Gold Technical Report: Gold prices took a pause yesterday after having a nice rally a day before, smartly bouncing from 200 DMA at 1784. The rally looks strong enough to carry forward after it strides the important psychological 1800 mark. The Medium term support stands at 50 DMA @1730 below which the trend may turn bearish. The short-term Stochastics Oscillator is at 88 and the Relative Strength Index is at 62.
Silver Technical Report: The silver prices, parallel with gold prices cooled off a bit yesterday after they performed a good show of strength a day before. The medium-term trend looks up as the prices continue to trade above 200 DMA @21.15. As 50 DMA @21.25 has crossed above 200 DMA on daily charts, further fire-up in the rally is expected. However, if the crossover fails, some technical profit booking can be expected here. The Short term Stochastics Oscillator is at 86 and the RSI momentum is near 64.
Fundamental Report: Despite the knee-jerk reaction to the BOJ’s move away from its ultra-dovish monetary policy, gold could remain capped because the Federal Reserve has promised to deliver more interest rate hikes next year even as the economy slips towards a possible recession. Last week, Fed Chair Powell argued that a higher cost would be paid if the U.S. central bank does not get a firmer grip on inflation. This was essential “Fedspeak” for “higher rates are coming”. Additionally, last week’s Fed policy-setting committee raised its benchmark overnight interest rate by half a percentage point and projected it would continue rising to above 5% in 2023, a level not seen since a steep economic downturn in 2007. The Bank of Japan’s surprise decision that they would raise their benchmark interest rate cap from 0.25% to 0.50% sent ripples through the global financial markets. Since 2016 the Japanese Central Bank has set its target range for the yield of 10-year Japanese government bonds near zero, with a cap of 0.25%. As other major central banks began to enact interest rate hikes this year the BOJ maintained its cap on its benchmark rate near zero. According to Reuters News, “The Bank of Japan shocked markets on Tuesday with a surprising tweak to its bond yield control that allows long-term interest rates to rise more, a move aimed at easing some of the costs of prolonged monetary stimulus. But the central bank kept its yield target unchanged and said it will sharply increase bond buying, a sign the move was a fine-tuning of existing ultra-loose monetary policy rather than a withdrawal of stimulus.”
Bullion has shed more than $260 an ounce since its March peak as central banks stepped up efforts to fight soaring inflation. However, with some investors seeing the Fed moving close to a target, gold is enjoying its best quarter since early 2020, up 9.4% so far. Furthermore, if the Bank of Japan is moving toward a more hawkish policy, it will join all the other major central banks in tightening to stop the rise in inflation. This is potentially bearish for gold. Gold bulls would like to see lower yields and a weaker U.S. Dollar. However, higher rates and a weaker dollar will likely keep the market in a range over the near term.