Gold has retreated to 4-week lows after U.S. PPI for October came in hotter than expected, which lifted the dollar on more hawkish Fed expectations. The yellow metal is off more than 1% intraday and appears poised for a sixth consecutive lower daily close and a second consecutive lower weekly close.

U.S. producer prices rose 0.6% in October, double expectations of +0.3%. Annualized PPI rose to 2.9% from 2.6% in September. Core PPI came in at +0.5% on expectations of +0.3%.

Higher than expected inflation in the midst of the Fed’s current tightening cycle seems to justify their more hawkish stance. Prospects for a December rate hike have edged up to 75.8%.

The dollar index approached the 16-month high set last week at 97.09. Penetration of this level would put the DX back on track for a challenge of the 97.87 Fibonacci objective (61.8% retracement of the decline of the near-2-year decline from 103.82 to 88.25.

 If 97.09 gives way today, there would also be an outside week. Such a chart patter would lend additional credence to the bullish scenario, which would pose a significant headwind to the precious metals in the weeks ahead.

Considerable technical damage has been done on the gold chart, with the failure from in front of the previous cycle high at 1243.44 (26-Oct high). Chart support at 1211.97 (31-Oct low) has given way and the yellow metal is back below the 9-, 20-, 50- and 100-day moving averages.

However, the prospects for higher U.S. rates are also weighing on stocks today. Heightened risk-off sentiment may reinvigorate haven interest, which may provide some support for the precious metals.

I’m looking for gold to stabilize around the all-too-familiar $1200 level. Along with congestive chart support, this area is bolstered by the 50% retracement level of the recent rally as well as the near-term trendline.

Silver has fallen to fresh 7-week lows and more than 78.6 of the recent consolidative/corrective gains have been retraced, bringing the low from 11-Sep at 13.95 back within striking distance.

Decisive gains in the gold/silver ratio back above 85 warrants a measure of caution for bulls in both markets. The ratio traded as high as 85.73 today, close to 25-year highs.

If silver moves convincingly below $15 in the short-term would put the key 13.65 low from December 2015 back in play. In fact, that low would correspond pretty closely with a Fibonacci projection at 13.68 (127.6% retracement of the rally from 13.95 to 14.92).

Platinum will end the week on a modestly defensive note after failing to sustain the move to new 4-month highs on Wednesday. The 200-day moving average (878.12 today) successfully capped the upside; at least so far. We’ll be watching support at 843.65 early in the week ahead, where the 20-day MA corresponds closely with trendline support.

Palladium has retreated into the range after tests of the upside earlier in the week stalled well shy of the cycle high at 1151.29 (23-Oct). The dominant trend is still positive, but here too we’ll be watching how the market reacts to its 20-day moving average (1103.33 today) in the week ahead.

The U.S. Bond market and the Fed are closed on Monday 12-Nov in observance of Veterans Day. The stock market will be open.


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