Daily Report – 01 July 2022

01 July 2022
OTC Market Data
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Gold Technical Report: Gold medium term trend is looking bearish on posting 4 consecutive red candles on daily chart. Any slippage down the nearest main bottom at $1786 will reaffirm the downtrend. On the upside, the immediate resistance is the 200 DMA and 50 DMA zone at $1846.  A trade through $1846 will change the main trend to up. Short term Stochastics Oscillator is oversold at 11 and RSI momentum is below midline at 36.

Support 3
Support 2
Support 1
Current Market Price
Resistance 1
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Silver Technical Report: Silver medium term trend is bearish. Weekly close today down the main bottom at $ 20.00 will reaffirm the downtrend. On the upside, the major uptrend reversal will come only at 20 DMA zone at $21.33. Short term Stochastics Oscillator is oversold at 4 and RSI at 30.

Support 3
Support 2
Support 1
Current Market Price
Resistance 1
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Resistance 3

Fundamental Report: The Gold futures are drifting lower on Thursday as the hawkish tone from several high-ranking Federal Reserve officials made the U.S. Dollar a more attractive asset, leading to lower demand for the dollar-denominated asset. Worries about a possible global recession are also increasing the dollar’s appeal as a safe-haven asset. At 11:02 GMT, August Comex gold is trading $1809.90, down $7.60 or -0.42%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $169.51, down $0.11 or -0.07%. Gold is under pressure for a fourth straight session as the aggressive stance by central banks to fight inflation, especially the Federal Reserve, is making bullion a less-desirable investment. Not only do the central banks have to raise interest rates, but they have to do it fast to prevent red-hot inflation from becoming entrenched. This means the central banks are going to have to front-load the rate hikes, which means gold is going to have a hard time attracting new buyers. Based on statements from Fed Chair Jerome Powell on Wednesday, this rate hike strategy may even inflict pain on consumers by causing a recession. But the agony of a recession will be nothing compared to the pain inflicted by long-term inflation. “We’re strongly committed to using our tools to get inflation to come down. The way to do that is to slow down growth, ideally keeping it positive,” he said. “Is there a risk that would go too far? Certainly, there’s a risk. I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make…would be to fail to restore price stability.”

Today, the focus shifts back to economic data although the results are not likely to change the mind of Fed officials about using monetary policy aggressively to tackle the inflation problem. At 12:30 GMT, traders will get the chance to respond to a fresh batch of economic reports including Weekly Initial Claims, Personal Income, and Consumer Spending for May. The core personal consumption expenditures price index – the Fed’s preferred inflation gauge – will be released at the same time, while the Chicago Purchasing Manager’s Index for June is scheduled to be published at 13:45 GMT. The core personal consumption expenditures price index is expected to cause a 0.4% monthly gain. Coming in lower will be an early indication that inflation may be peaking. This could trigger an intraday short-covering rally in gold because it could mean the Fed won’t have to be as aggressive for a long period of time.

Last week, Powell testified before Congress. He reiterated many things he said during his recent press conference, but I believe that a few issues deserve our attention. First, Powell repeated that the Fed is strongly committed to combating high inflation and that additional rate hikes are coming. We may see the federal funds rate at or above 3% at the end of this year, which would make this tightening cycle the fastest in decades. However, the US central bank is so aggressive only because the labor market remains strong, but if the economy slows down further and the unemployment rate starts to increase, the Fed will face a much more difficult dilemma – and I doubt whether it will stay as hawkish as today. Actually, the reason behind such steep hikes in interest rates could be the fact that the Fed is aware of this and wants to tighten its monetary policy as much as possible before the economy falters. However, such big moves could only accelerate the advent of trouble. Second, Powell painted a surprisingly optimistic picture of the American economy, saying that it “is very strong and well positioned to handle tighter monetary policy.” Well, I doubt it. The US economy is highly indebted and steep hikes could be difficult to swallow for excessively leveraged entities. Other writings on the wall include the yield curve inverting, the S&P 500 Index entering the bear market, and credit spreads widening significantly, as the chart below shows. GDP growth is slowing down. Indeed, the GDPNow model estimates that GDP growth (seasonally adjusted annual rate) will increase by 0.0 percent in the second quarter of 2022. On my planet, zero growth doesn’t indicate a “very strong” economy, but stagnation. Now it’s time for a rebus for the Fed officials: stagnation plus inflation = ? Yes, very good, stagflation. Stagflation, which indicates huge macroeconomic imbalances, means all but a very strong economy.

Key US Economic Reports & Events
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