Gold Technical Report: The gold witnessed a volatile session yesterday after the Fed event and recorded a red spinning top on the daily charts. Only if prices do break above the main level of $1675, the medium-term trend will turn positive. Also at the same level is resistance as the current 50 DMA on Daily charts. The short-term Stochastics Oscillator is at 32 and the Relative Strength Index is at 46.
Silver Technical Report: The silver prices also saw a volatile session parallel with Gold but continued with yesterday’s bullish trend. The positive for silver unlike gold is that prices still manage to trade above 50 DMA at 19.12. On the downside, major support is only at 18.00, crossing below which will change the medium-term trend into negative. On the upside, a crossing of 200 DMA at 21.48 will change the main trend to positive. The Short term Stochastics Oscillator is at 51 and the RSI momentum is near 55.
Fundamental Report: In Gold prices are trading sharply lower on Thursday after speculators who bought in anticipation of a dovish pivot by the Fed were encouraged to sell after Fed Chair Jerome Powell indicated the central bank would stick with raising rates to corral soaring inflation. Higher U.S. bond yields and a sharp rise in the U.S. Dollar are the primary reasons for weaker gold prices. Gold is a non-yielding investment so when interest rates rise, bullion becomes less-attract to investors looking for a return on their money. In other words, why would you put money in gold when you can buy a guaranteed bond and get paid by the government to do that. Additionally, rising yields are making the dollar a more attractive investment. Since gold is priced in dollars, a strong greenback makes it more expensive for foreign buyers.
On Wednesday it was the Fed that pressured gold prices. On Thursday, additional pressure was exerted by the Bank of England. The Fed raised its benchmark rate by 75 basis points as widely expected on Wednesday. This was telegraphed for weeks and had already been priced into gold. Ahead of the Fed announcements, some gold speculators bought bullion in the hope that the Fed would reveal a plan to begin slowing down the size of its rate hikes in December. However, this didn’t happen and conditions even worsened after Fed Chair Powell said there would be no softening in December and rates will go higher. So instead of reaching a terminal rate in March 2023, the market is now anticipating a May 2023 date. This is the bearish news that surprised gold traders and encouraged today’s liquidation. Meanwhile, the Bank of England also jumped on the supersized rate hike bandwagon on Thursday. The BOE raised interest rates by 75 basis points to 3% in its biggest hike since 1989, and it warned of a “very challenging” outlook for the economy.
“The Fed has hinted at slower rate hikes going forward, but terminal rate expectations have shifted higher. This would exert downward pressure on gold in the near term,” said ANZ commodity strategist Soni Kumari. The sentiment is clearly negative and barring a surprise short-covering rally due to short-term oversold conditions, it’s hard to build a case for higher prices until the Fed commits to slowing the pace of rate hikes. However, this is not likely to happen until inflation drops to the mandated 2% level.