Gold Technical Report: The gold had posted 4 continuous weekly rallies but this week it is giving a correction on charts . Since the 50 DMA is trading below 200 DMA , the medium term trend looks still bearish. Any slippage down the nearest main bottom at $1676 will turn the Main trend negative. On the upside, the immediate resistance are last week’s high at 1808 and then 200 DMA @1840. The Short term Stochastics Oscillator is oversold at 6 and RSI momentum is near 45.
Silver Technical Report: Silver continues 5th straight day of losses .It has crossed below both 50 DMA and 20 DMA.However, the 20 DMA is approaching 50 DMA and if it crosses above, we can expects some pullback in prices. The next major resistence will be faced around 50 DMA 20.00. The Short term Stochastics Oscillator is oversold at 5 and RSI momentum near 42.
Fundamental Report: Gold prices drifted further lower as traders continue to digest the minutes of the Fed’s July meeting that featured hawkish comments about its rate hike plans and remarks about a possible slowdown in rate increases if the economy weakens. Some traders read the overall minutes as hawkish. Some saw it as dovish. While others thought the minutes were less-hawkish. Today’s early price action suggests traders are assessing the impact of all three possible outcomes. This is leading to a lackluster, low volume trade. Prices could straddle for a short-term until they get some clarity from the FedWatch tool, Treasury yields and the U.S. Dollar. According to the CME’s FedWatch Tool, the probability of a 75-basis-point rate hike in September moved down to 38.5% from 61.5%. The probability of a 50-basis-point rate hike rose from 38.5% to 61.5%. In their July meeting minutes, Fed officials said the pace of future rate hikes would depend on incoming economic data, as well as assessments of how the economy was adapting to the higher rates already approved. After the release of the minutes, traders of futures tied to the Fed’s policy rate saw a half-percentage-point rate hike as more likely in September.
Although four consecutive rate hikes might seem like the Federal Reserve is raising rates too quickly to combat headline inflation at 8.5%. If you think that it couldn’t get much worse simply look back in history to realize that is an incorrect assumption. Between 2004 and 2006 the Federal Reserve raised interest rates 17 times. The net result was to take Fed funds rates from 1% to 5 ¼% to curb inflation and cool down an economy that was excessively overheated. Commercial banks raised their rates to 8.25% which is the real cost of borrowing capital by corporations. Another factor to consider is many analysts and economists including myself understand that to effectively reduce inflation from its current level of 8.5% to an acceptable target of approximately 2%, interest rates at 2 ½% will have a minimal and tepid effect. The consensus amongst economists that believe that the Federal Reserve has been soft in regards to raising rates believes that the fed funds rate at minimum needs to be at 4 ½% if there is any hope that inflation will be reduced to two or 3%.