The media is hyping this Fed meeting as one that may include a bit less dovish tone at Powell’s press conference after the the FOMC releases its latest inaction tomorrow. The media are of course following the rise in long-term yields as will the Fed, ultimately. Yields are spooking the market because yields spook the Fed, and a spooked Fed is a potentially jawboning Fed, as we’ve been noting lately. In my opinion the Fed is self-conscious about the inflation it creates and it needs to not be perceived as the agent of inflation that it actually is over the long-term.
Gold is a stable asset within the casino built around Fed policy. Gold is a barometer. For that and related reasons the precious metals are always front and center at sensitive Fed policy junctures. Since gold has been in correction for the better part of a year there is positive potential surrounding this week’s meeting. But there is also very short-term negative potential, which would be the elusive ‘final capitulation’ scenario that has thus far not come about.
So regardless of the word salad above, let’s be ready for all potential outcomes and look at the daily technical situations of gold, silver and HUI.
Gold held the channel bottom and the preferred support zone before putting on a bounce that persists this morning, pre-US open. Resistance begins in the mid-1700s. The intermediate trend is down and that will not change until the declining SMA 50 is taken out with authority and followed by a takeout of the SMA 200. But with a deplorable sentiment profile (contrary positive) and the tap of preferred support, not to mention the sheer duration of the correction, gold has done a lot of really good work. It is looking for a bottom.
Silver bounced before hitting the preferred support of the SMA 200. But that moving average is rising now to meet short-term lateral support. Until it takes out the SMA 50 and preferably the red long-term resistance line at 27.50 (upper bound of the long-term 26 to 27.50 resistance zone) it would be set up to make a test of the SMA 200.
Importantly, unlike gold’s downtrend, silver has maintained an uptrend by both its SMA 50 and SMA 200. The situation is technically intact and there is no rule that it must test the SMA 200.
HUI’s bounce tentatively broke through the 2nd and more important resistance level yesterday. Follow-through is obviously needed. But now the real obstacles start coming into play. If this resistance is taken out and held then the objective is the SMA 50 at 282 and the red dashed neckline at 290. Ultimately, to put the correction in the rear view mirror the channel’s upper bound and the SMA 200 (306.76) need to be taken out. Then a higher high to January’s high (325.26). As noted a few weeks ago, that is just the reality of the situation, much like gold. A lot of resistance is now built in. So as with gold, and unlike silver, HUI is a would-be bottoming situation.
Like gold HUI has satisfied significant downside targets, although the 62% Fib remains open at 230. On the plus side RSI is positive and the negative MACD is triggered up.
Bottom Line
It is an inflammatory news week. But what gold and HUI have going that the broader markets do not is a 7+ month long correction that has bled out a once upon a time unhealthy sentiment profile. Normally FOMC week is followed by ignominy in the gold sector. This week the sentiment that attended the sector into FOMC week is a contrary positive.
However, it is on a bounce and there is also the potential for FOMC week to act as it often does, and pressure the precious metals complex, which could bring on a final capitulation phase.
