Gold starts the week slightly defensive with focus squarely on Tuesday’s midterm elections. The FOMC meets this week as well, but as there is no press conference, steady policy is expected to prevail.
Polling is showing a chance that the Democrat Party has a chance to take control of the House. That could thwart President Trump’s generally pro-business agenda moving forward, perhaps adding some pressure to the stock market and the dollar.
How a divided Congress might affect the ongoing trade negotiations remains to be seen. The President has a fair amount of latitude when it comes to tariffs, but trade deals - such as the new USMCA - do need to be approved by Congress. A Democrat win could raise the level of uncertainty on global trade.
The FOMC begins its 2-day November meeting on Wednesday and policy will be announced on Friday. Steady policy is widely anticipated and I wouldn’t expect any meaningful change to the statement. The Fed remains on track for another 25 bps rate hike in December, with the CME’s FedWatch tool showing a 72.8% probability.
Intraday gains in the dollar index fizzled amid ongoing uncertainty as to whether there is reason for optimism about a U.S.-Sino trade pact. The yuan is retracing some of its recent gains, which keeps the important 7-level in play, but that is being offset by strength in Sterling on reports that London has secured a customs deal with the EU that would avoid a hard border with Ireland.
Gold continues to consolidate last Thursday’s rebound. Price action remains confined to the upper reaches of that day’s range. The yellow metal may remains range bound until election results start rolling in tomorrow.
Gold was unable to close above 1233.44 on Friday, resulting in a lower weekly close. Nonetheless, last week’s smart rebound – after a nearly perfect 38.2% downside retracement – returned focus to the 1243.44 cycle high from 26-Oct.
A short-term breach of this level is needed to reestablish the uptrend and call for an upside extension to 1262.77 (50% retracement of this year’s decline). Above that, we’re watching the 200-day moving average (1269.51 today).
The initial support level to watch is 1224.68, the halfway back point of last week’s rebound. This level is bolstered by the 20-day moving average (1223.33 today).
Silver has retreated into the range after failing to score a convincing breach of the 14.92 level on Friday. The gold/silver ratio has rebounded somewhat as well.
I liked the price action in silver last week, but a decisive move to new cycle highs is needed to raise the probability of a short squeeze. If silver moves convincingly above 15.00/02, I think potential would be to the 16.50 zone and the ratio could retreat to 80.
Platinum notched another new 4-month high today at 873.27 before retreating into the range. Sights remain on the 200-day moving average (880.88 today). Above that, focus would shift to the 50% retracement level of this year’s decline at 891.32.
Palladium is up 1.4% today as it continues to retrace recent corrective action. Scope remains for a short-term retest of the all-time high at 1151.29 (23-Oct). With the supply and demand dynamics positively aligned, I still like 1200.00 and the 1223.25 Fibonacci projection.
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