Gold prices today gained in Asian trading hours rebounding from recent lows which was a result of Hawkish commentary by the Fed more than the rate hike. A persistent stronger U.S dollar index is still capping the positive movement in the yellow metal.
Gold is trading a 0.48% or $5.45 higher with silver following up with a 1.28% or $0.205 gain.
Gold prices had fallen overnight to settle at 10 month lows on account of risk on trades in developed markets across the globe.
Demand for the yellow metal has fallen in India due to liquidity crisis caused by demonetization drive who is one of the largest importer of physical gold.
Weekly Gold chart suggests a support at $1131.5
Weekly Silver chart suggests a support at $15.850
Last night Federal Reserve of America hiked the interest rate by quarter of a percentage point as expected along with a strong hawkish commentary. A 3 time rise of interest rate in the next year and similar pattern till 2019 was the forecast by the Fed which sent the equity as well as the commodity markets spiraling down with Dollar index the key beneficiary gaining over 1%.
Since morning yet again the dollar index is gaining momentum as the day progresses with a hike of 0.43% at 102.47 last checked during the opening hour of European trading session.
Now what lies in store along the path with a Higher Dollar index? its precious metals as well as emerging markets which are feeling the heat of a stronger dollar with Asian markets closing in red with substantial cuts excepting Japan which traded higher on account of a weaker yen, India trading almost flat and European markets trading modestly higher with a positive bias, also American index futures showing a hint of green too.
This suggests fund flows into Developed markets rather than Emerging markets, which was earlier vice versa in this year with EMs getting most of the attraction around the globe.
Dollar index technically has room for more upside with gains possibly facing resistance around 102.81 level according to the bullish trend line where as a breakout above this level opens up the corridor towards 104 mark.
Just hours before the critical decision of Federal Reserve of America for a highly anticipated rate hike which duly has been factored in by the capital markets across the globe, precious metals are trading in positive territory with gold up 0.4% or $4.6 at $1163.60 and silver up 0.59% or $0.101 at $17.078 where as dollar index is trading slightly in negative zone with a 0.16 0r 0.16% cut at 100.92 during the Asian hours of trading.
How are the technicals of both metals shaping up ? i have already covered gold in this post – Gold ready to glitter back again
Technically daily Silver chart is showing a median point of $16.836 which is derived out of the merger of 2 trend lines criss-crossing at that point.
Bullish trend line suggests a price movement towards the $18 level while on the other hand bearish trend line suggests a move slightly lower than $16 making the $16.836 level more or less placed at 50% between the 2 decisive points.
This price point can likely act as a good support in short term, a decisive violation may result in sub $16 pricing for this shiny metal.
A rebound rally is expected to be in store for silver as most of the negativity arisen due the Fed rate hike is already in the price but a knee jerk reaction towards the level of $16.836 may not be ruled out either when the policy is announced later in the day.
Gold and gold mining stocks have been under pressure for quite a while due to higher dollar and has struggled to rally resulting in extremely oversold conditions.
Even though making a new low last week the sector seems to be set up for a rebounding phase.
The ever so crucial Federal Reserve of America policy outcome on Wednesday can strike a bullish tone as a rate hike has already been factored in the price confirmed by a combination of a higher dollar index and a grinding lower precious metal prices.(A higher dollar index has long been slated as extremely negative for precious metals).
Even a hawkish commentary might not be able to push gold prices to a new low as most negativity is already in the price thus making the situation highly likely for a rebound in the precious metal sector.
Technically gold is having a key support at $1144, with the range of $1144-$1162 acting as a wide support in the chart.
A test of $1144 before rebounding may not be ruled out either which can be a possibility on the policy day.
Daily Gold chart showing the key support lines.
For gold stocks, it would be a similar to gold price movement, that is they can also move a little bit down before start of the rebound.
Above technicals have a conflicting scenario that gold and gold mining stocks could drop a little bit more before starting the rebound. This drop may happen immediately after the policy by Federal Reserve of America is announced on Wednesday.
Once this is over the sector could be in a position to a Post-Fed rally as expected.