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Gold, silver in tailspin as Fed turns hawkish, greenback surges

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(Kitco News) - Gold and silver prices are sharply down in midday U.S. trading Thursday, hitting five-week lows and scoring the biggest daily losses in quite some time. The metals saw a very bearish reaction to Wednesday afternoon’s Federal Reserve Open Market Committee (FOMC) meeting that was deemed hawkish on U.S. monetary policy. That, in turn, powered the U.S. dollar index to a two-month high, further hurting the metals market bulls. August gold futures were last down $84.80 at $1,775.40 and July Comex silver was last down $1.882 at $25.925 an ounce.

The surprisingly hawkish FOMC meeting results from the Federal Reserve Wednesday afternoon roiled many markets at least briefly, including equities, currencies and bonds. The Fed left U.S. monetary policy unchanged, as expected. However, more FOMC members are now leaning toward raising interest rates sooner than they reckoned earlier this year due to a stronger-rebounding U.S. economy, the receding pandemic and inflation worries. On the inflation front, the Fed said prices are rising but still not at a problematic rate. The Fed sees inflation in 2021 at 3.4% annually, up a full 1% from the 2.4% estimate forecast earlier this year. Recent U.S. inflation reports are running significantly hotter than the 3.4% annual Fed projection on inflation. At Fed Chairman Jerome Powell’s press conference, he did not assuage inflation worries, ostensibly saying the Fed really does not know how much or for how long inflationary pressures will be on the rise.

Gold and silver market bulls need to keep in mind that problematic inflation has historically been bullish for those hard assets, as a hedge against rising prices. Longer-term, it’s my bias that continually rising inflation will rally the metals. Remember, too, that rising inflation and rising interest rates mean economies are stronger, suggesting more consumer and commercial demand for metals. Finally, remember that shorter-term traders are many times fickle. They are now focusing on the Fed not being so easy, after many years of easy money from the major central banks who worked to produce more consumer demand (including for metals)—the same economic element that comes with inflationary price pressures.

The yield on the benchmark U.S. 10-year Treasury note is fetching 1.507% Thursday afternoon, well down from Wednesday’s high near 1.6%.

U.S. economic data released Thursday morning did not impact the markets and was overshadowed by the FOMC meeting amid traders and investors still buzzing about it.

Meantime, Brazil’s central bank raised its benchmark interest rate for the third consecutive time to thwart accelerating inflation. The rate was increased by 75 basis points, to 4.25%. The central bank is planning another 75 basis point rise at its next meeting in August. Meantime, inflation in Brazil rose to 8.1% in May, which is more than double this year’s goal of 3.75%.

The other key outside market today sees Nymex crude oil prices are down and trading around $70.50 a barrel after hitting a 2.5-year high of $72.99 Wednesday.

Live 24 hours gold chart [Kitco Inc.]

Technically, August gold futures bears have regained the overall near-term technical advantage. A nine-week-old price uptrend on the daily bar chart has been soundly negated this week. Bulls’ next upside price objective is to produce a close above solid resistance at today’s high of $1,826.40. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at $1,800.00 and then at today’s high of $1,826.40. First support is seen at today’s low of $1,767.90 and then at $1,750.00. Wyckoff's Market Rating: 4.0

Live 24 hours silver chart [ Kitco Inc. ]

July silver futures bears have regained the overall near-term technical advantage. A nine-week-old uptrend on the daily bar chart has been soundly negated. Silver bulls' next upside price objective is closing prices above solid technical resistance at today’s high of $27.32 an ounce. The next downside price objective for the bears is closing prices below solid support at $25.00. First resistance is seen at $26.50 and then at $27.00. Next support is seen at today’s low of $25.82 and then at $25.50. Wyckoff's Market Rating: 4.0.

July N.Y. copper closed down 2,070 points at 417.90 cents today. Prices closed near the session low and hit a two-month low today. The copper bulls still have the slight overall near-term technical advantage but are fading badly. A four-week-old downtrend is in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 459.50 cents. The next downside price objective for the bears is closing prices below solid technical support at 400.00 cents. First resistance is seen at 425.00 cents and then at today’s high of 433.95 cents. First support is seen at today’s low of 417.05 cents and then at 415.00 cents. Wyckoff's Market Rating: 5.5.

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.