Precious metals have been resilient on the recent uptick in volatility when the downside has been tested. Despite the sharp drop in prices we often see in our market, gold has continued to hold the low $1,220.00’s and silver has again bounced impressively after recent dips below $17.00. Physical demand which had slowed a bit at the recent loftier levels has once again picked up as traders and investors continue to look for price points to enter the market. The recent rise in U.S treasury yields has done little to strengthen the USD which, in my opinion, still feels vulnerable to weakening, this should support higher precious metals prices. As we saw yesterday, economic data here in the U.S. continues to be mixed at best. The decline in durable goods orders last month coupled with a fall in the Conference Board’s consumer confidence index weakened the USD as gold and silver reversed early losses, moved higher throughout the day and the rally continues this morning.
This afternoon brings us a statement from the FOMC which is concluding a two day meeting. While a rate hike today is not expected, the tone of the statement should give a clearer picture on what Chair Yellen and her colleagues intend to do at the next meeting, which does not take place until June. In recent days, many market participants and commentators who were not looking for a June hike have changed their opinion and believe June will bring a quarter point hike. I continue to think the rate hikes, if they do come, will not begin before September.
While silver continues to impress with the gold silver ratio falling below 72, I think gold needs to take over the leadership role. Gold should find support in the mid to upper $1,230.00’s and again at the previously mentioned low $1,220.00’s. A break below $1,220.00 could set us up for a test of $1,180.00. Rally attempts above $1,250.00 are likely to be met with short term traders taking profits and a bit of producer selling as we approach month end. A benign FOMC statement today could propel us back to $1,265.00. Keep an eye on crude oil which is up another two percent this morning as the market tests $45.00. Further gains in crude could support a rally in gold to $1,285.00 – $1,300.00.
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