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Gold and silver are tactical plays ahead of data storm, Powell's Senate testimony - Pepperstone

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(Kitco News) Precious metals could be a tactical play ahead of a data storm in the next two weeks, including Federal Reserve Chair Jerome Powell's testimony before the U.S. Senate, said Pepperstone's head of research Chris Weston.

It is getting harder to shock markets with higher-than-expected inflation numbers, and that reaction function is important for the gold market.

"The failure of the EUR … to be overly influenced by the above consensus French and Spanish CPI data suggests the market is becoming harder to shock by inflation reads. The risk-reward is shifting – the gold market will be watching this closely," said Weston Wednesday. "Gold and silver have come up on the radar, and both could be a tactical play as we eye a data storm brewing over the next two weeks."

The big market movers coming up are the U.S. employment (March 10) and inflation (March 14) reports. But all of this will be preceded by Powell's semiannual testimony before the U.S. Senate's banking committee on the Fed's monetary policy report, scheduled for March 7.

"That could spark some market volatility, but trading a speech is more problematic, as we're fighting algo's who are programmed to rapidly react to words," Weston noted.

This means traders need to gear up for higher intraday moves in the lead-up to the Fed's March monetary policy meeting, scheduled for March 22. "The market will tweak positioning into these defining events," Weston said.

Market consensus calls are projecting nonfarm payrolls to have added 200,000 new positions in February after the 517,000-shocker reported in January. The unemployment rate is estimated to tick up to 3.5% from 3.4%.

Weston forecasts the U.S. inflation (CPI) to come between 6% and 5.5% in February, a decent deceleration from the 6.4% reported in January.

"With gold so heavily inversely correlated to both nominal and real U.S. bond yields, I question if the market looks to pair back on their rates exposure into this data – a factor which could boost the gold price," Weston pointed out.

After February's $100 selloff, the gold market narrowly missed a bearish outside monthly reversal, according to Pepperstone. At the time of writing, April Comex gold futures were last at $1,845.10, up 0.46% on the day.

"Is this a sign of better demand and the sellers failing to push the price to $1,800? Perhaps - but it's early, and the price action needs work to really convince - adopting a more momentum approach," Weston said.

Pepperstone advises putting in buy-stop orders above Tuesday's high of $1,831.15 and positioning for the price to keep pushing higher.

"It may be that we see price rollover and re-test Tuesday's lows," Weston said. "As with any momentum and trend strategy, we get many false breaks, and the strike ratio can be far lower than, say, mean reversion, so it's important to cut losses early and extract as much out of the trade as possible."

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