Spot gold and silver continued last Friday's decline on Monday. During the European trading session, spot gold and silver fell by more than 1% during the day. Spot gold broke through the three major levels of 1870, 1860, and 1850 during the day, hitting a new low in the past month. The intraday decline expanded to 1.45%.
Demand for the Federal Reserve’s overnight reverse repurchase facility surged to a record $547.8 billion on Friday, reflecting financial institutions’ swelling liquidity.
That could reignite concerns about the Fed tapering off its stimulus program as markets appear to be overly liquid, prompting the Fed to phase out its monthly bond-buying program. Investors will be closely watching this week's FOMC meeting for clues on the Fed's views on recent economic developments, inflation and adequate liquidity conditions.
Looking back at 2013, after two years of active reverse repurchase operations, the Federal Reserve raised interest rates for the first time after the global financial crisis at the end of 2015.
This observation reinforces the possibility of a rate hike in 2023 if liquidity remains sufficient. As a result, the U.S. dollar index rebounded to a one-month high near 90.5 on Monday, weakening precious metal prices.
Strategists including Mislav Matejka of JPMorgan Chase & Co. said stimulus tapering is expected to start early next year as Fed policymakers move to normalize policy. The Fed will begin discussing the path to tapering and may hint at the timing of implementation in the next few meetings. Tapering is set to begin, although the Fed's stance that inflation is "transitory" will be confirmed.
In addition, recent comments from U.S. Treasury Secretary Yellen also appear to be boosting the dollar and weighing on precious metal prices. She said a "slightly higher" interest rate environment would be "positive" for both the United States and the Fed. That strengthened the outlook for reflation and echoed comments from several Fed officials about starting a tightening debate.
But there are still bullish factors for gold and silver. The Federal Reserve's balance sheet exceeded $8 trillion last week as the Fed adopted unprecedented monetary stimulus measures to allow the economy to recover from the epidemic. The continued expansion of the Federal Reserve’s balance sheet may support gold prices.
DailyFX analyst Margaret Yang believes that technically, gold prices fell below the bottom of the upward channel, which may indicate that a bear market trend is coming. Gold prices have also broken out of a wedge pattern, suggesting further losses, with support at the 38.3% Fibonacci retracement level at $1,828.
Additionally, the MACD indicator has formed a bearish crossover and is trending downwards, indicating that the bullish momentum may be weakening and a technical pullback may follow.
Source: Golden Ten Data
