Gold Technical Report: Gold medium term trend is looking bearish to flat on daily chart. Any slippage down the nearest main bottom at $1783 will reaffirm the downtrend. On the upside, the immediate resistance is the 200 DMA and 50 DMA zone at $1851. A trade through $1851 will change the main trend to up. Short term Stochastics Oscillator is flat at 40 and RSI momentum is below midline at 42.
Silver Technical Report: Silver medium term trend is bearish after posting 3 consecutive red candles on daily chart. Weekly close today down the main bottom at $ 20.00 signals possibility of further downfall . On the upside, the major uptrend reversal will come only at 20 DMA zone at $21.21. Short term Stochastics Oscillator is oversold at 19 and RSI is flat at 30.
Fundamental Report: The Gold prices fell to their lowest level since late January on its way to a third consecutive weekly loss as a firm U.S. Dollar and forthcoming rate hikes tainted appetite for the non-yielding investment, while India’s import tax hike on bullion also weighed on demand. On Friday, it settled at $1803.50, down $5.80 or -0.32%. The SPDR Gold Shares ETF (GLD) finished at $168.28, down $0.18 or -0.11%. Hawkish monetary policy is primarily responsible for gold’s dismal performance during the second quarter. The hawkish Fed is driving interest rates higher, and consequently the U.S. Dollar. The strong greenback is reducing foreign demand for dollar-denominated gold. Adding to the bearish outlook for gold was the news that India, the world’s second biggest bullion consumer, is planning on raising its basic import duty on gold to 12.5% from 7.5% in an attempt to lower its trade deficit.
The Federal Reserve’s monetary policy composed of aggressive rate hikes in tandem with a balance sheet reduction is intended to achieve price stability through lower inflation. The Federal Reserve is assuming that it can effectively reduce inflation without creating a recession. While this is one possible outcome, at best achieving this goal will be exceedingly difficult, and at worst impossible to accomplish. Russia’s invasion of Ukraine has had a profound impact on commodity prices, supply chains, inflation, and a steep contraction of global growth. The impact of Russia’s war is that the Federal Reserve can only impact core inflation resulting in no major real reduction of inflation and an economic contraction. Therefore, a key risk to the global economy is the possibility that inflation will remain persistent and elevated together with contracting economic growth, the definition of stagflation.
Currently, inflation globally continues to run exceedingly hot. Today the European Union reported that inflation hit a new record in June. Headline inflation in Europe came in at 8.6% YoY exceeding the inflation level of the United States which is at 8.3% (CPI reading for May). Inflation in advanced economies is currently at its highest levels recorded during the last 40 years.Global growth rebounded to 5.7% in 2021, however majority of the global growth that occurred in 2020 and 2021 was supported by global fiscal and monetary policy accommodation. Because this accommodation has ended economic growth is expected to contract to 2.9% in 2022. More alarming is the high probability that global growth will continue to contract with little change in 2023. There are multiple possible outcomes from global central banks and the Federal Reserve’s monetary tightening. Their intended goal is to successfully reduce inflation and soft economic landing simultaneously. While this is the desired outcome, it will be the most challenging possible outcome to achieve. There is a real risk that their actions will lead to persistent and high inflation combined with economic stagnation.