Gold bulls challenged on a sustained break below $1900/oz

The combination of gold’s current correlation with stocks, losing further ground, and the dollar rallying the most in three months was the trigger that sent precious metals into a mini tailspin. The markets are currently reacting to dimming outlook for further U.S. fiscal stimulus, rising Covid-19 cases around the world, U.S.-China tensions and the very clear risk of increased volatility around the presidential election.

As mention, the dollars biggest advance in three months took the EURUSD uncomfortable close to the 1.1700-1.1735 pivot area. Speculators have increasingly in recent months been expressing their negative dollar view through buying of EURUSD. A break below could see the Greenback rally onto the comeback trail, thereby creating additional headwinds for commodities.

However, precious metals stood out yesterday with the sector taking a bigger hit than growth dependent sectors such as industrial metals and energy. It also once again highlighted the battle between short-term technical traders selling futures on the technical break below $1900/oz and long-term investors rushing in to snap up gold at lower prices. Total holding in exchange-traded funds backed by bullion jumped by almost 36 metric tons or 1.2 million ounces yesterday, the biggest one-day increase in more than four years.

Once again it was silver and platinum, a recent climber, which bore the brunt of the selling. The gold-silver ratio jumped to 79 after having traded in a relative tight range around 72 ounces of silver to one ounce of gold. Platinum meanwhile also suffered from its lack of liquidity and despite a recent improvement in the fundamental outlook it slumped with the gold-platinum ratio rising to 2.14 ounces of platinum to one ounce of gold after recently finding support at the important 2 level.

Having broken below $26/oz and its 50-day moving average, silver is once again looking for support. Using Fibonacci retracements from the June low, it has so far managed to find support ahead of $23.40, the August low with further weakness pointing to $21.9 as the next level.