Gold & Silver Market Analysis for Friday 5th November

Tapering Means Tapering – or a « Taper Tantrum »

The reaction seen in the financial market in response to tapering could have been drastically different. Although, investors were not surprised this time around, and have been heavily preparing for the beginning of the process that will reduce liquidity in the system.

The Federal Reserve was conscious of risking another “taper tantrum”, similar to the one witnessed in 2013 where the panicked reaction from the financial markets occurred after a tapering announcement. The Fed, therefore, proceeded with extreme caution before revealing the upcoming tapering. 

Some members of the board stated this intention in July 2021, before Jerome Powell explained further in the Jackson Hole Symposium (a meeting focusing on important economic issues facing world economies) in late August. 

Before all this became the reality, public anticipation was left to build over the course of three months. 

As was forecasted in the previous analysis, the market reaction has been extremely moderate. The EUR/USD trading pair showed a level of volatility that currently rests above the average, with some gains for the greenback that are contained in the region of 0.5%. Gold, on the other hand, registered a fractional loss.

Yesterday, the Bank of England was contrastingly more dovish than expected. The last analysis forecasted a 6-3 vote in favour of keeping rates unchanged, while other analysts were predicting an interest rate hike. The eventual outcome of the BoE vote was a 7-2 vote split, confirming that members on Old Lady of Threadneedle Street are still cautious when manipulating interest rates.

It is worth mentioning that the market reaction was significant, as gold recovered the loss seen the day before, returning close to $1,800. Silver bounced back to $23.8, which indicates that the markets seem to have digested the fact of tapering so far.

Later today, this busy week will close with US labour data and a particular focus on the NFP (non-farm payrolls).

Kinesis Money Gold Analysis

The bullion price has shown some interesting signals of consolidation this week. Unlike in 2013, the post-announcement phase after the beginning of tapering saw bullion remain relatively steady, with a modest decline.

On the other hand, some dovish words from the BoE and Fed were enough to trigger a rebound. Gold remained above the key resistance of $1,750, attempting a rebound to $1,800, with the technical picture appearing relatively solid.

Kinesis Money Silver Analysis

Once again, silver was able to surprise the markets, rebounding to $23.8 with the technical picture appearing fragile. 

A new recovery above $24 would represent a positive signal for silver, with the trend slightly unclear after the recent rebound was stopped by the key resistance zone of $24.9.

As mentioned in our previous analyses, the outlook for silver remains solid. It is true that the supply is growing, but at the same time, the demand coming from photovoltaic technology and electric cars is strong. Most likely, this demand will continue to rise in the next few years.

Carlo Alberto De Casa is an external Market Analyst for Kinesis Money.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.

This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.