Gold Technical Report: Gold The main trend is down according to the daily swing chart. A move through the nearest main bottom at $1786 will reaffirm the downtrend. Gold settled inside the minor retracement zone at $1821-$1833. On the upside, the immediate resistance is the 10 and 200 DMA cone at $1842 to 1848. Another major resistance level is the 50 Day SMA at $1880.00. A trade through $1880 will change the main trend to up.
Silver Technical Report: Silver prices face resistence around the 10-day moving average of 21.80. Major Support is seen near the May lows at 20.43. The 50-day recent crossed below the 200-day moving average, which indicates downward momentum. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The trajectory of the MACD histogram is in negative which reflects consolidation.
Fundamental Report: The Gold futures finished sharply lower on Monday. The catalyst behind the steep sell-off was a surge in U.S. Treasury yields and a soaring U.S. Dollar. Both moves were fueled by increased bets for steep interest rate hikes by the U.S. Federal Reserve following its two-day meeting on Wednesday. August Comex gold futures settled at $1831.80, down $43.70 or -2.33%. The SPDR Gold Shares ETF (GLD) finished at $169.99, down $4.55 or -2.61%. Short-term rates jumped on Monday, driving down demand for non-yielding gold. The benchmark 10-year Treasury rose 20 basis points higher to 3.35%, as investors continued to bet the Fed may have to get more aggressive to squash inflation. The 2-year Treasury yield was last up 23 basis points to 3.28% and earlier traded above its 10-year counterpart for the first time since April, a so-called yield curve inversion seen as an indicator of a recession. All of the financial markets are continuing to react to last week’s CPI inflation report. The CPI increased by 1% in May taking year-over-year inflation higher by 8.6% which is the largest gain since December 1981.
The largest inflationary drivers continue to be food, energy, and housing. Last week’s CPI report will most certainly have a profound impact on the Federal Reserve’s FOMC meeting which will begin tomorrow. While there is a minority of economists that are predicting a 75-basis point interest rate hike, most analysts including myself believe that the Federal Reserve will continue to implement 50-basis point interest rate hikes in June, July, and possibly September FOMC meetings. Concerns about rising inflation led to bearish market sentiment and selling pressure. The net result was sharp declines in U.S. equities, precious metals, and cryptocurrencies. This major selloff occurs in conjunction with sharp rises in the U.S. Treasury yields and the U.S. dollar. Crude oil continues to trade at elevated levels above $100 per barrel with crude oil futures currently fixed at $120.95 per barrel. The selling pressure was not contained to equities as concerns about more aggressive interest rate hikes by the Federal Reserve resulted in dramatically lower prices for both gold and silver. As of 4:46 PM EDT gold futures basis, the most active August contract is fixed at $1822.60 after factoring in today’s decline of $52.90 or 2.82%. This decline resulted in gold prices breaking below their 200-day moving average and its 78% Fibonacci retracement level. Silver futures basis the most active September 2022 contract lost almost 4% (-3.93%) and is currently fixed at $21.075 per ounce. Platinum futures lost 4.57%, and lastly, Palladium futures had the largest decline losing 6.95% or $132.50.
Both the dollar and yields on U.S. Treasuries spiked sharply higher today in anticipation of the Federal Reserve aggressively modifying its monetary policy to try and stabilize the spiraling level of inflation. The dollar index gained 1% in trading today and is currently fixed at 105.055. Two-year Treasuries yields gained 23 basis points on Friday and another 14 basis points today to take the current yield to 3.20%. This is the highest level for the two-year Treasury notes since November 2007. Unquestionably, last week’s CPI inflation report has shaken up investors across-the-board as they brace themselves for Wednesday’s announcement by the Federal Reserve and press conference by Chairman Powell. This concern can be seen with the CME’s FedWatch Tool with the probability that the Fed will raise rates by half a percent at 74.6% and a 25.4% probability that the Fed will raise rates by 75 basis points. One week ago, the FedWatch Tool forecasted the probability of a 75 basis point rate hike at only 3.1% and a 50 basis point rate hike at 96.9%. The Fed’s policy is influencing financial conditions- the housing market is slowing in terms of mortgages written and sales volume dropping, but that is not yet hitting inflation data where the housing component was still up 0.8%. The Fed needs to see the non-energy sectors of the economy slowing – i.e., those segments it “should” be able to influence. There is not much sign of that in the data, and t is the second-round effects that are coming through loud and clear. A 50bp rate hike from the Fed this Wednesday was a done deal in any case, so this data is not an immediate policy influence. Instead, what it does is cement the September 50bp hike. The sizable CPI beat and hawkish ECB are reminders that elevated inflation will continue to compete with the slowing growth narrative.