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Metals Rally Pauses For Now 

The metals complex is seeing a weaker opening on Monday with both gold and silver trading in the red as European markets open. Gold has enjoyed a strong start to the year ahead of the recent soft patch with gold futures rallying around 7% off the YTD lows, trading up to levels not seen since Q2 2022. With the US Dollar has started the year on a weak footing, the outlook for metals looks fairly clear; should USD continue lower, metals have room to break higher, and any reversal higher in USD, metals are vulnerable to a reversal lower.

With this in mind, the key focus for metals traders this week will be the FOMC meeting on Wednesday. The central expectation is now for the Fed to pivot further via a smaller .25% rate increase. With the move well expected, the bigger focus will be on the Fed’s guidance. If there is any indication that the Fed will be looking to pursue a slower pace of tightening or even bring forward the likely end point/date of tightening, this will be firmly bullish for metals, with USD likely to come under heavy selling pressure. However, should the Fed surprise by either sticking to a .5% hike or sticking with its hawkish outlook on rates (to end above 5%, to continue through 2023), this could well see metals coming off as the USD rebounds.
 

Technical Views

Gold

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The rally in gold prices, framed by the narrow bullish channel off last year’s lows, has stalled for now with price drooping back onto the 1916.34 level, which is holding as support. While this level holds, the focus is on a continuation higher with 1973. 51 the next key upside level to note. However, momentum studies are weakening here, raising the risks of a reversal lower. Should price move back under current support, focus shifts to the channel lows and 1871.04 as the next key support area.

Silver

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The rally in silver prices off last year’s lows has seen the market stalled firmly into a test of the 24.0073 level. This area has capped price since early December and shows no signs of letting up yet. Despite the market having broken below the rising channel off last year’s lows, the fact that 24.0073 is acting like a magnet for price reflects pent-up bullish pressure, keeping the focus on an eventual break higher.

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