- Precious metals continue to see selling pressure ahead of anticipated US rate hike
- Sharp build-up in speculative gold longs left it vulnerable
- Silver reversal last week after slowing momentum and failure to break $18.40/oz
- 8 weeks of money-manager buying has left silver vulnerable to sentiment change
- Upcoming FOMC meeting has triggered such a sentiment change
- Silver risks deeper correction as low as $17.33/oz
- Gold is looking for technical support of $1,222/oz and $1,212/oz
- Maintain bullish bias on silver and gold, challenging week ahead calls for caution
By Ole Hansen
Precious metals continue to see selling pressure as the March Fed rate hike looms large. A sharp build-up in speculative gold longs in the week to February 28 has left it vulnerable, with the focus on the March 15 Federal Open Market Committee meeting. This follows the failure to extend beyond $1,262/oz, its 200-day moving average.
Silver meanwhile took a hit last week when slowing momentum and a failure to break above $18.40/oz triggered a reversal which gathered pace once the price slipped back below support at $18.15. Eight consecutive weeks of money-manager buying had taken the net long to a six-and-a-half-month high. This rapid build-up left it vulnerable to any short-term sentiment change.
A sentiment change has once again emerged ahead of an FOMC meeting. This is not least due to the aforementioned rapid build-up in long positions. The probability of a March 15 rate hike has risen to 84%, according to CME's FedWatch tool
, and with that we have seen the dollar strengthen and bond yields rise.
Gold also weakened in the run-up to the previous two rate hikes in December 2015 and 2016, only to rally once the uncertainty was out of the way. We see a high probability of this scenario unfolding again. There are still multiple tail risks, which should attract demand from investors seeking diversification.
Gold is looking for technical support at $1,222/oz and $1,212/oz, the 50% and 38.2% retracements of the January-to-February rally.
Silver is currently touching trendline support, but remains at risk of a deeper correction towards $17.54/oz, or potentially even $17.33/oz.
Overall, we maintain a bullish bias on both silver and gold, but a challenging week ahead calls for caution. We suspect that most of the long liquidation and position adjustments have occurred already, but traders are probably not in any hurry to rebuild positions at this stage.
– Edited by Jack Davies
Ole Hansen is head of commodity strategy at Saxo Bank