Gold starts the week on the defensive, back below $1200. The yellow metal is being weighed by rising concerns about an economic slowdown in China, the most prolific consumer of commodities in the world.

Canadian markets are closed today for Thanksgiving. The U.S. Treasury market and the Fed are closed in observance of Columbus Day, while other U.S. markets are open.

The People’s Bank of China (PBoC) eased monetary policy by cutting the reserve ratio for some banks in a bid to stoke growth. The implication is that China is starting to feel the pinch from the trade war with the U.S. and its own ongoing efforts to crack down on corruption.

The yuan tumbled to a 7-week low against the dollar. As the yuan is typically quoted in dollar terms, we’ll flip here and talk resistances for the dollar: The August high for the year at 6.9347 is under pressure and the 2016 peak at 6.9633 is in jeopardy. There is little in the way of resistance for the dollar beyond 7.00.

While China had previously pledged not to weaponize the yuan, a sustained move in the USD-CNY rate above 7.00 would likely be viewed by the Trump administration as a pretty significant escalation of the trade war. One probably warranting some response from the U.S.

As we noted on Friday, despite all the recent tariffs, the U.S. trade deficit with China grew to a record -$38.6 bln in August. Additionally, rising military tensions in the South China Seas and reports of China surreptitiously implanting surveillance chips on motherboards ultimately used on the servers of U.S. companies have further strained the relationship.

The deteriorating relationship was on full display in China earlier today when U.S. Secretary of State Mike Pompeo met with China’s foreign minister, Wang Yi. Their exchange was reported as being “frosty” and “blunt.” Things may get worse before they get better, but at least they’re talking . . .

The dollar index has recovered much of the losses that occurred toward the end of last week, suggesting potential for further tests above 96.00. Such a move would bode well for a retest of the high for the year at 96.98.

While gold has recently been displaying some resiliency in the face of dollar strength, a resumption of the uptrend in the greenback would still likely be a headwind for the yellow metal. Today’s decisive drop in gold back below $1200, leaves the recent corrective highs at 1211.06/1212.23/1214.32 well protected. Last week’s high at 1208.31 further reinforces this resistance zone.

Support marked by the 28-Sep low at 1180.77 has contained the downside thus far. This chart point corresponds closely with the 1180.92 Fibonacci level (61.8% retrace of the August correction). With gold back below the important moving average, quite a bit of damage has already been done to the technical picture.

Silver is down more than 2.5% intraday, sliding back below its 9-day and 20-day moving averages. These losses come in the wake of a number of unsustained tests above the 50-day MA last week. Here too, more than 61.8% of the recent corrective rally has already been retraced, returning credence to the downtrend that has dominated since June.

The marked rebound in the gold/silver ratio above 82.00 provides another level of worry for any silver bulls. If minor chart support at 14.18 gives way, renewed tests below $14 would have to be considered.

I was sort of dismissive of the minor potential double top in platinum at last week 839.19/836.80, seeing the confirmation point at 804.50 as well protected. Suddenly that confirmation point is very much in play. However, intervening support marked by the 38.2% retracemnt level of the rally off the August low at 806.85 remains intact thus far. This level is bolstered by the 50-day MA at 806.62.

Palladium is lower on the day, but comparatively well supported. Price action remains confined to Friday’s range, keeping focus on the dominant bull trend. A retest of the 1095.90 high from 28-Sep still seems likely. Above that, the all-time high at 1139.62 (15-Jan) would be back in play.


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