Precious metals: rallying dollar continues to undermine gold and silver

The price of gold and silver fell once again this morning and as the metals broke below their recent range lows some follow-up technical selling was triggered which helped to further accelerate the downward move. Yet again, it was the broad-based dollar strength that undermined precious metals. The US currency has been climbing higher on expectations the Federal Reserve will be the first major central bank to raise interest rates in 2015. The greenback found additional buoyancy from a plunging euro this morning, which saw the EUR/USD pair hit its lowest level since September 2012. A weaker-than-expected rise in Eurozone core CPI raised expectations that the ECB may increase its stimulus programmes further in order to fight deflation threats. But in the afternoon the dollar fell back a touch on the back of surprisingly weak US data and this in turn helped to lift the metals off their lows. The CB consumer confidence index came in at 86, down sharply from a revised 93.4 print in August and also below the expected reading of 92.2. Likewise, the Chicago PMI fell more than estimated, down to 60.5 in September from 64.3 previously, while the S&P/CS House Price Index climbed by a below-forecast 6.7% year-over-year in July. Still, with the key US jobs figures due out later in the week, the losses for the greenback were only moderate and so too were the gains for the metals. In fact, at the time of this writing the metals were once again heading lower.

Gold is currently consolidating around a key technical area ahead of important US macroeconomic data later this week. As a result, there is a possibility we may see a sharp move in either direction in anticipation or reaction to the data. As can be seen from the charts, gold has found decent support around a Fibonacci-based area of $1208/12 in recent days. But resistance around $1220/5 has held firm and the bearish trend has so far remained intact, meaning the path of least resistance continues to be to the downside. Unless we see a clear change in the trend, it looks more likely than not for gold to head towards the 2013 low of around $1180/5 in the near future. But at least the RSI has managed to recover from the oversold levels and has created a few instances of negative divergence with the underlying gold price, which suggests that the bearish momentum may be weakening. Meanwhile silver looks like it is heading further lower after it finally broke below the 78.6% Fibonacci retracement level of the 2008-11 bull trend at $17.35. The next downside target could be $16.75/80 which corresponds with the 161.8% Fibonacci extension level of the correct move we saw between May and July this year.