Gold rebounded to approach the high for the week set on Monday at 1295.10, helped by a weaker dollar. The yellow metal remains confined to range set last Friday’s after the better than expected jobs report, but the resilience of the market since bodes well for a true test of the $1300 level.

The dollar index fell to new 12-week lows after Fitch Ratings warned that the U.S. could face a downgrade to its AAA credit rating if the government shutdown continued. Based on President Trump’s oval office address last night and the response from Democrat Congressional leaders, both sides are digging in their heels on that front.

Providing additional pressure on the greenback was dovish FedSpeak from Chicago Fed President Charles Evans and Atlanta Fed President Raphael Bostic. Both suggested there was little need to raise rates further in the near term.

That sentiment was echoed in the minutes of the December FOMC meeting, which said the Fed could “afford to be patient” about future rate hikes. This is solidifying the notion that the Fed is going to be on hold through the March FOMC meeting.

Rising U.S. yields were a driving force behind the dollar’s rally in 2018. With that tailwind seemingly diminished, a protracted correction may be in the offing.

Today’s losses lend credence to the double top formation on the dollar index chart. Downside potential is to the 200-day moving average initially (94.83 today). However, the 94.00 area looks appealing due to the confluence of an important Fibonacci retracement (94.08), a measuring objective off the double top (94.37), the September lows (93.83/81) and a trendline rising into this zone over the next week or so.

Such weakness in the dollar is going to provide support for gold. However, that support may be tempered somewhat by firmer stocks, which also like the idea of the Fed being on hold.

Concerns about last Friday’s key reversal in gold have been diminished by today’s recovery. I’m still feeling pretty confident about a short-term 1300 print after gold was unable to score a recent close below the 9-day MA (1286.42 today). Last week’s high at 1298.54 provides an intervening barrier.

Secondary minor chart resistance is noted at 1307.80/1309.25. Above that, the 78.6% retracement level of the April to August decline seen last year at 1321.39 attracts. Potential however — given the upside momentum that emerged late in 2018, the current position above all the important moving averages and last week’s violation of the 1286.95 Fibonacci objective (61.8% of the decline from 1365.26 to 1160.27) — I think potential is back to last year’s highs at 1365.26/1366.08.

Silver appears to be in a similarly strong technical position, above the 9-day MA and only modestly off last week’s high at 15.89. Perhaps most importantly, the gold/silver ratio is consolidating recent losses back to the 200-day MA, rather than rebounding.

Short term upside potential remains to the 16.00 zone, which is highlighted by a measuring objective off the double bottom (15.94) and the 61.8% retracement level of last year’s decline from 17.33 to 13.90. A convincing push above 16.00 would highlight congestive resistance around 16.50.

Platinum remains generally firm after rebounding out of the recent congestive zone pm Friday. About half of the late-2018 decline has been retraced. While the supply/demand fundamentals haven’t really changed yet, the move in palladium to more record highs has resulted in increased speculation about substitution risks.

Whether that is enough to prevent a retest of the post-financial-crisis low in platinum at 732.50 remains to be seen. The low from this past August at 754.03 provides intervening resistance.

As for palladium, it hit another new record high at 1343.70 today before retreating modestly. Focus is now on the $1400 psychological barrier, with potential to the next Fibonacci objective at 1447.09 (200% retracement of the decline from 1139.62 to 832.15).


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