearly 15% versus the dollar.
It seems to me like the emerging market volatility is also resulting in some haven interest in gold, which has muted to inverse correlation between the dollar and gold somewhat. That may partially explain why gold seems to have shrugged off the bearish technical implications of Tuesday’s key reversal.
Gold probed briefly back below its 20-day moving average (1199.27 today) intraday, but seems to be struggling on downticks. A rebound above 1207.18/88 would offer some encouragement to the bulls and put Tuesday’s high at 1214.32 back in play. New corrective highs would return attention to the 1230/1240 zone, where the much-talked-about potential short-squeeze could really start to accelerate.
Silver retreated to 14.50 after the rejection from 15.00 earlier in the week. With gold straddling $1200, the gold/silver ratio has been driven to a new high for the year at 82.595, slightly exceeding the April high at 82.543.
A rebound above $15 is still needed to ease short-term pressure on the downside. I’m inclined to be neutral on silver until that happens and/or until the ratio is back below 80.
Platinum has stabilized within the recent range after failing to register a close above its 20-day moving average (801.64 today) earlier in the week. Such a move is needed to clear the way for an upside extension into the 830/840 congestion zone and lend some credence to the bottoming scenario. Nearby support is well defined at 785.00/50.
Palladium surged to a new 10-week high of 984.54 before retreating into the range. Resistances at 985.82 (50-week MA) 987.06 (50% retrace of this year’s decline) 989.70 (200-day moving average) were all left intact and today’s high reinforces these levels.
Palladium has risen more than 18% from the lows, exceeding the magnitude of the April correction. Given the developing overbought condition and the lack of confirmation in the other precious metals, I wouldn’t be surprised to see some position squaring ahead of the long holiday weekend. A pullback to the 9-day moving average (935.48 today) seems reasonable, but given the thinnest of the palladium market, moves are rarely “reasonable”.
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