Fed’s Powell has never been so elaborative where he sounds cautious on future job markets and added comments on the US economy and inflation prospects on globalization. He also stressed on a reverse theme, which means the global trade (inter-country) might shrink going forward, and factors may be running war with China. Later, the Fed’s Evan released a strong statement stating, “witness a slowing pace of hikes to 0.25% steps before December” - maybe all these helped recede the USD index at 103.4.
Precious metals could continue to struggle as the US dollar trades around its highest level in 20 years, much to the chagrin of the gold dealers in Mumbai. The widening gap in global monetary policy, with the Federal Reserve leading the charge on interest rate hikes, is supporting the US dollar’s current rally. There are growing expectations that the Federal Reserve will raise interest rates by 50-basis points at the next three monetary policy meetings.
By Wednesday/Thursday, the US markets sank to almost CY 2022 lows. This nasty fall in US Dow -1200 overnight, after leading a pivotal fall from -6% to -28% in a single day, (Walmart, Tesla, Target, Apple etc.) add this fall. It continued as Fed members commented on the interest rates going forward. The notable Mr Harker said - "0.50% in June and 0.50% in July policy, only then the Fed will achieve the 2% target inflation".
Most of the policy thinkers in G-7 are brainstorming on averting stagflation, recession, and how to deal with hyperinflation. Still, the equity markets are witnessing a real carnage as liquidity support has been withdrawn (Earlier stimulus and now balance reduction across). Amidst all this, a hope from China to open up in June as they mention allowing more business options in zero covid areas. This should act as a booster for most base metals, following suit, silver will not lag, giving the gold dealers in Mumbai a sigh of relief.
Gold is bouncing from the lows of $1800, but the overall trend still is bearish, according to the largest gold dealers in India. A small bounce might be because gold prices are trading near an oversold region, but investors are reluctant to take long positions when fundamentals point to lower prices. The rally in the US dollar and treasury yields is providing a lid on gold prices. The entire premium from the war between Russia and Ukraine has been eroded away, and even if the conflict worsens, we may not see any spike in prices as investors are focused on inflation and higher interest rates.
We see the short-term path of least resistance shifting to gold and silver, as the markets have consistently disappointed the bull camp over the last 30 days. In fact, without the very significant range down the action in the dollar resuming, fresh modest economic optimism and a pause in hawkish Fed dialogue, gold and silver look to stall and chop newly established ranges. However, if pushed into the market, we prefer selling rallies in gold above $1828 and selling rallies above $21.77 in the July sale.
