Gold & Silver Outlook: Softer U.S. Inflation Cuts Fed Hike Bets as Payrolls Take Center Stage
Gold and silver prices rose on Thursday as slower U.S. inflation decreased the possibility that the Federal Reserve will increase the target federal funds rate in October. Many consider the Fed Funds rate hike cycle as bearish for the precious metals market.
The Personal Consumption Expenditures price index (PCE), the Fed’s favorite measure of inflation, increased 3.4% from a year ago in August. Economists expected an increase of 3.7% from a year ago.
The unexpected slowdown in inflation shifted expectations for a possible October Fed Funds rate hike from about 45% to about 36-38% and 70% last week. An increase in the Federal Funds rate is expected to negatively impact all interest rate-sensitive areas of the economy and increase gold and silver prices.
John Williams, President of the New York Fed, said he does not see a reason for the Fed to increase rates from current levels in the near term. According to fed funds futures markets, there is a high probability that the fed funds rate will increase before the end of the year.
The context around prices hasn’t been great. Long Term U.S. Treasuries are still at high levels. The dollar has been moving up, and along with high inflation, has limited the upside of gold and silver.
Next, a focus will be on the U.S. Nonfarm Payroll report on Friday. The report is expected to show less hiring in the month of August. Currently, unemployment is at 4.1% and is expected to stay the same. A worse report would probably show that the Federal Reserve won’t increase rates in the near future. A better report would probably show that the Fed could increase rates in October.
Uncertainty because of the situation with Iran isn’t helping. They are saying that they will not renew a ceasefire with Iraq. If the ceasefire is not renewed, there could be an increase in oil shipments. If this happens, there could be another increase in inflation.
Of course, rate and dollar movements affect both metals. Industrial metals like silver are also effected by movements in the stock and bond markets and by U.S. Employment and Growth report.
Currently the metals are in a neutral to bullish state and U.S. Nonfarm payrolls report will probably be the most important report for the metals for the next couple weeks.
Gold Technical Analysis: XAU/USD Stalls Below $4,190 as $4,160 Support Comes Back Into Focus
Gold is trading at $4,157 and has been in a sideways movement in the last couple of hours. It previously bounced from the $4,112 support and hit resistance from the moving averages and a trend line. From a technical standpoint, the bounce from the support to the trend line and moving averages was positive, but the further rise to $4,190 was capped by further selling pressure and negative, extending the recent series of lower highs.
I am looking for possible supports in the $4,160 region to hold, but a break below this level would bring the trend line and the $4,112 support in to play, with further support then coming in at $4,073 and $4,030. The trend line and $4,190 resistance converge to provide resistance to further upside, and I would need to see a clear and convincing break above $4,238 to change my stance to bullish.
The RSI is also pointing to further potential downside and is currently neutral after a recent oversold condition. I am looking for more evidence to support a break of the trend line and further selling.
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See all Gold forecastsSilver Technical Analysis: XAG/USD Holds Near $60.53 as $59.96 Support Becomes Critical
Silver is currently close to $60.54. It was unable to break through the descending trendline and the $61.72 level. It has been unable to break through the moving averages and has formed a series of lower highs. It is also struggling to break through $61.00.
I think $61.72 is a strong level of resistance and $59.96 a strong level of support. A break below $59.96 would then allow for a retest of $58.94, with $57.64 possibly being tested next.
RSI is still below 50, indicating that the trend is still bearish. I am looking for short opportunities, especially if Silver trades below $61.72 and the trend line. I think that a move above $63.06 would bring a shift in trend. A move below $59.96 confirms the trend is towards $58.94.
