It’s been another frustrating week for gold bulls. Price battled to move higher, but once again stayed capped by recent highs to end the week back inside last week’s range.
While momentum has contracted somewhat, gold has posted its eighth consecutive winning week, a streak not seen since 2006.
Gold Boosted By Fed Easing Expectations
The main driver for upside in gold this week was the release of the June FOMC meeting minutes.
In the June meeting, the Fed outlined the likely need for monetary easing in the near future. Since then, the market has increased bets on a July rate cut. Consequently, the minutes took on extra importance as traders sought further clarity on the likelihood of a rate cut this month.
FOMC Minutes Support Rate Cut
The minutes did, indeed, confirm the Fed’s bias towards easing. The minutes stated:
“Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook.”
Indeed, “Several” policymakers noted their preference for a rate cut in the coming months. They judged that it “could help cushion the effects of possible future adverse shocks to the economy.”
However, the minutes didn’t show unanimous support for a rate cut.
“Some participants suggested that although they now judged that the appropriate path of the federal funds rate would follow a flatter trajectory than they had previously assumed, there was not yet a strong case for a rate cut.”
Market Looking For July Fed Rate Cut
While the latter phrase adds some doubt, the market is still fully behind a July rate cut. ]
The CME group’s Fed Watch tool is showing a near 80% chance of a .25% rate cut. This should keep gold further supported.
The current price action in gold reflects the indecision in the market and the contraction in volatility and momentum. Price continues to oscillate between the 1435.26 resistance level and the 1392.57 support level. Any break of the downside level will bring deeper support, around 136.94, into play. While above this level, focus remains on further upside in the near term. A break of the topside resistance will put focus on a run-up to 1478.83 next.
Panning out to the weekly chart for a moment, it is worth noting that we have a large tweezer top in play with two large bearish pin bar candles. This highlights the risk of potential downside in the coming weeks and months.
Silver prices have been higher this week too, taking advantage of a weakened USD amidst increased easing expectations. While metals have been receiving upside support from dovish Fed expectations, optimism around a potential US/China trade deal is keeping upside capped.
While we have yet to receive any further details in the wake of the Trump/Xi meeting, the market is remaining hopeful, reflected in higher equities prices, which are also constraining the current moves in metals.
The recent bounce off the 14.9161 level support in Silver has stalled around the 15.1740 level, roughly midway to the next key resistance level around the 15.6351 region where we also have the long term bearish trend line. This will be a key test for silver and a break above that level could pave the way for a much longer term reversal in the market.