After the gains, we saw “Post-FOMC,” Gold and Silver became vulnerable to profit-taking, which triggered long liquidation followed by stop-loss selling and further disbelief. The surprise rate cut by the Swiss National Bank and the pivot by the Bank of England fired warning shots early Thursday morning that Gold and Silver’s rally was to be short-lived. Breaking down the composition of the U.S. Dollar basket, the British Pound makes up an 11.9% inverse correlation while the Swiss Franc is 3.6%. In the early hours of Thursday’s run-up in Precious Metals, the Swiss Franc collapsed, and the British Pound technically formed an “outside bearish reversal” similar to Silver, which fueled early U.S. Dollar strength and led to one-month highs in the greenback. On a 30-day rolling basis, Gold has an 89% inverse correlation to the U.S. Dollar.
I suspect we could see limited selling pressure in Precious Metals, which should dry up early next week. According to the median dot plot, the Fed still maintains three interest rate cuts in 2024 and cites “higher growth, lower unemployment, and slightly higher core inflation.” As long as we have lower real rates, continue Central Bank buying along with retail demand, and geopolitical hedging, the depth of the correction should remain shallow.
Daily Gold Chart
Gold futures posted fresh all-time highs this week, hitting $2225/oz before liquidation set in. Technically, Gold maintains a “Bullish intermediate trend” as long as prices remain above $2104; however, I disagree with giving that much flexibility on the charts. For weeks now, the line in the sand has been $2145, where any close below that level without an immediate recovery in the following trading session leaves the market susceptible to a swift decline to $2104. It will take a close above $2200 to attract fresh money and further ETF buying.
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Daily Silver Chart
After reaching multi-month highs this week, Silver forged an outside bearish reversal on the charts. You achieve this by making a higher intraday high than the previous day’s high while closing the session below the previous day’s low. Traders will want to see a close above $25.41/oz to fuel more speculative buying while maintaining prices above $24.04 as your critical level of support.
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