Metals Under Pressure Ahead of FOMC
It’s been a soft start to the week for the metals market as fresh strength in USD sees gold and silver both sold over the European open on Monday. Traders’ focus this week will be fixed firmly on the FOMC on Wednesday. The US Dollar was seen back in demand following the recent August US CPI report. With inflation shown to have risen again in August. Following a dip in July, the market moved to price in a larger hike at the September FOMC. Ahead of the CPI release, expectations had been split between a .5% hike and a .75% hike. However, on the back of that CPI release, traders moved to price in a .75% hike while also giving a 30% likelihood of a larger 1% hike.
Gold prices were seen breaking down to fresh 2022 lows last week in response to the news. While price action in silver has been a little more resilient, both metals are under pressure this week as traders await the Fed. Given that a .75% hike is now priced in, the main focus will be on the guidance issued at the meeting. If the Fed is seen to remain resolutely hawkish in its forecasts, signalling its intention to push ahead with rates increases as laid out previously, this should keep USD well supported, further weighing on metals prices. However, if there is any sense that the Fed has moderated at all, in terms of hawkishness, this will no doubt weigh on USD near-term, allowing for a recovery in metals markets.
Additionally, traders will be keen to hear how the bank views growth over Q3. Given two quarters of consecutive negative growth readings (marking a technical recession), traders will be keen to see if the bank projects a continuation of this trajectory in Q3 or if a rebound is seen.
Gold prices have turned lower once more from the latest test of the bear-channel top from YTD highs. Price has now broken down below the prior 2022 lows at 1679.77 and, while below here, the focus is on a continued move lower towards the 1634.74 level in line with bearish MACD and RSI readings. Only a break back above the 1722.37 level will negate this view.
Silver prices are looking more encouraging here. Following the false break of the 2022 lows at 18.4421, price has since reversed higher and is now attempting to breakout above the bear channel top. Currently, the market is hovering around the 19.5643 level and, with both MACD and RSI bullish, a break higher here will put 20.6398 in focus next.