Gold and silver have both seen big turnarounds this week, with gold hitting a three-month high and silver seeing a huge surge. There are some investors wondering if the rally will be sustainable, but the technical indicators are looking good.
The dollar finally lost some strength and U.S. Treasury yields took a tumble, driving investors toward safe haven assets like gold and silver.
“There have been vicious reversals in precious metals, with Gold +5%, Silver +14%, Platinum +9% and Palladium +11% the past five days,” said MKS PAMP metals strategist Nicky Shiels. “Gold has essentially erased 1/4 of the downtrend channel worth $460 from March ’22 peak to its September trough, which started from its invasion/war peak price at $2,070/oz; silver has clawed back 2/5th – in 3 days of the same downtrend channel.”
Rate Hikes, Rate Yikes
With rate hikes around the world pushing the global economy into a recession, the United Nations urged the Federal Reserve and other central banks to ease up. “There’s still time to step back from the edge of recession,” UNCTAD Secretary-General Rebeca Grynspan said. “We have the tools to calm inflation and support all vulnerable groups. But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”
Additionally, a rough jobs report or an indicator of a collapsing labor market could also inspire the Fed to pull back. OANDA senior market analyst Edward Moya said, “It is too early to say a Fed pivot is justified, but if we continue to see a couple sharp drops with job openings, that will wake up the doves in the FOMC.” He continued, “Gold’s bottom is in place now that the U.S. is showing clear signs the labor market is softening. The key for gold will be the nonfarm payroll report. As long as we don’t see an extraordinary strong print, gold should remain supported here and poised to test the $1,750 region.”
FXTM’s senior research analyst Lukman Otunuga sees good news for gold’s technical picture, with a breakout above $1,700 opening the doors to $1,724 and $1,760, while a dip under $1,700 could put the next level of support at $1,680 and $1,655. “Market speculation around the Fed adopting a less aggressive approach on rate hikes has also sweetened appetite for zero-yielding gold.”
Investors can get exposure to gold through the Sprott Physical Gold Trust (PHYS) or the newly launched Sprott ESG Gold ETF (SESG), which sources gold from environmentally friendly mines. Silver exposure can be acquired through the Sprott Physical Silver Trust (PSLV). An equities play is possible through gold miners such as the Sprott Gold Miners ETF (SGDM) or the Sprott Junior Gold Miners ETF (SGDJ).
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