(Kitco News) – Friday’s dramatic metals selloff – the largest liquidity event in market history – was catalyzed by sudden clarity about the future of the Federal Reserve, according to Rhona O’Connell, Head of Market Analysis for EMEA & Asia at StoneX.
“Main hook for the correction? Friday’s announcement of the nomination for Fed Chair,” she wrote in a note on Monday. “I don’t think the fact that it’s Kevin Warsh makes any difference, given that the Fed is a voting Board, not a one-man band. It could have been anyone, on that basis.”
“The key here is that an important element of financial and political uncertainty has been removed from the equation.”
In another Monday update, O’Connell reiterated her recent warnings about gold’s speculator-heavy long side, and the ever-present risks inherent in silver.
“There’s not much I can add to my warnings about how silver is always a death trap and that gold in particular was becoming over-crowded with people clambering in who know nothing about the sector,” she said. “It gives me no comfort, but all the signs were there.”
She added that the precious metals’ sharp slide was obviously exacerbated by technical trading. “I can only hope that not too many market stakeholders have suffered (I understand that there were already some problems with small-scale jewellers in India), she said. “In moves like these we need technical analysts more than the fundamentalists.”
O’Connell also shared her updated precious metals charts, including Fibonacci targets.
“Gold – next Fib level $4,225,” she wrote.
“Silver – next level $66.”
For platinum, O’Connell noted that it had already reached the key $1,954 level. “Next level is $300 lower.”
She said that palladium is “almost there” as it approached $1,560.
O’Connell has been analyzing the market impact of the Federal Reserve’s leadership shakeup for months. Back in November, she said that questions surrounding the Fed’s independence could create the next $500 move higher in gold.
“We have been talking about the potential threat to central bank independence for some months now. The separation of powers between the Executive, the Legislature and the Judiciary is a key cornerstone to the US Constitution,” O’Connell said. “This latest development is not directly an issue, but Jay Powell has made it plain that he sees it as such, rendering this to be about more than just the risk of the central bank falling under undue influence from the Executive. It remains a key tailwind for gold, although the price is already carrying a substantial risk premium.
