Gold & Silver Market Analysis for Friday 7th January

Kinesis Money Macroeconomic Analysis

Today, the importance of central bank monetary policy and its domino effect on investment decisions is clear to see. Earlier this week, the Federal Reserve released the meeting minutes for the FOMC meeting held in December last year, giving further insight into upcoming policy decision-making. 

It is already widely accepted that the US central bank no longer recognises inflation as “transitory”. Although, the meeting minutes showed a hawkish tone on their part, as policymakers could be preparing for an increase in rates sooner than expected. In fact, some officials expressed a preference for a quicker path towards rate hikes, in order to curb inflation and reduce the bank’s $8.8 trillion balance sheet.

The minutes included some particularly hawkish comments: 

“Inflation readings remained high, and various indicators suggested that inflationary pressures had broadened in recent months”. 

As mentioned, other comments also focused on the broadness of the Fed’s current balance sheet. Some bankers noted that “the Federal Reserve’s balance sheet was much larger, both in dollar terms and relative to nominal gross domestic product (GDP), than it was at the end of the third large-scale asset purchase program in late 2014”.

The hawkish mode of the Fed had a number of effects on the financial market. The most remarkable was the increase in the US 10-years yields, which jumped above 1.70%, and the overall correction of stock markets. 

The technology sector was hit, as it generally is, paying fewer dividends. The US Dollar experienced a modest recovery, while gold and silver showed a moderate decline, as a consequence of the increase in bond yields. 

The next few trading sessions will give further insight into how the markets understand and respond to the FOMC meeting minutes.

Another situation to consider is the one unfolding right now in Kazakhstan, which has resulted in dozens of victims. Due to the clashes over the last few days between protestors and the police, Russia has sent paratroopers to help the president regain control of the country. 

Any escalation of the turmoil could increase the demand for gold as a safe-haven asset.

Kinesis Money Gold Analysis

Already, the bullion price has been hit by the hawkish tone of the FOMC minutes. The rally of the treasury yields generated a decline for gold, which lost the support zone of $1,800, hitting a low of $1,790. 

From a technical point of view, the gold price has returned to the former lateral channel between $1,760 and $1,800, as investors await new catalysts. Any further hawkish indication from the Federal Reserve could trigger a negative impact on gold, while a slowdown of inflation growth (or any other suggestion of a push towards rate hikes) could be a positive market driver for gold. 

Kinesis Money Silver Analysis

During yesterday’s trading session, the rebound of bond yields generated a sell-off on silver, which lost 4%. The spot price of silver has now plummeted from $23 to $22.1, now approaching the support zone of $22. 

The technical scenario for silver appears relatively fragile. A break-down of the support area of $22, will open space for a further decline to the next key level, placed at $21.5. This has been, importantly, the lowest level reached by silver in the last 18 months.

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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.