Gold & Silver Market Analysis for Wednesday 3rd November

Waiting for tapering – Are the markets ready to survive without the Federal Reserve? 

In 2013, when the Fed announced the tapering, the so-called “Taper Tantrum” was witnessed. The financial markets panicked – a response that was mostly tied to bonds and gold.

This evening, there’s a very high chance that the Federal Reserve will announce the beginning of a new tapering. However, the possibility that the financial markets will react as they did in 2013 is small. In fact, the US Central Bank virtually “prepared” the financial markets for the process of reducing liquidity, in order to mitigate the potentially adverse effects of tapering.

In late July of 2021, members of the Federal Reserve were already starting to signal that they intended to reduce bond purchases before the end of the year. Despite this, the decline of stock investment was modest, while Treasury yields remained relatively low, in the 1.50% area. 

In a few words, it seems that in 2021 – unlike 2013 – the financial markets are prepared in advance of tapering. Therefore, the market reaction after the official announcement for the beginning of the process should be mitigated. This is not to say that there will not be a reaction, but that the markets have already priced the tapering. On the other hand, any alteration in the timimg and pace of the tapering could generate significant movements.

In this scenario, the EUR/USD trading pair has fallen below 1.16, while gold is being traded a few dollars below the $1,800 threshold. The oil price remains steady in the region of $83 per barrel. Natural gas is still close to reaching its recent peak, with the futures contract being traded in the region of $5.50.

Kinesis Money Gold Analysis

Investors are watching on and traders want to know more about the upcoming decisions of the Federal Open Market Committee, before increasing their gold exposure. Because of this, the price is languishing in the $1,780-1,790 area, struggling to find a clear directionality.

Considering the bigger picture, it’s easy to see that gold is still inserted in the lateral trading range seen over the past few weeks. Only a fall below $1,750 would show a new bearish impulse, while a surpass of $1,800, could open space for new recoveries to the next resistance placed at $1,820-1,830.

As aforementioned, the chances of another “taper tantrum” for gold appears to have reduced. In 2013, gold lost around 28% of its value. Thus far, bullion posted a loss of around 6% which was largely mitigated. This was particularly felt by investors outside the US due to the recovery of the greenback on the forex market. The year 2021 is thus on track for a better outcome than 2013.

Kinesis Money Silver Analysis

Silver has lost momentum as it continues with its recent bearish impulse, after a couple of weeks experiencing a significant rebound. Both the spot and future price declined to $23.5, breaking down the $23.7 support zone and thus confirming its deteriorating picture – technically and graphically. Still, silver is being traded around 10% above the recent low of $21.2, but at the same time, it has lost around 5% since its October peak of $24.9.

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.