Gold is consolidating at the high end of yesterday’s range, buoyed by simmering eurozone concerns. However, the upside is being limited by dollar strength, leaving the recent series of highs at 1211.06/1212.23/1214.32 protected.
Italy’s budget woes were tempered somewhat overnight by reports that Rome would pair back its deficit target to be in-line with EU rules. However, the inability to fund populist measures promised by the coalition government now creates some political risk.
European Commission President Jean-Claude Junker recently warned that Italy posed risks for another ‘Greek-style’ debt crisis. Italian officials responded by suggesting most of its problems could be solved if it had its own currency; a thinly veiled threat to exit the EMU.
Italy is far from being out of the woods and the recent rise in borrowing rates is only going to make things tougher. Significantly, this is happening amid persistent worries of a messy Brexit.
Meanwhile, the trade war between the U.S. and China may be on the verge of further escalation. With a new trade agreement between the U.S., Mexico and Canada, President Trump can now turn his full attention to China.
"Can't talk now, because they're not ready, because they've been ripping us for so many years. It doesn't happen that quickly," said Trump earlier in the week. Rhetoric like that suggests any future negotiations are likely to be contentious.
Trade war concerns have tended to benefit the dollar, based on the belief that the U.S. — as the world’s largest consumer — has the strongest hand. Whether the Chinese see it that way or not remains to be seen, they definitely have some weapons at their disposal, not the least of which are the massive amount of U.S. Treasuries they hold.
While China has pledged not to weaponize the yuan, if push comes to shove . . .
With focus here in the U.S. now on Friday’s jobs report, an extension of the range seems unlikely. Median expectations for nonfarm payrolls is +190k and the unemployment rate is expected to tick down to 3.8%.
Arguably today’s ADP beat, +230k on expectations of +185, may create some upside risks for the payrolls number. I’m hearing whispers of another print above 200k.
Gold needs to clear the corrective high thus far at 1214.32 to keep the bulls engaged. Such a move would shift focus to the 1235.63/1238.58, where the 100-day MA corresponds closely with the 38.2% retracement level of this year’s decline.
A measuring objective off of such a range breakout would target 1268.37. At that point, if not sooner, the massive speculative short position in the market is going to be really worried.
On the downside, we’ll watch the 20-day MA (1198.30 today) on a close basis. A close below this level would set a softer tone within the range, favoring further consolidation into the NFP report.
Silver is trading lower today, but well within the confines of Tuesday’s range. Price action is centered on the 50-day MA (14.72 today), but yesterday’s violation of this MA was seen as a bullish technical event. Need to see some upside follow-through above $15 to keep this correction rolling. Tuesday’s high at 14.92 now marks intervening resistance.
A move above 15 would bode well for an upside extension to the 15.47/49 level, where the 20-week moving average corresponds with the 100-day MA. An additional intervening barrier is noted at 15.24 (38.2% retracement level of the decline off the June high).
Initial support is a minor intraday level from Tuesday at 14.65. Below that, I’m watching 14.55, the 38.2% retracement level of the recent rally. A more important support is 14.45/43 (yesterday’s low and halfway back).
Platinum staged a challenge of the recent high 839.19 (21-Sep), which corresponds closely with the 100-day moving average (838.29 today). While initially rejected, further tests seem likely.
A push through this level would clear the way for additional gains toward 858.92 (38.2% retrace of this year’s decline from 1028.61 to 754.03). The intraday low at 826.81 marks initial support.
Palladium has adopted a corrective/consolidative tone as the significant overbought condition is relieved. Recent lows have tracked the trendline off of the 832.15 low from 16-Aug. A rebound above 1068.37 (50% retrace of the recent setback) would offer encouragement to the bulls. Scope remains for a near-term challenge of the 1139.62 peak from 15-Jan.
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