Gold remains well bid within striking distance of the precious cycle high at 1243.44 (26-Oct high). The yellow metal is garnering support from risk aversion as the post G20 optimism on trade is proving to be short-lived amid rising growth risks.
News out of the weekend G20 Summit that the U.S. and China were suspending further tariffs for 90-days as they tried to negotiate a trade deal stoked risk appetite initially. However, that optimism has tempered considerably today, both on skepticism that continued negotiations will result in a trade deal and signals from the Treasury market that are heightening concern about a potential economic slowdown.
Yield curve inversion is a classic harbinger of slower growth. Yields pm 2-year and 3-year notes are higher than those of the 5-year notes as of Monday. According to Reuters, these are “the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt.” The 10-year yield also broke its 200-day moving average today, raising the potential of further curve inversion.
U.S. stocks are sharply lower, and retracement is being seen in some commodities as well. The precious metals on the other hand are holding up pretty well, even as the dollar index failed to sustain today’s losses.
Despite all the talk of “dollar weakness,” it’s worth noting that at its low today, the DX was only slightly more than 1% off its 18-month high set on 12-Nov. The dollar isn’t really all that weak!
This may continue to be a bit of a headwind for gold in the short-term. However, revived haven interest may be an offsetting force, particularly if stocks continue to trend lower into year-end. A lot of funds will be scrambling to preserve what window dressing they can before those quarter-end and year-end statements are set in stone!
Gold has been unable to take out resistance at 1243.44 thus far, largely due to the intraday rebound in the dollar. However, the resiliency of gold here bodes well for further tests of the upside. A breach of 1243.44 would clear the way for challenges of 1257.65 (220-day moving average) and 1262.76 (50% retracement of the decline from the April high).
With gold back above all the important moving averages, considerable credence has been returned to admittedly lackluster uptrend. Initial support is at 1230.52/09. Buying dips is favored.
Silver jumped to new 3-week highs to pressure both the 100-day and 20-week moving at 14.66 and 14.67 respectively. Penetration of this level would put the previous highs at 14.92 back in play.
Renewed weakness in the gold/silver ratio bodes well for the more favorable scenario within the well-defined range that has emerged in recent months. The dominant feature remains the large potential double bottom at 13.95/90. That pattern will be confirmed if 14.92 gives way. The initial objective would be the 15.21 Fibonacci level (38.2% retracement of the decline from 17.33 to 13.90), although I’d like 15.94 based on a simple range extension. That corresponds closely with the 61.8% retracement level of the aforementioned decline.
Platinum remains generally defensive at the low end of the recent range, although Friday’s low at 795.00 is holding thus far. The supply surplus and persistent demand concerns remain the dominant fundaments here. More record highs in palladium will eventually provide some support as the economics of substitution become more pronounced.
Palladium surged to yet another record high 1237.50, further narrowing the gap with gold. At their respective intraday highs, the difference was a mere $4.45 (0.36%). In contrast with platinum, the story here is all about the supply deficit and the inability of miners to narrow the differential between supply and demand.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Group LLC, unless otherwise expressly noted.
