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Metals Sell-Off Pauses… But For How Long?

Both gold and silver have seen a rather muted start to the week with the metals each roughly trading around their respective opening prices after seeing moves on both sides of the market. On the back of the further losses suffered in the metals complex last week, the initial outlook on Monday is for both metals to continue lower this week driven by a stronger US Dollar and the return of hawkish Fed expectations.

A slew of better-than-forecast US data recently has caused a shift in the market’s expectations regarding Fed policy. These better data points, along with a fresh uptick in inflation, have fuelled an increase in pricing for a larger .5% hike in March along with the view that the Fed will push ahead with tightening for longer than initially expected this year.

The reaction in metals has been significant with gold and silver retreating around 8% and 17% respectively from YTD highs. Looking ahead this week, there will be more US data releases and Fed speakers to keep an eye on kicking off with durable goods and Fed’s Jefferson today. Any further rally in USD will be bad news for gold/silver bulls near-term.
 

Technical Views

Gold

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The sell-off in gold has seen the market reversing heavily from the 1973.51 level. Price has now broken down out of the bull channel from last year’s lows and below the 1871.04 level. The market is now fast approaching a test of the 1791.63 level, with the 50% retracement from last year’s lows – YTD highs around there also. If bulls can defend this area there is still hope for a recovery. However, below there, the focus turns to 1728.89 and below next.

Silver

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The sell-off in silver has largely tracked the moves we’ve seen in gold. The market has reversed from YTD highs to break down below the bull channel from last year’s lows as well as recently breaking below the 22.3205 level. Price is now sitting on support at 20.6398 and, with momentum studies bearish, should we fall below, 17.9275 is the next big support to note. To the topside, bulls need to see price quickly back above 22.3205, at least, to alleviate bearish pressure

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