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Gold and silver in bearish territory, testng key support zones, US dollar on top

  • Gold ducks below the key trend-line support into the close in NY as dollar stays on top.
  • Sino/US trade talks jeopardised by potential antagonism by Trump administration. 

The yellow metal underperformed on Tuesday, weighed by a second straight session of gains for the U.S. dollar and despite concerns that the US and China are about to clash over preparations in the Trump administration that seek to unveil sanctions, declassified intelligence and indictments as part of a coordinated multiagency announcement this week - news that the Washington Post had run midday. 

  • Sino/US relations set to erupt; Trump administration to condemn China over hacking and economic espionage - WP

At the same time, the expectations for a slowdown in the pace of future rate increases by the U.S. Federal Reserve underpin the precious metals, including silver and platinum.  March silver climbed 2.3 cents, or 0.2%, to $14.628/oz , recouping some of its 0.6% loss from Monday while  January platinum added a further 0.4% to $785.50/oz while March's contract rose 1.6% to $1,177.30/oz. 

Spot gold has moved below the trend line support and pivot within a range of between 1241 and 1249, trading at 1242 at the time of writing. Gold for February delivery on Comex lost $2.20, or 0.2%, to settle at $1,247.20/oz, down from the session highs of above $1,255.  The ICE U.S. Dollar Index was higher by 0.2% as gold futures settled Tuesday.  US Treasury yields were little changed with the curve flattening a bit.

Base Metals

Analysts at TD Securities explained that the positive trade news and reports that Beijing and Washington have begun trade talks overnight have sent copper and industrial metal prices bouncing higher this morning. "More importantly perhaps, was the better than anticipated financing data out of China, which highlights a stimulative path that still aligns with Chinese policy objectives."

As far as trade risks play their role, analysts at ANZ Bank explained that the proposal to reduce tariffs on cars made in the US to 15% from the current 40% has rumoured to be submitted to China’s Cabinet to be reviewed in the coming days. "Markets were initially buoyed by this news, although optimism did seem to fade. Perhaps it is the fact that even if this step is taken it just removes a retaliatory measure to begin with. Moreover, markets are likely to still be nervous about the evolving Huawei situation."

The next major risk events ahead of the Fed come with US CPI tomorrow, (expected 0.2% m/m and 2.2% y/y), the ECB and further Brexit related headlines. 

Gold levels

  • Support levels: 1240 1236 1231  
  • Resistance levels: 1245 1249 1255

A break of 1240, guarding S2 at 1236 and finally, S3 located at 1231 opens risk of a reversal of the recent recovery from 1216 and late Nov lows. 1238, however, should be a strong level of support where the 38.2% Fibo of the 2018 downtrend has been located. On the upside, the 50% Fibo is at 1262, just above the 200-D SMA that is found at 1256. On the way there, R2 is at 1255. On a break of this confluence, the 61.8% Fibo can be found at 1286.

"We think that this breakout has staying power, but the yellow metal may need more certainty that the Fed will not move towards restrictive policy next year before prices move towards the $1,300/oz territory,"

Analysts at TD Securities argued. 

Silver levels

  • Support levels: 14.46 14.37 14.23
  • Resistance levels: 14.69 14.82 14.91

Silver's pin bar should be a warning to bulls with the upside attempts fiercely rejected beyond the 100-D SMA. However, the trend is in good shape and the price is tucked in just below the pivot line with favourable RSI on the daily outlook. Weekly DMI is turning less negative as well. However, in the immediate future, the 4hr RSI and price action is negative and a break of the 4hgr 100 SMA opens downside risk for a test of the confluence in S1 and the 200hr SMA at 14.46/47. 

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