Gold and Silver roll over as the March FOMC becomes “live” and U.S. yields rise.
One of my favourite James Bond films is Goldfinger. A particular scene involves James Bond (played by Sean Connery) facing a particularly nasty end, shackled to a table about to be sliced and diced by a laser. The dulcet tones of Mr Goldfinger telling him “I don’t want you to talk Mr Bond, I want you to die,” ringing in his ears. Luckily Mr Bond escapes and years later 100’s of millions of women around the world had the pleasure of swooning as a muscular Daniel Craig, reprising the role, walks out of the sea in that swimsuit.
Gold and silver are potentially about to have their own Bond moment and potentially come off second best like so many before them. This time in the shape of the U.S. bond market rather than 007. As I have so often said, the real story of 2017 is the trajectory of U.S. interest rates and the end of zero percent as the cost of capital. A procession of Federal Reserve Governors over the last two weeks has been on the wires with unequivocal dovish tones. This included Fed. Governor Powell overnight and uber-dove Governor Brainard the day before.
Fed. Chair Yellen could be the last piece of the puzzle tonight. A hawkish rhetoric is making the previously unthinkable (except here) thinkable in the shape of a Fed. Hike entirely possible at the mid-March meeting. The odds of this on the street are now running at over 90%, up from only 20% a couple of weeks ago. U.S. yields are rising in anticipation along with the U.S. dollar undermining precious metals undermining gold and silvers appeals as assets. Gold falling $20 overnight from 1250 to 1230 and silver collapsing a whopping 3.50% to 17.7600.
The safe-haven call that has also supported the precious metal complex seems to be fading as well. Most particularly in regards to the upcoming French Presidential elections. Far right Marie Le Pen appears to be becoming embroiled in her misuse of funds scandal sapping her campaign hopes. This is increasingly leaving centrist reformer Maçron a clear run, with traders singing “Hey Maçron-ena” as the dust clears and risk subsides.
Looking at both from a technical picture,
GOLD
Having rejected the 200-day moving average at 1262 a few days ago, gold has steadily declined. Gold gave up 1250 overnight as well, and these two levels now form major resistance to a new rally.
With gold trading at 1234, the overnight low around 1230.50 is initial support. This is followed by the more key level at 1215.80, a previous daily low and 1212.80, the 100-day moving average. A break of the overnight low could trigger more stop-loss selling.
SILVER
Collapsed 3.50% overnight from 18.4500 to 17.6600 before managing an anaemic bounce to 17.7750. Liquidity, or the lack of it, always plays a part in strong silver moves, with the tendency of traders to stampede through a minuscule exit door, exaggerating the moves.
Silver has broken support at the triple bottom at 18.2270, the up channel at 18.0600 and the 200-day moving average at 18.0080. The latter being the most significant. These all become resistance now.
The overnight low at 17.8650 is first support. Much like gold, a break here may trigger more stop-loss selling from short-term traders. Following this is 17.2375 and then, more importantly, 17.2140 and 17.1400, the 100 and 55-day moving averages respectively.
Summary
Fed. Chair Yellen’s speech tonight is the last piece of the puzzle and is the key event risk. The tone of which will set the direction of the next big move in the U.S. dollar and by default, the direction of most other assets. A hawkish rhetoric would mean the March FOMC is live and could mean that precious metals have their own 007 moments as U.S Bond rates rise from the dead.