The gold market could see its first weekly decline in four weeks and silver its first in three weeks, and if that happens it could set both markets up for substantial corrections. They are awaiting guidance from the Fed on future rate cuts, and from the modest strength in the dollar overnight, it seems like the trade is not expecting much from Fed Chair Powell's speech this afternoon.
Last week's COT report showed managed money traders and other specs were holding record net long positions in gold and near-record net longs in silver as of August 13th. The markets have done nothing but consolidate within that day's range since that date, and open interest has fallen a mere 5,310 contracts in gold (-0.9%) and increased by 1,755 contracts in silver (+0.8%) in that timeframe, so we can surmise that the spec positions are still heavily long.
This suggests that there may not be much gas in the tank for additional buying and that the markets are vulnerable to heavy selling if they are disappointed with the Fed results today.
Recent comments from Fed officials have seemed to be preparing the market for a less dovish speech from Fed President Powell on Friday than what may have been hoped for earlier in the week. Kansas City Fed President George said yesterday that it was not the time for accommodation, as the labor market remains strong, and Philadelphia Fed President Harker said that the Fed is pretty much where it needs to be.
The G-7 meeting this weekend could set the market up for more volatility on Monday. There was a report yesterday that China has partially lifted restrictions on gold imports, loosening curbs that had stopped 300-500 tonnes from entering the country since May, and this is fundamentally support to the bulls' case.
Recent steady buying by ETFs suggests investment interest in gold is strong, and that could mean the market will be supported on breaks. Holdings in the SPDR Gold Trust and iShares silver increased again yesterday.
An uncertain global economic outlook, the threat of currency wars, extreme monetary measures like negative interest rates in Germany and Japan are supportive to gold and silver over the long term, but both markets appear vulnerable to a setback.
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