Gold Technical Report: The gold prices showed bounceback after Friday’s massive sell off. If prices do come off the main level of $1680, the medium term trend will turn positive. The upside resistance is at 50 DMA near 1706 on daily charts. The Short term Stochastics Oscillator is at 22 and Relative Strength Index is at 43.
Silver Technical Report: The silver prices rebounded yesterday almost after 6 continuous selling days last week trying to touch he 50 DMA which is at 19.18. Next major support is only at 18.00 , crossing below which will change the medium term trend into negative. On upside, crossing of 200 DMA at 21.80 will change the main trend to positive. The Short term Stochastics Oscillator is at 30 and RSI momentum near 45.
Fundamental Report: For over the last 18 months, inflation has rapidly spread to every corner of the economy with the cost of unavoidable living expenses from Food, Fuel, Housing, Clothing and Energy prices – accelerating at the fastest pace in over 40 years. A string of recent much hotter-than-expected inflation readings has enviably pushed the Federal Reserve and its major central-banking peers into one of the world’s most aggressive monetary tightening cycles seen since 1981.
No one expected the Federal Reserve to be able to smother inflation swiftly. But after seven months of aggressive rate hikes – totalling a whopping 225 basis points – the central bank has hardly made a dent. The September U.S. Consumer Price Inflation report made it very clear that we’re not much better off now than we were in March, when the Fed began its aggressive monetary tightening. Back then, Consumer Price Inflation was up 8.5% year-over-year. Now, it’s up 8.2%. With inflation showing no signs of abating – many of the world’s leading economists agree that it will likely take a couple of years before prices really come down from the highs seen this year – confirming policy makers biggest fear that higher for longer inflation is here to stay. All evidence points to one conclusion – policymakers are trapped in a box of their own making because they didn’t move quickly enough on raising rates last year. Even if the Fed up their game now with yet more super-sized 75 basis-point rate hikes or even scale up with a series of mammoth 100 basis-point hikes – it’s hardly going to make a difference because inflation is far too stubborn and entrenched.
Regardless of what actions the Fed takes now, unfortunately there is no way out. They are faced with a situation common to chess players down on their luck – stuck with nothing but bad moves to play. On one hand, if the Fed continues hiking rates aggressively into a weakening economy, then a severe 2008-style recession is virtually assured – combined with a stronger dollar that will only led to greater inflationary pressures both domestically and internationally. On the other hand, if the Fed changes course on rate hikes, that will inevitably lead to deeply entrenched inflation for longer. That toxic combined with an economic downturn would lead to 1970s-style stagflation – an even worse outcome for the global economy. If history is anything to go by, then the one thing that we do know for certain is both scenarios, whether that’s persistent Inflation with Stagnation or a Recession, ultimately present an extremely lucrative backdrop for commodity prices.