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Fed Signals More Hikes: A Game-Changer for Gold?

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesJun 16, 2023 03:11AM ET
www.investing.com/analysis/fed-signals-more-hikes-a-gamechanger-for-gold-200639088
Fed Signals More Hikes: A Game-Changer for Gold?
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Jun 16, 2023 03:11AM ET
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In a game-changing turn of events, the FOMC meeting shattered hopes of a quick, dovish U-turn as the Fed announced the possibility of raising rates twice this year.

Yesterday’s FOMC and the following press conference were groundbreaking. Rates stayed, but Fed said about raising them twice this year = no U-turn!

This is a game-changer because so many investors were still believing in a quick, dovish U-turn. And those dreams were just dispelled.

The fact that rates were not hiked yesterday doesn’t matter as much as the fact that their expected future path is still to the upside.

While the core CPI didn’t move recently, inflation is moving down. With inflation moving down and interest rates going higher, what does that imply?

Much higher real interest rates!

And this is one of the two key fundamental drivers for gold prices. The other is the USD Index, and yesterday’s FOMC was a game-changer for its short-term trend as well.

The USD Index Soars on FOMC

USD Index Chart
USD Index Chart

All intraday breakdowns below the flag pattern were quickly invalidated. And given the Jun. 14 reversal, the odds are that the correction is over.

The invalidation of the move below the 50% Fibonacci retracement suggests the same thing.

This means that gold price now has not one but two headwinds.

And boy, did the gold price react!

Gold Price Chart
Gold Price Chart

Gold was initially hesitating to decline, which is normal, given that the investment public didn’t necessarily fully grasp the implications of what just happened yesterday, and it might be starting to realize it fully only in the following days.

Gold overnight trading, however, showed where the next move is going to take the yellow metal – lower.

It’s currently trading at new June lows, but it seems that we’ll see a move below May lows any day (or hour) now.

Silver Price Chart
Silver Price Chart

Silver price is down significantly, but most importantly, it just moved below its rising support lines. The next big decline is likely underway.

And junior miners?

Junior Mining Stocks Already Broke Lower

GDXJ Daily Chart
GDXJ Daily Chart

Even though it might not be clear on the above chart, the fact is that junior miners closed the day below their rising red support line. This is a breakdown that didn’t happen in May, so the situation is now more bearish than it was back then.

Let’s keep in mind that it was before gold’s overnight decline! This means that junior miners are likely to catch up with gold by sliding more. This will likely cause the breakdown to be verified and lead to a bigger decline in the following days.

The next short-term stop is at about the $33 level, as that’s where we have the 61.8% Fibonacci retracement and 2023 low (so far).

In fact, please take a look at what the VanEck Junior Gold Miners ETF (NYSE:GDXJ) is doing in today’s London trading.

GDXJ Price Chart
GDXJ Price Chart

The GDXJ just briefly moved below its May lows, indicating what comes next. It might need the U.S. trading hours to break below this level, though.

And given that the investment public is just starting to realize what the implications of yesterday’s FOMC were (after they read reports prepared by professionals), the odds are that the decline in the GDXJ will continue – and accelerate.

Please note that you knew about the upcoming decline in advance – well before the FOMC, based on technical analysis, relative valuations, and other things that I’ve been describing recently.

I saved the best for the last part.

In my analysis yesterday, I focused on the stocks and why they are not as bullish or invincible as many claim.

SPX Chart
SPX Chart

The rally stopped, and the S&P 500 futures are down in the pre-market trading. This – plus the fact that the investment public is likely to still digest what just happened – implies that the momentum is gone.

And with the momentum gone, rising rates, and RSI at extremely overbought levels, there is one very likely action that stocks are going to take.

Slide.

Please remember that junior miners broke below their rising support line even without the stocks’ help. But as soon as they get it, they are likely to truly tumble.

Fed Signals More Hikes: A Game-Changer for Gold?
 

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Fed Signals More Hikes: A Game-Changer for Gold?

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Comments (10)
Jack Sailor
Jack Sailor Jun 18, 2023 11:03PM ET
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you are like the Jim Cramer of Gold .... When you say sell ... I'll buy
Jack Sailor
Jack Sailor Jun 18, 2023 11:02PM ET
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Why are you always wrong
Dawn Farris
Dawn Farris Jun 17, 2023 6:03PM ET
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When he turns bullish on Gold, I will sell mine....
Mitch Hoch
Mitch Hoch Jun 17, 2023 4:37PM ET
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Dear Sunshine profits where the sun doesn't shine aka P.R. perma precious metals bear. Simply, I agree that the S&P is going down big from here. CONSISTENCY WRONG ON PRECIOUS METALS. The long-term charts don't lie. WE could get a pull back to $1900 on an institutional short-term head fake on the charts, but before the end of the year, precious metals are poised to explode past $2100. In either case, $1900 or $2100+ it's a WIN/WIN. DON'T WAIT TO BUY GOLD, BUY GOLD AND WAIT!
Jack Sailor
Jack Sailor Jun 16, 2023 3:52PM ET
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2 homes will be a total of 50 basis points ... this will have zero effect on gold ...dxy is crashing
peter neal
peter neal Jun 16, 2023 8:01AM ET
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Sell it all. You right I sold at $ 900.. like you said. Thanks again.
Bernd Langer
Bernd Langer Jun 16, 2023 7:43AM ET
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Maybe you should wait a day or so before publishing your analysis. It might prevent you from being consistently wrong. For the record: Gold today is higher than before the FOMC meeting (it ran up more than 40$ from its low) while the USD is way lower.
Derick Lim
Derick Lim Jun 16, 2023 6:22AM ET
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Why waste time speculating in Gold when everyone are crazy over AI
Jan Buyle
Jan Buyle Jun 16, 2023 4:40AM ET
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Always fun reading analysis of the worst Investing analyst. He predicted $900 gold and $9 silver... and then they went up to $ 2000 and $30. What a joker...
Triton Lux
Triton Lux Jun 16, 2023 4:30AM ET
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Miners will outperform any investment for the next 5 years…
 
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