Gold remains well bid in the wake of yesterday’s comments by Fed chair Powell, suggesting rates are just below neutral. The yellow metal has set new highs for the week and resistance at 1230.09 is under pressure.

 In early October, we were “a long way” from neutral. As of yesterday, we are “just below” neutral. How does that happen, given that the Fed funds rate hasn’t moved since the September FOMC meeting?

 The answer is that the neutral rate of interest, or r* (r-star), has been a moving target of late. Even San Francisco Fed President John Williams who is the central bank’s expert on this topic said, “what appeared to be a bright point of light is really a fuzzy blur, reflecting the inherent uncertainty of measuring r-star.”

For decades, r* was believed to be 4%, and even as high as 5%. It plummeted to near 0% in the wake of the global financial crisis and has bumping along the bottom since. According to a recent article from the Brookings Institute, the median projection of the FOMC as of September, puts r* at 1.0%. That may reflect underlying weakness in the economy and/or that the labor market is not as healthy as the headline unemployment number might suggest.

So, are we a long way from neutral, just below neutral, or above neutral already? Clearly it depends who you ask and when you ask them, which makes the importance of r* dubious at best. It is an indicator of convenience for the Fed; a shiny object for markets to focus on until it no longer suits the central bank’s purpose.

Focus now shifts fully to the G20 Summit in Argentina where the next battle in the trade war will be fought. Today’s headlines seem to support some optimism about a deal being struck between the U.S. and China. However, a WSJ article suggests it is nothing more than a temporary truce; a suspension of additional U.S. tariffs through the spring in exchange for further talks.

Gold needs to clear the 1230.09 resistance level to set a more favorable tone within the well-defined range. Such a move would shift focus back to the cycle high at 1243.44 (26-Oct). Above that, the 200-day moving average at 1259.08 and the 50% retracement level of this year’s decline at 1262.76 would be back in play.

Silver is holding steady at the high end of yesterday’s range. Much of yesterday’s decline in the gold/silver ratio has been retraced, as the white metal remains comparatively weak. Nonetheless, the dominant chart feature remains the potential double bottom pattern at 13.95/13.90. However, this pattern will not be confirmed until resistance at 14.92 (02-Nov high) is negated.

Platinum remains defensive within yesterday’s range. The midweek drop to a 9-week low at 812.00 is the result of rising demand concerns associated with GM plant closings and threats of punitive measures by President Trump. The overhanging threat of auto tariffs is a headwind for platinum as well.

Palladium is lower on the day, but still in close proximity to the new record high that was established yesterday at 1186.25. Palladium continues to dismiss demand worries, choosing to focus instead on persistent supply concerns. Upside potential remains toward the 1223.25 Fibonacci objective, which is right about where gold is presently trading.


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