Gold: Fed Hawkishness Weighs on Yellow Metal

The yellow metal came under pressure this week as reports indicated that Republican senators are backing Stanford professor John Taylor to become the next President of the Federal Reserve. Taylor is viewed as a hawk who would likely normalize policy at a much faster rate which would weigh on the outlook for gold. The market is currently pricing one interest rate in December and one more next year, below the Fed’s current projections of three increases in 2018. However, if Taylor does achieve the position, the market will likely reprise their rate expectations leading to downside pressure on gold.

Losses in gold this week were limited, however, as geopolitical tensions kept a bid under the precious metal which is often used as a safe haven. A senior North Korean diplomat said that warnings from the country’s foreign minister, regarding a nuclear missile test over the Pacific Ocean, should be taken literally.  Ri Yong Ho, North Korea’s Foreign Minister, said in September that North Korea are considering “the most powerful detonation” of a hydrogen bomb over the Pacific Ocean.

After finding support at the rising trend line from year to date lows, gold has since seen momentum stall. To the topside, the next key resistance will be a test of the 1295.70s level which has been a pivotal level over the year. To the downside, the next key support will be a test of the 1260.50s October low.

Silver: Caught In The Crossfire

Silver prices stagnated this week, caught between the cross flows of a stronger US Dollar and rising geopolitical tensions. Despite the lackluster directional moves, purchases have been on the increase with the latest CFTC data showing that speculative long positions grew by 71% between August and October whereas silver prices only rose 2.4%.

For now, silver prices remain contained within a broader contracting triangle pattern that has framed price action over the last year. Momentum players are likely to join the market on a break of either side of the pattern.