Gold: Fed Caution Meets Strong Dollar and Persistent Safe-Haven Demand
On October 2, gold was trading against a backdrop of contradictory conditions: Federal Reserve officials expressing concern about the economy and financial markets, and bullion traders increasingly worried about the strength of the U.S. dollar, rising Treasury yields, and the risk of an energy price-induced recession. Market participants are once again questioning the relationship between inflation and lower gold prices.
The U.S. labor report for September will be released soon. Analysts expect only about 90,000 new jobs last month with the unemployment rate remaining at 4.1%. Some Federal Reserve officials have indicated little concern for another rate increase in October if the labor report reflects a continued strengthening of the labor market. However, other Fed officials have indicated they will need to see more, especially with the recent declines in inflation.
With major central banks continuing with their policies of reserve diversification and other major-economy central banks expanding their currency reserves, gold is expected to continue its rally. This week’s Reuters report indicated many emerging-market central banks continue to purchase gold in an effort to reduce their exposure to the U.S. dollar. Gold ETFs continued to see inflows in the past eleven weeks.
Like gold, industrial demand for silver will continue to bolster the silver price despite any corrections associated with interest rate hikes and a strengthening dollar. Electrification of the grid, increased solar manufacturing, and other infrastructure investments will continue to create ample silver demand. Based on the Silver Institute’s outlook, the silver market is expected to be in a structural deficit through 2026 of approximately 67 million ounces. Overall, ample industrial demand coupled with declining mine and processing supply will leave silver in a supply deficit despite tightening monetary policy.
Gold Technical Analysis: XAU/USD Holds $4,160 as $4,190 Remains the First Recovery Test
Gold is trading at around $4183. What is interesting is that price is attempting to establish a floor above $4160 support after rebounding from the $4112 low. The recovery looks a bit better, but gold is still trading beneath both moving averages, let alone the broader bearish trendline, so the bigger picture is still bearish.
As for resistances, I am looking at the first level of $4190. Sustaining above that level is important for the bulls to maintain a short-term positive bias. If that happens, the focus would shift to $4214 and then to $4238. On the other hand, if the selling pressure returns, a break below $4160 would bring $4112 back into the picture and concentrate on $4073 and $4030.
RSI is recovering toward the midline, and I view this as bearish momentum taking a break, but not turning bullish. Until gold makes a daily close above $4190 and $4214, and the 10 and 20 SMAs respectively, I am looking to take advantage of any long biases. A daily close below $4160 and $4112 would put the focus on the $4073 and $4030 supports.
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See all Gold forecastsSilver Technical Analysis: XAG/USD Consolidates Above $59.96 as $61.72 Caps the Recovery
Currently, Silver is trading at $61.14 after finding support at $59.96. I see that, for the time being, Silver has stopped making new lows, but that is not a confirmation of a new trend as it is still trapped in a descending channel with both moving averages. Therefore, I consider the current price action as a sideways move within a larger bearsish trend.
The nearest resistance I see is at $61.72. If Silver breaks this level, the next resistance will come at $63.06, followed by $65.09. If, on the other hand, sellers step in and break the $59.96 support, I see additional support at $58.94 and $57.64.
RSI is also showing that downward momentum is fading as it has recovered from oversold territory. I believe the current price action remains bearish, and until it breaks the resistance at $61.72 and the descending trend line, I will maintain a bearish bias. A break of $63.06 will make me turn bullish, and if it breaks support at $59.96, I will target $58.94.
