Gold and Silver – Extremely Low Volatility & Range-bound Movements Indicate…

Gold and Silver - Extremely Low Volatility  Range-bound Movements Indicate...

Gold and Silver – Tendency to slip prior to Fed meetings

Gold prices may well weaken ahead of a meeting of the Federal Open Market Committee next week, said Commerzbank in a snippet.

After all, this has been a pattern for the yellow metal, which then tends to rise afterward. A U.S. rate hike is expected at next week’s FOMC meeting, the first to be chaired by Jerome Powell.

“It was not unusual for gold to experience phases of weakness ahead of a Fed meeting last year – this was particularly noticeably in the run-up to the four ‘major’ Fed meetings,” Commerzbank added.

“These took place in March, June, September and December and were regarded by the market as possible occasions for the Fed to hike interest rates,” analysts at Commerzbank noted.

In conjunction with these meetings, the Fed releases its latest projections and the Fed chief conducts a news conference.

Gold always shed 3-4% in the two weeks before these meetings. It thus appears to be reacting in a similar way before the upcoming meeting now.

“We therefore believe that it is perfectly possible that the $1,300-per-troy-ounce mark will be tested in the next few days. The gold price should recover again after the Fed meeting, as was repeatedly the case last year,” Commerzbank noted. – Scrap Register

Last five rate hikes have been a buying opportunity for Gold and Silver Investors

If history is any guide, next week could signal a significant buying opportunity for gold investors as long as prices hold critical support above $1,285 an ounce, according to one analyst.

“The five rate hikes seen so far in this current cycle all resulted in the same behavior with gold selling off ahead only to rally strongly once the announcement was made,” Ole Hansen, head of commodity strategy at Saxo Bank in a note Tuesday. “The last couple of week’s ahead US rate hikes have proven in the past to be a good buying opportunity.”

Hansen added that he remains a long-term gold bull as long as prices stay above support at $1.285.

While the Federal Reserve is widely expected to raise interest rates next week by 25-basis points, Hansen said that the key for the gold market will be the central bank’s forward guidance.

In its previous economic projections, the central bank indicated that it projected three interest rate three hikes this year. However, in the last few weeks, expectations have increased for more forceful action. Hansen noted that markets are pricing in a 26% chance of four rate hikes this year.

However, Hansen explained that the economic data and the growing threat of a global trade war don’t support aggressive action from the Federal Reserve, which should be positive for gold prices.

Most recently, inflation numbers, released Tuesday, support the view that the Federal Reserve will be reluctant to raise interest rates four times this year, according to some economists.

Hansen’s comments come as gold prices manage to hold near session highs, following an in-line reading in January’s Consumer Price Index and rising geopolitical worries after President Donald Trump announced that he fired Secretary of State Rex Tillerson and replacing him with CIA Director Mike Pompeo.

April Gold futures last traded at $1,328 an ounce, up 0.55% on the day. – Scrap Register

Record Low Volatility in Gold and Silver and What it Means

The past 18 months have been difficult for precious metals investors. If you had known Donald Trump would be elected and the US Dollar would soon begin a nearly 15% decline, you would have expected Gold to blow past its 2016 high. You would have been shocked to see the gold miners and junior gold stocks trading lower. Gold has fared okay but the gold stocks and Silver have lagged. As US equities have continued to power higher, precious metals have struggled to perform while volatility in the space has dwindled. Precious metals volatility has reached extremely low levels and this is a sign that a major move, while not necessarily imminent is surely on the horizon.

We plot a weekly bar chart of Gold that includes a handful of volatility indicators such as the Gold Vix (GVZ), Average True Range (ATR) and several bollinger band widths (BBw). These indicators have touched major lows in recent months. The Gold Vix which began trading in 2010 recently touched its lowest level ever at 9. ATR recently touched its lowest level since 2007. The 40-week and 80-week BBw’s recently hit their lowest levels since 2005 while the 160-week BBw recently touched its lowest level since 2002.

Gold and Silver - Extremely Low Volatility  Range-bound Movements Indicate...

Like Gold, Silver is showing significantly low levels of long-term volatility. Its ATR recently touched its lowest point since 2006. The BBw for three time frames (40 week, 80-week and 160-week) recently touched 14 year lows.

Gold and Silver - Extremely Low Volatility  Range-bound Movements Indicate...

Although the gold stocks are one of the most naturally volatile markets, they too are showing significantly low long-term volatility. Below we plot the NYSE Gold Miners Index, which is the parent index of GDX along with similar volatility indicators. The ATR indicator recently touched a 15 year low. Interestingly, both the 40-week and 80-week BBw’s recently hit some of the lowest points of the past 25 years. The 40-week BBw recently tied 2007 for the lowest point in the past 25 years while the 80-week BBw recently touched a 6-year low and its 3rd lowest point of the past 25 years.

Gold and Silver - Extremely Low Volatility  Range-bound Movements Indicate...

The major markets within the precious metals sector are showing extremely low levels of long-term volatility. At somepoint this will change but we cannot know exactly when. Given our long-term bullish bias, our thinking is volatility could increase as Gold approaches resistance and then accelerate upon a break-out in Gold. Note that low volatility can last for a while and will not suddenly change overnight. It may slowly start to increase at first. While we cannot know when, we do know that extremely low volatility is present and can facilitate a major move over the next 12 to 24 months. With more time ahead before an increase in volatility and a potential break-out we continue to remain patient and accumulate the juniors we think have 500% return potential over the next 18-24 months. – Jordan Roy-Byrne


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