Spot gold and silver on Monday extended the decline on Friday, the European session spot gold and silver fell by more than 1% during the day, spot gold broke 1870, 1860, 1850 three hurdles in a row during the day, hitting a new low of nearly a month, before the U.S. intraday losses expanded to 1.7%, from the daily high back down 30 U.S. dollars.
COMEX most active gold futures contract 20:46 one minute trading plate instantly traded 3162 lots, trading contracts worth a total of $584 million.
The U.S. market opened with a reversal, with spot gold narrowing its losses and regaining above $1,860 per ounce and spot silver turning up.
On Friday, demand for the Fed’s overnight reverse repo instrument soared to a record $547.8 billion, reflecting the swelling liquidity of financial institutions.
This could reignite concerns about the Fed’s tapering stimulus program, as markets appear to be over-liquid, prompting the Fed to phase out its monthly bond-buying program. Investors will be closely watching this week’s FOMC meeting for clues to the Fed’s views on recent economic developments, inflation and the state of adequate liquidity.
Recall that in 2013, the Fed conducted its first rate hike since the global financial crisis in late 2015 after two years of aggressive reverse repo operations.
This observation reinforces the possibility of a rate hike in 2023 if liquidity remains sufficient. As a result, the dollar index rallied to a one-month high near 90.5 on Monday, weakening precious metals prices.
Strategists such as Mislav Matejka of JPMorgan Chase said that stimulus tapering is expected to kick in from early next year as Fed policymakers move to normalize policy. The Fed will begin discussing the path of tapering, and may hint at the timing of implementation in the next few meetings. The reduction will start, although the Fed’s position that inflation is “temporary” will be confirmed.
In addition, U.S. Treasury Secretary Yellen’s recent comments also seem to be boosting the dollar and depressing precious metals prices. She said that the “slightly higher” interest rate environment is “favorable” for both the U.S. and the Fed. This strengthens the outlook for reflation, while echoing the comments of several Fed officials about starting the tightening debate.
But gold and silver are still positive factors, the Fed’s balance sheet exceeded $ 8 trillion last week, as the Fed took unprecedented monetary stimulus measures to make the economy recover from the epidemic. The continued expansion of the Fed’s balance sheet is likely to support gold prices.
According to Margaret Yang, an analyst at DailyFX, technically, gold prices have fallen below the bottom of the upward channel, which could signal a bear trend to come. Gold prices have also broken the wedge pattern, suggesting further declines with support at the 38.3% Fibonacci retracement of the $1,828 level.
In addition, the MACD indicator has formed a bearish crossover and is trending lower, suggesting that bullish momentum could wane and a technical pullback could follow.
However, independent analyst Ross Norman believes that gold prices rebounded strongly after falling below $1,850 per ounce, suggesting that shorts agree that the support level will support gold prices at least until the Fed resolution and have taken profits to close their positions, anticipating that it will be difficult for gold to continue its downside in the short term.