Upbeat U.S. Economy and Hawkish Fed Continue to Pressure Gold

Last week’s FOMC meeting resulted in statements and policies that reflect a robust U.S. economy, which is recovering from a dramatic recession. As such, actions and statements had a much more hawkish tone than previous FOMC policy meetings. Not only did the Fed announce a much-anticipated interest rate hike last week, but they also revealed their intentions to add one more interest rate hike this year. That fits within previous statements made by the Fed, but more importantly, shows that the U.S. economy has been robust and can handle a normalization of interest rates as laid out by the Federal Reserve.

New to the mix is the information revealed as to the mechanics and timetable of a series of asset liquidations from the Fed balance sheet. Immediately following last week’s policy meeting, both in written statement and comments made by Janet Yellen, was evidence of the Fed’s desire to initiate this process of “normalization” this year.

The net result of Fed statements and a robust U.S. equities markets has been substantial pressure on the precious metals complex as a whole. Gold has begun this week trading under substantial pressure, with gold futures closing down by over $10 today at $1246.20, a net loss of -0.82 % on the day. Silver, also trading under pressure, settled at $16.455, giving up $0.20 on the day and resulting in a net loss of -1.24%.

Both gold and silver have now entered the third consecutive week of lower pricing. In the case of gold, today’s declines have taken current pricing to just below a 61.8% retracement of the most recent rally. After trading to a low of $1213 per ounce during the first week of May, market forces drove prices higher, reaching an apex at $1298 per ounce during the first week of June. Since then we have seen gold trade under dramatic pressure, giving up the vast majority of its gains, and today settling at $1246 which is precisely a 61.8% retracement of the former rally.

If gold continues to decline, the next logical price point to look for potential support would be the 78% retracement of the most recent rally, which falls at $1232 per ounce. Although the fundamental news currently moving gold prices lower could subside at any moment, current market sentiment continues to be bearish across the board for the precious metals markets.

At the same time, it must be noted that gold prices are currently at a level that commonly has been referred to as a technical support level during any kind of correction found within a bullish rally. The 61.8% retracement area is a critical area that should be held if gold is to maintain a bullish long-term posture.

Wishing you as always, good trading,