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Strong price pressure on precious metals after hawkish FOMC minutes

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Welcome to Kitco News' 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.

(Kitco News) - Gold and silver futures prices are sharply lower in early U.S. trading Thursday. The metals are reeling after a surprisingly hawkish report from the Federal Reserve Wednesday afternoon. February gold futures were last down $36.50 at $1,788.50 and March Comex silver was last down $1.05 at $22.11 an ounce.

Gold and silver prices dropped sharply overnight, in the wake of the Federal Reserve's FOMC minutes that were released Wednesday afternoon. The Fed minutes indicated a "very tight" U.S. job market and rising inflation might require the central bank to raise interest rates even sooner than many already expected, and begin reducing its overall asset balance sheet. The minutes suggested inflationary concerns outweigh the economic risks posed by the rampant Omicron variant of the coronavirus. The probability that the Fed will raise interest rates in March rose to greater than 70%, according to the Fed funds futures market.

Rising U.S. interest rates as evidenced by rising U.S. Treasury yields are bullish for the U.S. dollar. Gold and the greenback many times move in the opposite direction on a daily basis. However, the U.S. dollar index has shown little reaction to the Fed minutes. Gold and the U.S. dollar compete with each other as a safe-haven store of value.

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The yield on the U.S. 10-year Treasury note is presently fetching 1.732%. U.S. bond yields have been on the rise for three weeks and have taken a big jump this week, including after the hawkish FOMC minutes. For perspective, the German 10-year bond (bund) is presently yielding -0.096% and the U.K. 10-year bond (gilt) yield is trading at 1.148%.

Global stock markets were lower overnight. U.S. stock indexes are pointed toward mixed openings when the New York day session begins.

The key "outside markets" today see Nymex crude oil futures prices higher, at a seven-week high and trading around $79.25 a barrel. The U.S. dollar index is slightly up early today.

Attention will soon turn to Friday's U.S. employment situation report for December, which is expected to see its key non-farm payrolls component show a rise of 425,000 after a rise of 210,000 in the November report. The overall unemployment rate is seen at 4.1% in December compared to 4.2% reported in the November report.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the Challenger job-cuts report, the U.S. international trade report, the ISM report on business services, the global services PMI, the monthly chain store sales index, and manufacturers' shipments and inventories.

Live 24 hours gold chart [Kitco Inc.]

Technically, the February gold futures bulls have lost their overall near-term technical advantage as a three-week-old price uptrend on the daily chart has been negated. Bulls' next upside price objective is to produce a close in February futures above solid resistance at this week's high of $1,833.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the December low of $1,753.00. First resistance is seen at $1,800.00 and then at the overnight high of $1,811.60. First support is seen at today's low of $1,785.40 and then at $1,775.00. Wyckoff's Market Rating: 5.0

Live 24 hours silver chart [ Kitco Inc. ]

March silver futures bears have the firm overall near-term technical advantage and have regained power late this week. Silver bulls' next upside price objective is closing prices above solid technical resistance at the December high of $23.48 an ounce. The next downside price objective for the bears is closing prices below solid support at the December low of $21.41. First resistance is seen at $22.50 and then at the overnight high of $22.85. Next support is seen at $21.75 and then at $21.41. Wyckoff's Market Rating: 2.0.

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.