Surging US Dollar Puts Pressure on Metals

It’s been a tricky start to the week for the metals market. Gold prices were seen breaking down to new lows for the year across the European morning on Monday. However, this move was then seen reversing with price trading back up to roughly flat on the day, as of writing. Silver prices, though, have seen more sustained selling pressure.

The main driver behind today’s downside action is the ongoing rally in USD. The Dollar Index was seen breaking out again today as the greenback continues its bullish run on the back of last week’s firmly hawkish FOMC. With the Fed admitting that elevated inflation is likely to persist for longer than anticipated, traders are anticipating a longer run of Fed tightening than was expected at the start of the summer.

With the idea of a “Fed pivot” losing steam near-term, the Dollar looks set to continue higher which should keep metals prices anchored lower. Additionally, with central banks across the globe caught in the same struggle to tame soaring inflation, global bond yields are continuing to raise, putting further downside pressure on metals prices as traders look for better returns elsewhere. For gold, at least, the drop in risk assets is creating some demand via increased safe-haven flows. However, the recent intervention from the BOJ means that the Yen is attracting greater safe-haven flows, leaving the near-term outlook rather lifeless for metals unless we see a material move lower in USD.

This week, traders will be looking to the next US consumer confidence and core PCE data releases along with comments from Fed’s Powell. Given the hawkishness built into the Fed’s view, it would likely take some severe undershooting on the data front to wobble USD.

Technical Views

Gold

The sell off in gold has seen the market testing the 1634.74 level today. While this area is holding as support for now, with both MACD and RSI bearish, the focus is on a further push lower towards news lows for the year. Topside, bulls need to see a break back above 1722.37 and the bear channel top to alleviate the bearish risks.

Silver

While silver prices are currently under selling pressure, price action is looking interesting here to the long-side. The current 18.4421 lows might prove to be the right shoulder of a large inverse head and shoulders pattern, suggesting room for a bullish recovery. Bulls need to see a swift move back above the 19.5643 level to encourage fresh momentum for a break of the higher 20.6398 level next.