Precious Metals Under Pressure
Precious metals have been hit particularly hard in recent trading and I see potential for further downside in the coming days, as I suggested recently. Weaker equity markets, a rise in risk aversion and a concomitant rise in the US dollar have weighed on commodities. Currently, daily momentum indicators are firmly into oversold territory and therefore, much could hinge on the weekly close in the short term.
Gold has broken below multi-month support at US$1,072/oz and a close around the current level of US$1,053/oz would presage additional downside in the coming days. Taking into account the rising tide of risk aversion that is buffeting global markets, I see potential for a stronger US dollar to continue dragging gold prices lower. Failing a rebound above US$1,072/oz, I would anticipate further downside in the short term towards US$1,030/oz.
Palladium looks particularly weak, having formed a bearish ‘head and shoulders’ reversal pattern on the daily chart. Prices are currently resting on four-month support around US$385/oz, but the short-term outlook is precarious. A break and close below US$385/oz on a weekly basis could see additional downside towards US$340/oz.