Gold jumped to new 3-month highs in overseas trading as risk aversion intensified and the dollar eased modestly. The yellow metal was up more than 1% as U.S. shares dropped more than 2% to start the trading session. 

A host of economic, political and geopolitical issues are weighing on risk appetite: Persistent trade tensions, particularly between the U.S. and China. Expectations for further Fed tightening. Rising geopolitical tensions with China, Russia and Saudi Arabia. Concerns about a slowing Chinese economy. The caravan of refugees making its way to the U.S. border. Italy’s budget drama. 

The EU has rejected the Italian budget, giving them 3-weeks to make revisions. Italian finance minister, Giovanni Tria, was well aware that the submission was far from being in compliance with Growth and Stability Pact rules. 

The Conte government made a lot of expensive promises during the election that will require substantial borrowing and spending. The EU seems disinclined to play ball outside the rules. That creates uncertainty and sets up a potential showdown.  

Italian rates are back on the rise and the euro remains generally defensive near the lows for the year against the dollar. While this may provide some buoyancy for the greenback, gold has shown good resiliency of late in the face of a firmer dollar. 

Gold satisfied the 1238.57 Fibonacci objective (38.2% retracement of the decline from 1365.26 to 1160.27). It looks like we’ll see a decisive close above the 100-day MA (1224.09) today, lending credence to the developing uptrend. 

The next levels to watch on the upside are 1256.74 (measuring objective off the symmetrical triangle breakout) and 1262.76 (50% retrace of the April to August decline). A move into this area would certainly test the resolve of the still large short position in gold futures. 

Silver is showing a little more life today, which is encouraging. However, the previous corrective highs at 14.85 (16-Oct) and 14.92 (02-Oct) still must be cleared to encourage additional buying interest. 

Such a move would target the 100-day MA at 15.22, which corresponds closely with the 38.2% retracement level of the decline off the June highs. I’d like to see the gold/silver ratio move convincingly back below 83 as well. 

Platinum has recovered much of yesterday’s losses, regaining the trendline and the 20- and 100-day moving averages. We remain bullish the PGMs, particularly in light of ongoing strength in palladium. 

Palladium notched new all-time highs with the breach of 1139.62. The new record stands at 1151.29, but a Fibonacci projection suggests potential is to 1222.61. 


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