Spot gold is consolidating around the $1200 level, despite today’s gains in the dollar. The yellow metal seems to be garnering some haven interest, even as the greenback does as well. Nonetheless, gold appears poised to notch a fifth consecutive lower monthly close.

Even as trade tensions in North America have eased this week, the trade war with China is escalating. The U.S. and Mexico struck a trade deal earlier this week and a follow-on trade deal with Canada is likely to be announced today.

However, it is being reported that President Trump is prepared to impose an additional $200 bln in tariffs on Chinese imports as early as next week. Given the way things have unfolded in recent months, it is reasonable to assume China will retaliate in kind.

President Trump has also threatened to pull the U.S. out of the World Trade Organization. "If they don't shape up, I would withdraw from the WTO," said Mr. Trump. The President has expressed the belief in the past that the WTO is set up to benefit everyone except the United States.

Based on the rise in the dollar, markets seem to be assigning greater gravitas to the China situation. In recent months, the dollar and Treasuries have been correlated with global trade worries. Markets seem to believe that the U.S. has the best chance of ‘winning’ a trade war, so as tensions heat up, the dollar and Treasuries catch a safe-haven bid. That in turn has put pressure on gold.

However, gold is holding up nicely this morning in the face of a firmer dollar. Amid somewhat offsetting trade headlines, the developing emerging market crisis may be gaining credence in the minds of investors amid heightened talk of contagion. The former is most certainly contributing to the latter…

The Turkish lira gained today, leaving the recent record lows against both the dollar and the euro intact. However, Turkey is far from being out of the woods.

The Indian rupee fell to a new record low. The Indonesian rupiah fell to levels not seen since the Asian currency crisis in 1998.

The Argentina peso plunged to a new record low earlier this week. A massive 1500 bps rate hike yesterday has at least temporarily stabilized the peso, but further losses seem likely.

Turkey, India and Indonesia are gold-centric countries. As their currencies continue to depreciate, demand for gold is likely to increase. That has the potential to escalate if there is indeed contagion to other Asian and Middle East countries.

A close above $1200 to end the week would be encouraging for gold. A close above 1205.82 would be even better as it would confirm a second consecutive higher weekly close.

The earlier breach of minor chart resistance at 1207.18/88 bodes well for a retest of Tuesday’s high at 1214.32. Penetration of the latter would put gold back on track for a challenge of the 1230/1240, where it is believed that the dominant short position in the futures market is likely to start feeling the ‘squeeze’.

If a short-squeeze does indeed develop, the size of the current short position suggests gold could easily be driven back to the 1280/1300 zone. Intervening barriers to be aware of are as follows: 1233.81 (200-week MA), 1238.58 (Fibonacci), 1262.76 (Fibonacci), 1263.91 (100-day MA).

On the downside, today’s low at 1198.63 protects the low for the week at 1196.27. The 38.2% retracement level of the recent rebound comes in at 1193.67.

Silver is consolidating within the confines of yesterday’s range, but appears poised to end the month more than 5% lower. Ongoing strength in the gold/silver ratio reflects the comparative weakness of silver. The ratio set another new high for the year at 82.63 today.

20180831 Gold/Silver Ratio Chart

A rebound above $15 is needed to ease short-term pressure on the downside and that level is well protected at this point. Monday’s high at 14.99 reinforces the significance of this level. As I stated in Thursday’s comment, I’m inclined to be neutral on silver until it’s back above 15.00 and/or until the ratio is back below 80.

Platinum is consolidating just below the 20-day moving average (799.86 today). A close above the 20-day MA is needed to perpetuate the correction and set a course for the 830/840 congestion zone. Nearby support is well defined at 785.00/50.

Palladium remains well bid, within striking distance of the 10-week high established on Thursday at 984.54. Resistances at 986.05 (50-week MA), 987.06 (50% retrace of this year’s decline), 989.55 (200-day moving average) combine to define a formidable upside barrier, particularly in light of the developing overbought condition.  

Palladium has risen more than 4.5% this week and is up nearly 18% from the 832.15 low established 16-Aug. We may still see some profit taking today ahead of the long holiday weekend with potential back to the 9-day MA (942.91 today).


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