Gold starts the week on a modestly defensive note. The yellow metal is being weighed by a rebound in the dollar and at least initially by heightened risk appetite reflected in higher stocks.
While stocks have given back early gains and then some, the dollar index continues to pressure recent highs above 96.00. A breach of 96.09/96.12 would put the August high at 96.98 in play, amid ongoing optimism about the U.S. economy and expectations of further Fed rate hikes.
The fact that gold continues to show resilience in the face of dollar strength is an encouraging signal. Gold remains confined to last week’s narrow range, straddling the 100-day moving average (1224.72 today).
Last week’s high close is also encouraging. It was the third consecutive higher weekly close; the first time gold has been able to do that this year.
The 9-day MA (1220.02 today) is acting as support, protecting the 1216.99 low from last week. With these levels intact, further tests of the 2½-month high at 1233.31 from last Monday are considered likely.
Above that, scope remains for a challenge of 1238.58 (38.2% retracement of this year’s decline). The 50% retracement level comes in at 1262.76 and the 200-day MA is now at 1275.01.
Silver is lower this morning, but the convergence of the 9-, 20- and 50-day moving averages, along with the trendline off the September low are all providing support at the 14.56/50 zone. This is keeping last week’s low at 14.46 at bay.
I remain troubled by silver’s sluggishness, which is reflected in the persistent strength of the gold/silver ratio. Gains off the September low still have the appearance of corrective action.
A rebound above $15 is probably needed to spark some short-covering and catapult silver into a leading position. If that were to happen, it would boost confidence in gold’s bottoming scenario as well.
Platinum has retreated more convincingly below the 20- and 100-day moving averages after failing to sustain last week’s jump to 14-week highs. Today’s tests below the short-term trendline (822.87 today) raise doubts about the recent rally, but the strength in palladium today makes me reluctant to turn bearish here.
Palladium has surged above $1100 to approach the all-time high at 1139.62 amid rising tensions between the U.S. and Russia. The Trump administration threatened over the weekend to withdraw from the Intermediate-Range Nuclear Forces Treaty, signed in 1987.
President Trump contends that Russia has been violating the treaty for years in developing a new cruise missile. Russia has said that if the INF treaty is scrapped, they will be forced to “take measures.”
Not only is there risk of a new arms race, but there could also be fresh sanctions on one of the world’s leading producers of palladium. This market is already experiencing a supply deficit and speculators and hedge funds have been piling into the trade.
If new all-time highs are set, the next upside objective would be 1222.61, based on a Fibonacci extension.
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