Waiting on the Federal Reserve’s statement and Powell’s press conference

Market analysts and technicians have been consumed as they analyze the multiple factors that had created bearish pressure on both gold and silver pricing. Of all these factors, there are two intertwined factors that seem to have the greatest impact on creating negative market sentiment towards gold and silver. These are dollar strength, which is a direct result of rising yields for U.S. government bonds and notes the other factor.

One perplexing aspect has been market sentiment as it pertains to interest rate yields on the U.S. Treasuries’ 10-year note. The Federal Reserve has been on record stating that they have a line in the sand in which they will not raise their Fed funds rate throughout this year and most likely into 2022. Concurrently we have seen real signs of an economic recovery which is resulted in market participants believing that interest rates will rise much sooner than the current timeline presented by the Federal Reserve. This dichotomy is the result of market participants possibly be more optimistic about the timeline than reality predicates. Chairman Powell has stated on multiple occasions that although recovery has begun, the timeline to return to pre-pandemic economic growth in years, not months away.

During Chairman Powell’s press conference set to begin on Wednesday, it is highly anticipated that he will underscore the Federal Reserve’s commitment to be patient and to maintain the current policy even though the economic outlook has absolutely improved over the last 4 to 6 months.

However, it seems as though market participants are yielding to the mandate by the Federal Reserve with the net result of yields lessening which occurred after a dramatic rise in the ten-year note to 1.610%. The yield was off by approximately 2.1 basis points at 1.614% as bonds moved in the opposite direction.

As reported in MarketWatch, analysts at Sevens Report Research wrote in their latest newsletter that, “Gold is attempting to stabilize after the recent pullback, but if Treasury’s bonds continue to fall sharply, prompting yields, which trade inversely to bonds, to spike higher, then it will be effectively impossible for gold to hold recent lows.”

One thing is absolutely clear, and that is that the Federal Reserve’s current mandate has stayed rock-solid, providing liquidity through the purchase of $120 billion worth of treasuries and mortgage-backed debt through their quantitative easing, which they have stated will remain in play for quite some time. They have committed to focus on their primary mandate, which is maximum employment, and let inflation run hot over 2% if needed to accomplish that goal.

In an article penned by Greg Robb, he said that, “Economists stressed investors must understand the U.S. central bank has a new policy framework that is tied to economic data, not forecasts. So, the central bank will want to see where the economy is later this year before even beginning to ‘think about thinking about changing policy. It is also the author’s belief that Powell may repeat that investors shouldn’t get fooled by the rapid decline in the official unemployment rate. He will continue to highlight 9.5 million jobs have been destroyed by the pandemic.”

This recent pivot in market sentiment has had the net effect of moving gold and silver prices off the recent lows and a return to both precious metals rallying to a higher value.

Gold futures basis, the most active April 2021 Comex contract, is currently trading in Australia on Tuesday morning and is fixed at $1729.70. Silver also closed higher on the day with fractional gains of approximately 3%, with the most active May contract currently fixed at $26.325.

We have certainly seen both gold and silver become extremely oversold and then pivot from the overall bearish market sentiment to a bullish demeanor. We would expect this trend to grow in strength, taking both precious metals higher over the next few months.

Wishing you, as always, good trading and good health,