by Bhavik Patel
The Fed may have mistakenly expected inflation to be temporary. Inflation is not fleeting and that will be the most important thing in determining the direction of the economy and markets. We are looking at a global tightening and it will have major repercussions. I mentioned before, that gold and silver will bottom out once the US Federal Reserve starts cutting back their assets. Gold is currently facing competition from cryptocurrencies, with bitcoin trading near all-time highs. Inflationary pressure should be positive for gold but the funds are rotating into other safe haven assets such as the US dollar and US Treasury yields.
Silver grabs my attention and I can’t help but be positive about silver. I think silver will outperform gold in the short term. I have been bullish on silver since last month when money managers covered their short positions and are now slowly accumulating long positions. Until six to seven months, silver was going nowhere while gold was recovering modestly. Silver can easily be traded up to $30. Once the metal moves above $26, it will open a huge uptrend. The problem with silver was that investors were trading it as a precious metal and speculators were pumping money into bitcoin but now with the rise of the base metal, interest is back in silver again. Not to mention the use of silver in solar panels and electrical conductivity which is important in the Green New Deal. Silver is looking to break out on the technical charts so the flavor of the week will be silver.
For now, it appears until the Federal Reserve’s meeting at the upcoming FOMC meeting on November 2, that gold will continue to trade in a range bound manner that reflects the dynamic cross-currents. Gold has managed to keep its head above the 200 day moving average and there is a crossover between the 20 and 50 day moving average which indicates that gold could move higher.
Next week we expect gold to test the resistance at 48100 while the 46800-46700 support appears as a good base for the short term. RSI_14 is at 58 so there is room to the upside but we don’t expect any major moves next week.
Meanwhile, silver broke its previous swing high at 65600 on the daily range and showed a sharp recovery recently. Although it is below the 200-day moving average, we believe that silver is on a mission to catch the lost ground. Silver is on the cusp of a cross between the 20 and 50 day EMA and historically we have seen a rally of at least 1500 pips once the cross was completed. Silver’s next stop on the upside is 67200 while 62680 looks like a good support. The bias remains bullish for next week and the buy on dips strategy should be used
(Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. The opinions expressed are those of the author.)