The expectations of an early potential reduction in interest rates by the Federal Reserve as soon as next week have propelled gold to all-time highs breaking all the other records as it soars through the historic $3,600 per ounce mark never before and that the dollar will also tumble and then Treasury yield crashes creating a perfect storm of precious metals that will possibly ignite a precious metals rush never seen before with the potential devastating financial markets around the world.
Breaking record rally based on the rate cut
Gold continued with its historic run on Monday, rising to its highest point of more than $3,600 per ounce for the first time with a high of $3,632.90, as indicated by FX Empire. The upbeat action was underpinned by gentle U.S. labor market data and a conviction that the Federal Reserve will start reducing the rates as early as next week.
The CME Fedwatch Tool indicates that 88 percent of a 25 basis point reduction is currently being correctly priced in by traders, and a significant likelihood of a greater reduction equaling 50 basis points is also rising, 12 percent. This has undermined the U.S dollar and pushed Treasury yields downward, providing a conducive macro environment to non-yielding assets such as gold.
The underlying tail winds are high. The recent jobs report in August showed the steepest decline in job growth in the year and has increased the level of unemployment to a high of 4.3 percent, or nearly four years. Meanwhile, inflation is in the limelight as both the Producer Price Index and Consumer Price Index announcements are in midweek.
Technical breakout confirms bullish momentum
Technically, the fact that the market broke out beyond the long-term resistance of $3,500 supports the continuation in a bullish mode. The price is significantly higher than the 50-day Simple Moving Average at $3,377, and momentum is still strong, with the next target at 3,879 as the upside target. Pullbacks in the 3,500Â zone are likely to get a high purchase interest.
In case the regulars of the inflation report prove that it is still weak, then gold may catapult to the level of 3,7003,730, and analysts at the Zaner Metals and City Index believe that they will keep climbing.
Silver follows silver tracking global gold power on highs for 13 years
The price of silver shot up as much as 1.1 percent on Monday to its best price since 2011, $41.24. Although base stories are sheet-thin, the emergence of silver has followed the strength of the gold and the weakness of the dollar in proximity. The metal has already broken past its old resistance of $40.40, and it is currently trading above its 50-day Simple Moving average at $38.30 with ease.
The next resistance is observed close to $42.00, with the momentum still positive, provided that silver stays above $39.80. Technical analysts believe that a sustained upward momentum above $41.67 has the potential of opening a trade into $44.00 in the fourth quarter.
Platinum improves and lags peers’ precious metals
Platinum ended at $1,378.85, 0.62 percent higher on wider metals strength. Although it has performed poorly compared to gold and silver, the metal has been in a constructive uptrend above its 50-day Simple Moving Average at $1,367.10.
An extended gain could be made to about $1,475 as a close above the recent peak of around $1,425; however, a lack of underlying drivers could restrict further increase unless a larger driver exists. The metal is still lagging behind the other precious metals owing to poor industrial demand fundamentals, especially those of its automotive industry.
The fact that the economic data is getting weaker and the apprehension of sustained inflationary trends have set the conditions in which precious metals investment would thrive perfectly. More volatility ahead is observed by analysts as markets assimilate new economic data and Federal Reserve messages as to the future policy course.
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