Key Points:
- Silver and gold likely to begin a recovery moving forward.
- Risk appetite may not be as great as it appears at first glance.
- FOMC unlikely to deliver a rate change and impact the metals.
It is always prescient to look at gold and silver prices in the lead up to an FOMC meeting and this time is no different. As a result, we will be investigating both the technical and fundamental factors that are likely to be impacting the metals over the coming days to try and establish a bias.
Beginning with gold’s technicals, it is a generally simple story here and the EMA readings give us most of the information we need. Notably, the 12, 20, and 100 day averages are arranged in a fairly bullish fashion and the formation of a doji candle is hinting that the 38.2% Fibonacci level is set to remain in place. This will come as little surprise given that this point also falls in line with a rather visible and long-term point of inflection around the 1251.35 handle.
As for silver’s technicals, these are a little more complex as the moving averages are actually contrary to the rally that we are forecasting for the two metals. Luckily, similar to gold, silver has seen a doji candle with a very long shadow form in the prior session just as price action challenged a robust historical support. Typically, this would indicate that bearish momentum is running short and that we are about to see a strong reversal, a forecast reinforced by the highly oversold RSI reading.
Moving onto the fundamentals, the role of these two metals as safe havens may raise questions as to why a rally is forecasted given the seemingly risk-on approach being taken by the market recently. Indeed, the VIX has been tumbling lower over the past fortnight, sinking from around the 15.00 mark all the way back to its current 10.47 reading. In line with this, stock prices have moved back to challenge March’s highs which is also a signal of increased risk appetite.
However, if we investigate what has been going on in the bond markets we see a slightly different story unfolding which could hint that underlying fears are greater than it might seem at first glance. More precisely, stocks are no longer strongly outperforming bonds and the two assets classes are delivering similar returns. This shift back towards the relative safety of bonds suggests that we could quite easily see a shift in sentiment capable of driving both gold and silver higher moving ahead.
Ultimately, we may need to see another geopolitical shake up from Trump and friends before we get enough momentum in place to see this underlying market fear capitalised on. However, the near-term technical bias should at least prevent further losses for silver and gold amid the increased volatility in the lead up to the FOMC meeting. Additionally, given we are very unlikely to see rates changed, this technical bias could spark a decent rally in the wake of the announcement which is worth keeping in mind.