Forex Trading Library

Metals Shining But Remain At Cross Road

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Metals have been rising for the past three weeks, including this week, and reached the highest level in six weeks.

There were many factors that led to such rally. However, what is important is that Gold and Silver proved that they are strong enough to continue their trend for this year.

Fundamental Catalyst

As said before, there are many factors involved, and most of the factors are fundamentals and not technical moves.

The most recent catalyst was the Federal Reserve decision, which gave the market a clear sign that the Federal Reserve is taking a step back.

The latest statement showed that the Fed took off the following sentence “trimming the balance sheet later this year” instead, the Fed replaced it with “trimming the balance sheet relatively soon.”

This means that the Federal Reserve is no longer thinking of selling its bond holdings this year, and might think about it later next year, depending on the economic activities.

This is a game changer, as Bond Yields are likely to remain under pressure, as the risk of selling is no longer in place. In return, investors will be looking in to higher return through metals.

USD Weakness

The US Dollar declined across the board right after the Federal Reserve decision, especially as the Fed did not mention the possibility to raise rates in September.

Moreover, the Fed Fund Futures are pricing in less than 45% chance for one more rate this year. If the economic activity keeps on declining, the estimates for a hold until the end of the year is likely to increase in the coming months. In return, the US Dollar is likely to keep on declining.

Gold At 61.8% Fibo

Gold prices managed to rise right from its support area, which stands at 1210, after breaking its Higher Lows pattern, which lasted since the beginning of the year.

Gold retraced by more than 50% and broke above its entire moving averages on the daily chart, including the 50, 100 and 200 DAY MA, with a clear daily close above these levels.

Yesterday, Gold’s rally stalled at $1260’s areas, which represents the 61.8% Fibo as shown on the chart, which should be watched very carefully over the coming days.

In the meantime, 1260 is considered as a cross road, whether it breaks higher, or we should expect another leg lower

Today’s daily candle is supporting the idea of another leg lower, especially that Gold is forming a bearish shooting star until this report is released. However, the downside pressure is likely to be limited above 1250.

On the upside view, a break above $1260’s is needed to clear the way for further gains, probably above $1270 and $1280.

Silver Testing Trendline

Silver managed to stabilize well above$16, recovering from the flash crash that occurred at the beginning of this months.

Silver also recovered above its 50 DAY MA for the first time since Mid-May, which seen as a positive signal on the short term. However, Silver is now testing its daily down trend line resistance, which should be watched very carefully, as a break above that key resistance is needed to clear the way for further gains.

If so, the way would be open to testing the rest of the MA’s including 100 and 200 around $17.50. Otherwise, a failure to do so, the risk of another leg lower would be higher, with a possibility to test the $16 once again.

 

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