Spot gold jumped back above the $1200 level in overseas trading to set a new high for the week, boosted by a sagging dollar. However, these intraday gains have proven unsustainable so far. While the yellow metal remains higher on the day, it is back below $1200 once again.

Markets are anxiously awaiting news of the latest round of U.S. tariffs on China. An additional $200 bln in tariffs on Chinese exports could be imposed as soon as today. China has already pledged to retaliate in kind.

If this happens, growth risks for both the U.S. and China will escalate. If the two largest economies are impacted, there is a threat to the broader global economy as well. We’re already seeing some erosion of the haven bid in the dollar.

Keep in mind; despite all the talk about a strong dollar, the dollar index has only retraced about half of the yearlong decline from 103.82 (03-Jan-17 high) to 88.25 (16-Feb-18 low).

20180906 DX Weekly Chart

We continue to see short-term corrective potential back to the 100-day moving average (94.23 today). Intervening supports are defined by today’s earlier low at 94.93 and last week’s low at 94.43.

If the greenback maintains its recent defensive tone, the downside in gold is likely to be limited. Tuesday’s low at 1189.63 is the important short-term support to watch, as it protects the 50% retracement level of the recent corrective rally at 1187.29.

Gold eked out a close above its 20-day MA yesterday, a second more convincing close above the 20-day (1195.74 today) would offer more encouragement to the bullish camp. Potential would be for a retest of last week’s high at 1214.32, with today’s earlier high at 1207.00 marking an intervening barrier.

News of a strong recovery in Indian physical demand provides an additional underpinning to gold. GFMS reported that Indian gold imports rose 116.5% in August to their highest level in 15-months. This occurred even as the Indian rupee was plumbing new record lows against the dollar.

It seems concerns that the rupee’s loss of purchasing power could adversely impact gold demand ahead of the critical festival and wedding season may have been overhyped. As noted in yesterday’s commentary, a devaluing currency is a pretty strong incentive to diversify into gold.

Nonetheless, a strong push either way in gold seems unlikely ahead of tomorrow’s U.S. jobs report. Median expectations for nonfarm payrolls are +190k. The unemployment rate is expected to tick lower to 3.8%.

Today’s ADP survey miss perhaps creates some downside risk. The August ADP print was +163k on expectations of +190k. July was revised down modestly to +217k, from +219k previously.

Silver continues to consolidate within Tuesday’s range. Upticks continue to be met with selling pressure, keeping focus on the dominant downtrend. Potential remains for a challenge of the post-financial-crisis low at 13.64, with Tuesday’s low at 14.005 offering a good intervening support.

20180906 Silver Weekly Chart

However, the U.S. Mint reported that American Silver Eagle sales nearly doubled in August as compared to July. ASE sales surged to 1.53 million coins in August versus 885,000 coins in July.

The surge in demand seems to have caught the authorized dealer network a bit off-guard. We are definitely seeing some tightness in the market, which has pushed both bid and ask premiums higher.

I need to see a close above the 9-day MA (14.49 today) to ease pressure on the downside. However, the 20-day MA (14.66 today) is the more important level on a close basis. We haven’t seen a close above the 20-day MA since late-June.

The gold/silver ratio remains elevated above 84.00, continuing to suggest comparative weakness in the silver market. Silver would have to rally to $15, while gold held steady around $1200, to get the ratio back to 80.00. Such a move would be suggestive of a bottom in silver (and a top in the ratio).

Platinum jumped to a new high for the week and probed above the 20-day moving average. A close above the 20-day (790.77 today) would return attention to last week’s corrective high at 810.03. Failure to do so, will keep the bias in favor of the dominant downtrend with a more consolidative tone likely to prevail into the weekend.

Palladium continues to consolidate at the high end of the recent range. A challenge of the $1,000 level continues to be thwarted by the 50-week moving average (987.23 today) and the 200-day moving average (988.84 today). The overbought condition leaves palladium vulnerable to a pullback.


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.