Gold and silver rebound to new highs for the week ahead of Fed decision

Outside Market Developments: Markets are in a cautious holding pattern ahead of the Fed decision around 1:00 PM CT. The market is pretty much convinced (92.7% probability) that a 25 bps rate hike to the 3.75% – 4.00% target range is in the offing. If it happens, it would be the first tightening since July 2023.

Fed Chairman Warsh has previously warned against a “hall of mirrors” dynamic in which the Fed simply ratifies market pricing. A hold is still possible, but it would be quite a surprise at this point and stoke volatility.

Recent U.S. inflation readings show headline CPI holding steady at 3.4% year-over-year in August (up 0.4% monthly, partly on energy), while core CPI eased to 2.4% and the Fed’s preferred PCE measure stayed elevated at 3.7% in July. Meanwhile, the Producer Price Index accelerated to 5.4% year-over-year in August (up 0.4% monthly), highlighting ongoing pipeline cost pressures.

While inflation does indeed remain sticky above the Fed's 2% target, have conditions changed significantly to move at least four more FOMC members in favor of a hike? The three hawkish dissenters in July (Hammack, Kashkari, Logan) are expected to remain in the hike camp. Warsh's Jackson Hole comments suggest he's in favor of tightening. Markets seem convinced at least three more will fall in line.

The vote split today will be interesting. The trade will also be keen to glean any insight into the policy path in Q4 from the updated economic projections (dot plot) and Warsh’s press conference.

Saudi air defenses intercepted and destroyed a Houthi drone south of Mecca before it entered restricted airspace over the holy city, prompting strong Saudi warnings and regional condemnation. The broader conflict continues to disrupt oil flows, with Saudi Arabia’s East-West pipeline still offline after recent drone attacks and transits through the Strait of Hormuz remain limited, keeping oil elevated above $100.


GOLD

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$1.26 (+0.03%)
5-Day Change: -$54.02 (-1.23%)
YTD Range: $3,945.52 - $5,595.02
52-Week Range: $3,628.27 - $5,595.02
Weighted Alpha: +10.66

Gold is up more than 1% in early U.S. trading, reaching a new high for the week, as the market squares up ahead of today's key Fed decision. With a rate hike largely priced in and the dollar trading higher for a sixth straight session, the yellow metal may be reasserting itself as an inflation hedge and general safe-haven play amid a grim fiscal situation.



The 50-day moving average has been attracting buying interest this week, so we'll view it as important for post-Fed trading. A close below $4,280.77 would set a more bearish tone, highlighting an important Fibonacci level at $4,232.32. Monday's low at $4,254.14 marks a solid intervening barrier. If guidance hints at further tightening this year, tests below $4,200 would need to be considered.

If guidance is more suggestive of a one-and-done event, scope would be seen for short-term tests above $4,400, with the 20-day MA at $4,4456.33 the likely attraction. A close above the latter would bode well for a test of the 200-day MA at $4,544.22 with potential for probes above $4,600.


SILVER

OVERNIGHT CHANGE THROUGH 6:00 AM CT: +$1.056 (+1.66%)
5-Day Change: -$2.427 (-3.61%)
YTD Range: $54.778 - $121.630
52-Week Range: $41.142 - $121.630
Weighted Alpha: +30.00

Silver is rebounding from Monday’s six-week low and has reached a new high for this week. The move may simply reflect position-squaring ahead of the Fed decision, with the policy outcome and guidance likely to determine the short-term direction.



Like gold, the 50-day moving average attracted buying interest. A negative reaction to the Fed would put Monday's low at $62.346 in jeopardy. Penetration would return focus to the $61.015 Fibonacci level.

On the upside, minor chart resistance at $65.273 protects the convergence of the 20- and 100-day MAs at $66.310/$66.640. Penetration of the latter would bode well for a retest of the 9-Sep high at $68.314. Above that, renewed probes above $70 become likely.


Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com

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