Gold retreated to the 1220 zone as trade tensions between the U.S. and China returned to the fore, lifting the dollar. The dollar index has pressured the 2½-month highs and the USD-CNY rate continues to pressure the key 7.00 level.

The Trump Administration is threatening to place tariffs on the remaining $257 bln in Chinese imports if talks between the President and his Chinese counterparty fail to resolve the trade dispute. Mr. Trump expressed some optimism about securing a “great deal,” but China has said from the beginning that they will not succumb to U.S. pressure tactics.

Dollar strength has returned, driven partly by some expectation that the U.S. will ultimately prevail as the “winner” of the trade war. Recent data however reflects a different story.

U.S. GDP data that came out last week showed that exports were down by 3.5% in Q3, while imports surged 9.1%. China’s trade surplus with The U.S. reach a record $34.1 bln in September, bringing the year-to-date surplus to $225.8 bln.

Meanwhile the Chinese yuan recently slid to a more than 10-year low against the dollar. If the psychologically significant 7.00 yuan level is exceeded, the trade war could escalate even further.

Adding further buoyancy to the dollar is the recent weakness in the euro. Even as the Italian budget drama continues, news that Angela Merkel would not seek reelection - and would therefore step down as chancellor of Germany in 2021 – added another layer of uncertainty in the EU.

Additionally, EU GDP slowed to just +0.2% in Q3, below even the modest expectations of +0.4%. This raises the prospect that the ECB will have to rethink its taper strategy.

Gold pulled back to its 100-day moving average (1220.76 today), which has effectively contained the downside thus far. Secondary support is marked by minor chart support at 1218.69. This level is bolstered by the 20-day MA (1217.42 today).

The short-term bias remains positive in the wake of last week’s move to fresh 2½-month highs. The yellow metal is also seemingly on the verge of notching its first higher monthly close since March!

Gold ended last month at 1192.16. Obviously a dive back below $1200 prior to tomorrow’s close would be devastating to the technical pcture. A rebound above 1230.62/1231.69 would offer encouragement and return focus to last week’s high at 1243.44.

The rebound in trade war concerns has pushed silver to new 2-week lows and back below all the important moving averages. Perhaps more importantly, the gold/silver ratio traded back above 85.00 on Monday and remains generally well bid today.

Hopes that silver would lead on the next leg up seem to have been dashed yet again. A close above 14.692 tomorrow is needed to avert a lower monthly close.

At this point, the low for the month at 14.25 remains protected. However, a rebound above 14.54 is needed to ease short-term pressure on the downside.

Platinum continues to track the near term trendline, keeping the bias cautiously positive. Yesterday’s move above last week’s high bodes well for a retest of the 850.37 high from 15-Oct. The trade war is a heightened headwind here.

Palladium is lower once again amid mounting global growth risks, falling below the 20-day moving average. Palladium has lost nearly 7% since peaking at 1151.29 last week. More than 23.6% of the rally off the August low has now been retraced. The next support to watch is a minor chart level at 1069.30/1061.32


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