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Gold futures soften after New York’s close but remains above a critical support

Commentaries & Views

As of 5 PM EST gold futures basis, the most active June 2021 Comex contract is currently fixed at $1877.40 off $4.10. Gold traded to a high today of $1885.30, which is below yesterday’s high. However, it traded to a higher low of $1864.20 when compared to yesterday’s trading range. Most importantly, gold now, for the fourth consecutive day, has remained above a key and critical support level, which is a price band between $1843.70 (the 61.8% Fibonacci retracement) and $1851.70, which is a current fixed on the 200-day moving average.

Gold has been in a rally mode since the first of a double bottom occurred on March 8 this year. On March 8, gold prices sunk to an intraday low of $1673.30 and are roughly $200 below the current price. By no means has this rally been a parabolic move, but rather a multi-month price advance that can be best characterized as moving in a stairstep manner.

This type of rally will consist of periods of price advances followed by sideways price ranges in which prices consolidate at a new high. While the three major moving averages (50, 100, and 200 day) are still in bearish alignment, the fact of the matter is that gold is now trading above all three moving averages. The 50-day moving average is currently at $1770, with the 100-day moving average currently fixed at $1795.40, and lastly, the 200-day moving average is currently at $1851.70.

The minutes of last month’s FOMC meeting created volatile price swings in gold futures resulting in a low yesterday just at the 200-day moving average. However, gold was able to recover quite nicely as it settled at approximately $1881.

The primary questions that market participants and economists are pondering is whether the recent surge in inflation is temporary in nature or the beginning of a systemic rise. Although the minutes revealed that members of the Federal Reserve are in agreement that the current price increases which have led to rising inflation are likely to only have “transitory effects” on inflation.

Secondly, although Chairman Powell was adamant about a sustained monetary policy, the minutes indicated that some members of the Fed are contemplating when they will begin to address the extremely accommodative monetary policy and begin to taper their asset purchases, and or raise their fed funds rate.

If, as Chairman Powell has stated on multiple occasions that their upcoming actions in regards to their current accommodative monetary policy will be transparent and revealed long before any action is taken, we can expect to see interest rates remain stable with the current Fed funds rates between 0 and ¼%.

According to the latest released “dot plot” from the Fed, there will be no change in interest rates throughout 2021. As far as 2022 goes there were only two voting members that believe that rates should be changed in 2023. While the Fed has made it clear that they will act on the data and if the data changes so will their monetary policy, but as of now, they remain committed to remaining accommodative as the economics and employment begin to rebound.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.