Gold & Silver: Precious metals in a consolidation phase

Gold and silver closed moderately lower on Monday, with gold hitting a four-week low. Rising bond yields led to a decline in precious metals prices. Silver's decline was contained after better-than-expected global industrial production data on Monday signaled increased demand for industrial metals.

Monday's long liquidation pressure weighed on precious metals ahead of Tuesday and Wednesday's FOMC meeting, which could mark the start of discussions on tapering quantitative easing.

The consensus is that the FOMC will not make a formal announcement on QE tapering until the fourth quarter. However, the fact that FOMC officials are talking more and more about tapering QE could spook the bond market and push yields higher, which could put additional pressure on gold prices.

Strong global industrial production is negative for gold prices but positive for industrial metals demand and silver prices. In April, eurozone industrial production rose +0.8% monthly and +39.3% year-over-year, which was above the forecast of +0.4% and +37.4% year-over-year. The +39.3% y/y gain is the largest since data began in 1990.

In addition, Japan's April industrial production was revised up to +2.9% monthly and +15.8% y/y from the previously reported +2.5% monthly and +15.4% y/y. The +15.8% year-over-year gain is the largest in 9 years. Similarly, U.S. industrial production expanded by 0.8% according to figures released this afternoon, above expectations of +0.6%.

Pessimistic comments from the ECB on Monday indicated that the ECB is not about to reduce its asset purchases and supported the price of gold as a store of value. ECB President Lagarde said that “we really need to anchor the recovery” and that it is “far too early” to debate when to end stimulus measures to combat the pandemic.

The yellow metal has been correcting since the beginning of June towards a level that corresponds to both a 38.2% Fibonacci retracement of the last uptrend and the 200-period moving average. Above this level at 1825 USD, the trend remains bullish. Yesterday's candle shows a long low wick indicating the presence of buyers.

(Chart Source: Tradingview 15.06.2021)

To resume the uptrend, prices need to break through the last high at 1916 USD and then the resistance between 1975 USD and 2000 USD. Below 1825 USD, the correction would be accentuated towards 1800 USD.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.