Gold And Silver Hit By Fed Rate Hike Talk

Gold

Despite initial strength earlier in the week, gold prices traded lower into the latter half of the week. Prices only just managed to remain in positive territory. They were knocked down in response to the release of the March FOMC meeting minutes.

The Fed kept rates on hold, acknowledging the recent downturn in US data. However, the minutes turned out to show that some members still feel further rate hikes this year could be warranted. This would only happen, though, if growth gets back on track as projected.

In light of the Fed pausing its tightening path recently, along with data weakness, many had been expecting the minutes to show discussions around potential rate cuts. This, of course, turned out not to be the case.

Resurgent strength in equities prices also weighed upon gold this week. These traded higher again following some give-back earlier in the week. The SPX500 traded above last week’s high as optimism around ongoing US/China trade talks, as well as news of a further Brexit extension, boosted risk appetite  This caused safe haven outflows from gold.

Technical Perspective

Gold prices are trading into the narrow edge of the triangle pattern which has framed price action over the last two months. For now, the 1280.58 – 1324.73 range continues to play out, with the potential for a break in either direction.

The lower timeframe charts show the severity of the sell-off yesterday which has taken price back under the recent 1294.57 breakout base with the level now once again holding as resistance.

Silver

Breaking from their recent correlation, silver prices have been harder hit than gold this week despite a weaker US dollar and better risk sentiment. Higher equities prices can often provide a boost for silver given its industrial usage. However, that has not been the case this week.

The prospect of a return to Fed rate hikes at some point over the remainder of the year has been sufficiently hampering for metals this week. And this has pulled both gold and silver lower. If we start to see an uptick in US data, we could see this theme developing further.

The March US CPI print released this week came in stronger than expected with inflation rising month on month at its fastest pace in 14 months, adding further pressure to metals. If oil price continue to rise here and inflation can pick up further, we are likely to hear much more about potential US rate hikes.

Technical Perspective

Silver prices once again retested the 14.9161 breakout base this week, which continues to hold as support. While price remains above this level, we could see a further rotation back up to the 15.5359 level, which price as en route to test this week before reversing lower.

The lower timeframes show just how low in the range silver is currently, with plenty of room to go to take the focus off further downside. The bearish trend line from mid-Feb is the next key resistance level with the recent 15.3458 level coming in just above. Bulls will need to see price quickly back above this level to remove the near term risk of further bearishness.