Gold Technical Report: Gold medium term trend is looking bearish the 50 DMA has crossed below 200 DMA on daily charts. 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 $1846. A trade through $1846 will change the main trend to up. Short term Stochastics Oscillator is at 48 and RSI momentum is below midline at 42.
Silver Technical Report: Silver medium term trend was bearish after posting 3 consecutive red candles on daily chart and after some value buying again moved up the threshold 20.00. On the upside, the major uptrend reversal will come only at 20 DMA zone at $21.11. Short term Stochastics Oscillator is oversold at 30 and RSI is flat at 34.
Fundamental Report: The Gold prices are inching higher early Tuesday as the buying remained tentative due to a softening inflation outlook and impending interest rate hikes. Nonetheless, prices are hovering near six-month lows, which could make them attractive to aggressive counter-trend buyers. At 04:42 GMT, gold is trading at $1811.90, up $3.60 or +0.20%. Last week, the SPDR Gold Shares ETF (GLD) settled at $168.28, down $0.18 or -0.11%. Gains are also being capped by a rise in the benchmark U.S. 10-year Treasury yield and a steady U.S. Dollar. Higher rates make non-yielding gold a less-desirable investment, while a stronger greenback tends to weigh on foreign demand for dollar-denominated gold. Gold traders will be eyeing Wednesday’s Fed minutes and Friday’s U.S. Non-Farm Payrolls report this week. Government data on employment will give investors a small look at the strength of the labor market after 150 basis points of rate increases already delivered by the Fed. A weaker-than-expected jobs report could increase concerns of a potential recession.
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. If the global economy moves into a period of stagflation this will certainly create strong bullish undertones for gold prices. This can be seen in indicating a dynamic pivot and possible key reversal. We could be witnessing market participants focusing on the real possibility that the monetary policy of central banks globally will lead to stagflation rather than their intended goal of lowering inflation.