Gold & Silver Outlook: Metals Rebound as Oil Cools, but Hawkish Fed Signals More Tightening
Gold and silver edged higher Thursday, benefiting from lower oil prices and easing near-term inflation fears. Nevertheless, the Fed’s more hawkish tone leaves the outlook for the U.S. dollar and the global economy less supportive of investments in precious metals.
The Fed lifted its policy rate 25 bps to the 3.75%-4.00% range, the first increase since 2018. Of greater importance was the Fed’s communication suggesting that inflation is likely to remain elevated, and an even more aggressive policy stance may be warranted to guarantee a timely reduction in inflation. A more hawkish communicated policy was supported by a strong consensus among FOMC members.
Specifically, the median Federal funds rate target was increased to 4.0% from 3.5% by 2023. More importantly, a stronger consensus emerged among FOMC members for another 25 bps hike this year, with Goldman Sachs and BofA adjusting their outlook for a December hike to October. A fourth rate hike this year is priced-in at a 50% probability.
A stronger dollar continues to limit the upside for precious metals. The dollar and short-term U.S. interest rates both rose following the Federal Reserve’s decision to raise interest rates. The opportunity cost of holding dollar-denominated rates relative to gold rose, thereby placing downward pressure on gold prices.
Gold prices rose on Thursday as some of the recent gains in crude oil prices abated. The decline in the crude oil prices lessens the risk that the Federal Reserve would need to implement an even more restrictive policy to rein in inflation. Tensions between the West and Iran continue to drive investors to the safety of gold.
Industrial metals, like silver, are more negatively affected by an expanding global monetary policy.
From a broader perspective, the upcoming question for the gold and silver markets will be what the Federal Reserve does in October after increasing interest rates in September.
Gold Technical Analysis: XAU/USD Rebounds From $4,256 as $4,354 Resistance Remains the Key Test
Gold is currently trading at $4,321. It recently bounced from the $4,256 to $4,283 support area. Price remains below the falling trend line and both moving averages. While the short term outlook has improved, the larger trend remains bearish.
The initial target for the upside is $4,354. Should the bulls break and close above this level, the next target would be $4,403 and then $4,434. If the $4,283 support holds, the next downside target would be the $4,256 support. A break below $4,256 would negate the near term bullish outlook.
RSI is in bullish territory and trending higher, suggesting that the rate of selling has lessened. Until $4,354 is taken out to the upside, so and a falling trend line at $4,354, I would maintain a slight bearish bias. A close above the $4,256 support would bring a bearish invalidation and signal a further leg lower.
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See all Gold forecastsSilver Technical Analysis: XAG/USD Reclaims $63.44 as $64.86 Resistance Comes Into Focus
Silver is currently trading at around $64.09 after a bullish move from around the support at $62.38. Currently, the focus is around the moving averages. Price has reclaimed the $63.44 area and is pushing towards the moving averages.
I’ll consider $64.86 as the first area of resistance, and above that, I’ll consider the area from $65.73 to $66.99 as resistance.
$63.44 will be the first area of support, and below that, I’ll consider the support at $62.38.
RSI is in bullish territory and moving higher, suggesting that the bulls are in control. I will look to buy rallies above $63.44 and look to hold as long as price trades above $63.44. I will consider a break below $62.38 as bearish. A move above $64.86 will boost the case for the resistance zone at $65.73 – $65.97.
