Gold is poised to close modestly lower on the week as risk-off sentiment continues to buoy the dollar. The yellow metal would need to close above 1242.51 to register a higher close for the week.

Persistent trade tensions between the U.S. and China, along with rising political tensions both in the U.S and the UK are conspiring to drive risk aversion. This has pushed the dollar index back to the cycle highs from early-November. In fact, the DX notched a new 18-month high of 97.71 before slipping back into the range.

With gold trading more in line with physical commodities in recent weeks, the firmer dollar is presenting a headwind. Safe-haven demand is being offset to a large degree by algorithmic traders that blindly sell gold against long dollar exposure.

With the final FOMC meeting of the year coming up next week, I suspect the dollar is not going to run. While the Fed is expected to hike by 25 bps, such a move is fully priced in by markets. Focus will be on the forward guidance and there have been more dovish hints in recent weeks. Overtly dovish guidance could limit the upside for the greenback and provide a much-needed lift for gold.

Keep in mind though that the dollar and gold absolutely can rise in tandem. It’s also worth noting that amid the ongoing Brexit turmoil and rising growth concerns in Europe, gold is doing quite well thank you very much versus both the euro and Sterling.

Gold in euro terms is presently trading at 6-week highs near €1100. A rise above €1122.05 would put gold closer to the all-time at €1386.50 than the post financial crisis low at €857.60.

XAU-EUR Monthly Chart

Against Sterling, gold set a new 15-month high on Wednesday and pressured the £1000 level. Here gold is already far closer to the record high at £1194.68 than the post financial crisis low at 692.54. Mounting prospects for a hard Brexit are going to keep the pound under pressure and the yellow metal supported in Sterling terms.

XAU-GBP Monthly Chart

In dollar terms, last week’s move to a new cycle high above 1243.44 keeps us cautiously bullish. This week’s performance was not all that bad, but it has sapped upside momentum. I am encouraged by gold’s bounce off the 20-day moving average today (1231.77). I suspect we’ll be largely consolidative early next week ahead of the Fed’s decision.

Silver is trading slightly lower on the week and right around its 100-day moving average ahead of the close. This week’s push above the 100-day was encouraging and we even saw the gold/silver ratio retreat briefly below 84. However, today’s losses have tempered optimism once again. We’ll see what next week brings.

Modest corrective activity in platinum this week was within expectations as a slight oversold condition had developed. Focus remains on selling strategies within the well-defined downtrend amid the persistently bearish supply/demand fundamentals.

Palladium set another new record high on Thursday at 1267.29. Even with today’s pullback, platinum continues to trade above the price of gold.

With the supply/demand fundamentals positively aligned in this market, we still like buying the dips. However, we continue to see divergence in the 14-day RSI. That’s been the case going all the way back to September and yet platinum continues to set record highs. When I don’t mention it is when palladium will fall out of bed.

 

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