The precious metals sector moved higher in light of Fed’s rate hike and the follow-up comments and the question is if it changes anything. Generally, it doesn’t - at least not yet. In today’s alert, we wrote the following about gold:

“Another small upswing is still not out of question, but – as it was the case previously – it doesn’t seem that it would be significant. Whether we get a small upswing before the big slide or the big slide without an additional upswing beforehand could depend on how the markets interpret what they hear in today’s announcement from the Fed.”

Gold is up less than $20 ($18 higher at the moment of writing these words), which is an upswing that is not particularly significant (well, maybe it is for day-traders, but as far as outlook is concerned, it doesn’t seem to change anything). Gold is just a few dollars above its 50-day moving average and it could easily be the case that today’s session simply serves as verification of the breakdown below it.

Silver didn’t even manage to rally back to its 50-day moving average. Mining stocks moved higher more visibly, but that’s still not very surprising.

As far as mining stocks are concerned, on Monday we wrote that miners could show more strength than metals (if that happens at all that is). It happened to a quite significant degree, but it’s not something totally surprising.

The key thing here is USD’s performance - it dropped substantially, but did this change the outlook or was surprising? In today’s alert we wrote the following:

“It appears that the bottom for the USD Index is indeed in, but we would still not be surprised if it declined one final time before turning up (reversing very close to its turning point). As discussed earlier – this could depend on the way the market reacts to the Fed’s comments, but the outlook for the USD Index remains bullish either way.”

The USD Index moved temporarily to 100.62 and the nearby support levels are at 100.73, 100.5 and 100.37. Consequently, the USD Index was very close to these levels and since tomorrow is USD Index’s turning point, it appears that today’s action marked the end of the corrective decline. With a very bullish outlook for the USD Index, the big decline in the precious metals sector continues to appear very likely, despite today’s few-hours-long rally.

Besides, please note that the uncertainty regarding the Dutch elections also adds fuel to gold’s rally - uncertainty that will be gone in just several hours. Consequently, we have yet another reason to think that the overall uncertainty will decrease and that the same will happen with the precious metals’ prices. The turning point in the USD Index is tomorrow, so we may not have to wait for long for the big slide to be resumed.

As always, we’ll keep you updated.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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