Gold continues to recover recent losses, buoyed by revived safe-haven interest stemming from the ongoing Brexit drama and the resulting political risks. The yellow metal is getting some additional support today from a softer dollar.
Theresa May’s Brexit plan is being broadly criticized and she has suffered some attrition from her cabinet as a result. Risk for a confidence vote remains, but the pledged allegiance of senior cabinet member Michael Grove seems to have tempered the political concerns somewhat and offered support to both Sterling and the euro.
The rebounds in the single currency and the pound have pressured the dollar, but I suspect these retracements will be short-lived. The political sparring with assuredly continue over the weekend and with a breakthrough unlikely, the recent trends in the currencies and the precious metals are likely to resume in the week ahead.
FedSpeak toward the end of this week has been more measured, owing to recent stock market volatility and mounting concerns about global growth risks. This has led to tempered rate hike expectations, which are weighing on the greenback.
According to the CME’s FedWatch tool, the probability of a December rate hike has slipped to 68.9%, versus 75.8% a week ago and 78.5% a month ago. That being said, barring a full-fledged market meltdown, I still think the Fed hikes in December.
However, rate hikes early in the new year have become more uncertain. The probability of a March hike is down to 36.2%.
Gold has retraced almost exactly 61.8% (1225.44) of the recent losses and is comfortably probing back above its 20-day moving average (1222.97 today). After the drubbing the yellow metal took late last week and into Monday, a higher close this week will be a relief to the bulls. Bargain hunters that stepped in around the well-trod $1200 level are looking rather prescient at this point.
Upside follow-through early in the holiday shortened week ahead would bode well for retests of the recent highs at 1237.39/1243.44. Above that, the 1262.76 Fibonacci objective is back in play.
Silver is poised to close higher on the week after violating key support and setting a near 3-year low on Wednesday. Just about 50% of the recent leg down has already been retraced.
Silver ends the week on a positive note, and the pullback in the gold/silver ratio offers further encouragement. However, the recent propensity for silver rallies to fizzle warrants a measure of continued caution.
Platinum firmed into the weekend but is still poised to close lower on the week. Support materialized around the trendline and ahead of the 100-day MA (822.00 today) and we’ll look for a close above the 20-day MA (845.10 today) for further encouragement.
I still think platinum garners support from fresh record highs in palladium as a now less expensive alternative. However, substitution in catalytic converters for example takes time. I think I read the process of switching over takes about a year.
As palladium is primarily a byproduct of platinum (and nickel) mining, efforts to relieve the palladium deficit only adds to the platinum surplus. It seems like palladium is poised to outperform for some time, which may present a spread trade opportunity.
Palladium has risen nearly 6% this week and reached yet another record high at 1185.91. The next stop is $1200 and above that, parity with gold presently corresponds closely with the 1223.25 Fibonacci projection.
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