Precious metals firmed in overseas trading on Wednesday in anticipation of US markets moving back toward normal operations in the wake of Hurricane Sandy. Gold neared the high for the week at 1718.78, but this level remains intact. Penetration is needed to confirm the small double bottom at 1700.71/1698.60 and shift focus to 1729.28/1730.08.

SILVER CHART
Silver firmed to establish new highs for the week, resulting in a violation of the upper limits of the small triangle pattern that had emerged since last week. Silver’s gains also resulted in another pullback in the gold/silver ratio from the recent highs around 54.00.

While silver needs to negate resistance at 32.45/46 to ease short-term pressure on the downside, today’s Chicago PMI miss has tempered the bid for the largely industrial metal somewhat. Additionally, investors may be reluctant to take the market decisively one way or the other in advance of Friday’s nonfarm payrolls report and Tuesday’s elections.

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Chart by NetDania

PAYROLLS CLUE?
Incidentally, the employment gauge in this morning’s Chicago PMI data fell to a 33-month low of 50.3 in October, versus 52.0 in September. I wouldn’t be surprised to see some scaling back of payrolls expectations ahead of the jobs report. Consensus for payrolls is presently running around +118,000 and an uptick in the jobless rate to 7.9%.

SMALL GAP COULD BE KEY
Nonetheless, the small gap left in silver on 15-Oct at 33.358/33.37 may prove to be a short-term attraction. Such a move would put silver back above the 20- and 50-day moving averages and near the 50% retracement level of the decline off the early-October high of 35.39, and generally improve the technical picture.

GOLD IS STILL A LEADER
I still do expect gold to lead the way on the upside with silver comparatively weighed by persistent global growth concerns. Recent probes above the 54.00 level in gold/silver ratio suggest additional upside potential toward 54.67/78. If this level is achieved around the time silver closes its gap, it would put gold decisively above key resistance at 1795.90/1802.89 putting the all-time high in the yellow metal at 1920.74 in play.

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