Spot gold is consolidating below the $1200 level, buoyed by a pullback in the dollar. However, with trade war concerns on the rise and mounting worries about emerging markets contagion, the downside in the greenback is likely to be limited.

The Trump administration is threatening to impose an additional $200 bln in tariffs on China. That could happen as soon as Thursday. The Chinese are likely to retaliate in kind.

The dollar and Treasuries have benefitted from safe-haven demand based on the belief that as the world’s largest consumer, the U.S. stands the best chance of “winning” the trade war. That may be true to a degree in the short-term, but the longer the game gets played, the more negative repercussions we are likely to see here in America.

As the dollar gains, emerging market currencies are coming under more intense pressure. The underlying fundamentals are already poor in many of these countries, but trade worries and dollar strength are amplifying systemic stresses, leading to contagion concerns.

This is a bit of a double-edged sword for gold. While purchasing power is eroding in key gold-centric emerging economies — the Indian rupee leaps to mind — gold is exactly what is needed to protect against inflation and preserve wealth.

This reality may provide some underpinning to the gold market. This week’s lows at 1190.90/1189.63 mark initial support. The 50% retracement level of the rally from 1160.27 (16-Aug low) to 1214.32 (28-Aug high) comes in slightly lower at 1187.29.

A close back above 1200.00 would offer short-term bulls some encouragement. That would put gold back above the 20-day MA. The 9-day MA comes in at 1201.93 today.

Silver is consolidating yesterday’s losses and an inside day is apparent. Silver plunged to a 31-month low of 14.005 on Tuesday, reestablishing the dominant downtrend. A convincing move below 14.00 would leave the post-financial-crisis low at 13.64 (14-Dec-15) vulnerable to a challenge.

The gold/silver ratio remains well bid above 84.00, after reaching a decade+ high of 84.92 on Tuesday. Historically, I like the idea of buying silver — and even trading out of gold to do it — when the ratio is above 80.00. However, the silver chart just hasn’t given much of reason to take that plunge.

Platinum is trading higher within yesterday’s range. The recent inability to close above the 20-day moving average and yesterday’s sharp retreat keeps focus on the dominant downtrend.

Palladium is consolidating at the high end of the recent range. A challenge of the $1,000 level is being thwarted thus far by the 50-week moving average at 987.30 and the 200-day moving average at 989.06.

Palladium has risen nearly 19% from the 832.15 low (16-Aug) to yesterday’s high at 989.90. The trendline off the January high has been violated as well. However, we’ve seen a number of these big percentage rallies already this year and they all have failed. A measure of caution is warranted here.


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