Gold and Silver - Weekly Wrap - Sep 25, 2021 - Reliance Securities

Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities

Gold and silver prices remained range bound this week.

Prices initially moved up as fears about the solvency of Chinese property group Evergrande sparked a flight to safe-haven assets.

Additionally, short-term futures traders may have covered some shorts ahead of the FOMC and lent support.

However, after the initial leg up, prices fell from the highs of the week after the U.S. Federal Reserve signalled a sooner-than-expected interest rate hike and easing of its bond purchases by the middle of next year.

The slight hawkish tilt was signalled in a new policy statement and economic projections that showed 9 out of 18 Fed officials ready to raise interest rates in 2022 in response to rising inflation.

The Fed's dot plot now shows that 3 officials now expect a 50-basis-point rate hike next year, 6 expect a 25- basis-point increase, and 9 did not forecast any change.

At the June meeting, seven of the 18 members had predicted rates would increase in 2022.

A drawdown of the central bank's $120 billion in monthly bond purchases could begin after the Nov. 2-3 policy meeting if U.S. job growth through September is reasonably strong, Fed Chair Jerome Powell said in a news conference.

Additionally, the benchmark 10-year bond yields spiked this week over 1.4% for the first time since mid-July this year and weigh on sentiments.

The yield is an indicator of market expectations about real inflation and how quickly the Fed will have to react to curb pressures.

Meanwhile, policymakers at the BoE voted unanimously to leave its main interest rate unchanged at a record low of 0.1% and opted to stick to its asset purchase target of £875 billion ($1.2 trillion).

But the case for policy tightening appeared to gain some momentum, as couple of members voted for an early end to the BoE 's program of government bond purchases.

OUTLOOK

Looking ahead, prices could continue to remain weaker over the next few sessions as clarity emerged from the Fed meeting this week.

The Fed meeting in November could see the central bank provide a timeline for tapering its monthly asset purchases.

Currently the central bank is buying $120 billion and we expect that they might reduce the bond buying by anywhere between $15-20 billion per month.

So, a knee jerk reaction correction is possible ahead of the fed meeting.

However, the Fed Chair Jerome Powell emphasized that a stable jobs market will be important to decide further action, so nonfarm payrolls number over the next 2 months will be pivotal.

Some safe haven appeal for the yellow metal will cap downside as share market could be on edge hurt by persistent uncertainty around the fate of debt-ridden China Evergrande.

The important macroeconomic data releases next week are U.S GDP, Core Durable Goods and keenly tracked PCE price index by the Federal Reserve.

Technically, LBMA Gold pivotal level is at $1,750 and trade below could pull prices to $1,720 levels. If prices are able to sustain above the pivot, then we could see prices re-test resistance is at $1,780. Range for the week will be $1,720-$1,780.

MCX Gold October support is at 45845 and a trade below could pull prices to 45668 and then to 44650 levels. Resistance is at 47160 levels and only a sustained close above could push prices to 48000 level. Range for the week will be 45700-47470.

On the silver side of things, on the charts LBMA Silver major support is at $21.75 and a break below could pull prices up to $19.65 levels. Resistances are at $22.85 and $23.70.

Domestically, MCX Silver December supports are at 59695 and 58100. Resistances are at 62500 and 63250.

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Source : Equity Bulls

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