Gold dipped on Wednesday, erasing earlier slim gains as the dollar index moved into positive territory, though a retreat in global stocks after Tuesday’s record high kept the metal hemmed within a narrow range. For the session December gold futures fell $4.70 to close at 1328.0 and below our first support level for the week. With today’s close, I potentially look for gold to move down to the weekly second support at 1316.9. December silver lost only 2.5 cents on the session to close at 1786.5. Like gold silver settled below the weekly S1 at 1787.4. Further long liquidation could push this market down to 1762.7. The biggest culprit that brought consecutive lower closes for each metal this week has been the rebound of the U.S. Dollar. The key outside markets on Wednesday morning saw the U.S. dollar index trade solidly higher, on a short-covering bounce after prices hit a 2.5-year low last week. In my view the key U.S. economic data point of the week is Thursday’s consumer price index report for August. That report is expected to show a rise of 0.4%. Notions are growing that low inflation in the U.S. and the Euro zone will keep the Federal Reserve and European Central Bank from tightening their monetary policies as soon as they would like. In my estimation this has been the underlying bullish element for the precious metals markets. However it is important to note that no market goes up and down forever with the Dollar very recently being deeply oversold from a technical perspective. Another factor that may have been overlooked is the front month September contract is being rolled this week with expiration on the September dollar contract on Monday the 18th. With out a significant lower close in the Dollar for the remainder of the week I look for gold and silver to test the aforementioned support levels as recent longs book profits. This of course assumes nothing else enters the market in the interim geo-politcally especially concerning North Korea.
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