Spot gold has slipped to a new 6-week low, weighed by a firming dollar. The greenback caught a bid on the heels of the latest strong U.S. economic data.

U.S. durable goods orders surged 4.5% in August, well above market expectations of +1.6%, versus a positive revised -1.2% in July (was -1.7%). Q2 GDP was left un-revised at 4.2%.

These latest data are consistent with Fed’s upgraded outlook for the economy and chairman Powell’s upbeat assessment in the wake of yesterday’s 25 bps rate hike. The Fed funds rate remains quite low by historic standards, but the FOMC saw fit to remove verbiage from the policy statement describing monetary policy as “accommodative”.

Interestingly, early in Powell’s press conference he dismissed the importance of this change to the statement, saying that it “does not signal any change in the likely path of policy.” Powell went on to say that “policy is still accommodative.”

There was a strong signal from the Fed that another 25 bps rate hike would be warranted in December. Based on the CME’s FedWatch tool, the probability of a December hike jumped about 10 points to 81.8%. The Fed’s dot-plot suggests there will likely be three hikes in 2019 and one in 2020.

With European growth prospects looking increasingly pessimistic, not to mention rising Brexit concerns, it seems like interest rate differentials will continue to widen. This would tend to have a positive impact on the dollar. While the inverse correlation between the dollar and gold seems to have tempered in recent weeks, a stronger greenback still poses a headwind for gold.

The inability of gold to build on the gains above $1200, initially seen in the second half of August is a significant disappointment to bulls. Today’s breach of support 1183.15/1180.92 and convincing retreat below the 20-day MA (1198.51 today) returns additional credence to the underlying downtrend that has dominated since April.

More than 50% of the recent corrective activity has now been retraced. The 61.8% retracement level of the rally from 1160.27 (16-Aug low) to 1214.32 (28-Aug high) is now under pressure at 1180.92. If this level gives way as well, focus would return to the cycle low.

Silver has retraced about 61.8% of its recent rally, probing back below its 20-day moving average (14.27 today). A breach of that Fibonacci level at 14.18 would leave silver vulnerable to renewed probes below $14. Key support is defined by the 15-Sep low at 13.95.

Platinum has completed a 38.2% retracement of the recent rally and probed briefly back below the 50-day MA (803.30 today). The rising 20-day MA (803.31 today) offers support. I’d be a little concerned a close below the 20-day, but for now I still see dips as a buying opportunity.

Palladium continues to defy gravity and the worsening overbought condition, establishing another 8-month high at 1084.70. That brings palladium within about 5% of the 15-Jan peak at 1139.62.

With palladium in a supply deficit amid strong demand, the fundamentals remain positively configured. From a technical perspective, palladium is trading comfortably above the all the major moving averages on the daily, weekly and monthly charts and momentum remains strong. Beware of a potential on profit taking ahead of the 1139.62 high, but the uptrend appears strong.


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