On Wednesday morning in the United States, the financial markets experienced a significant drop in the prices of gold and silver, which has captured widespread attention from investors and analysts alikeThe reasons behind this sudden decline are tangled and multifaceted, encompassing various elements such as market trading behavior, economic data, and overarching macroeconomic policies.
During this period, a marked trend of profit-taking became evident among short-term futures tradersAs precious metal prices had risen steadily in previous weeks, many investors had accumulated substantial paper profitsFaced with growing uncertainties in the market, these traders opted to secure their gains, which led to a substantial increase in selling pressureOn top of this, the recently released inflation report in the United States acted as a catalyst, intensifying the pressure to sell precious metals.
The economic data revealed that in January, the consumer price index rose 3.0% year-on-year, while the CPI saw an increase of 2.9% compared to the previous year
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Additionally, the “core” CPI, excluding food and energy, escalated by 3.3%, surpassing market expectations of a 3.1% riseThese numbers paint a picture of a robust inflation landscape in the U.S., marking one of the most intense performances in recent monthsThis not only supports the hawkish views within the U.S. monetary policy sphere—where advocates would prefer not to see the Federal Reserve delay interest rate hikes—but also raises concerns about potential inflationary pressures going unchecked.
Stimulated by these inflationary figures, Asian and European stock markets displayed mixed results in overnight tradingWhen the U.S. inflation report was made public, the American stock indices suffered significant lossesIncreased worries over economic prospects became palpable, leading investors to exhibit diminished appetite for riskConcurrently, remarks made by Federal Reserve Chair Jerome Powell became a focal point for market participantsAfter addressing a Senate committee on Tuesday, he continued to speak before the House Financial Services Committee later that day, reiterating that the Federal Reserve is not in a hurry to further reduce interest rates, as it would not like to undermine efforts to combat inflationHowever, the new administration has suggested that the U.S. must lower interest rates, creating a policy divergence that further clouds the future trajectory of Federal Reserve monetary policyA CNBC reporter noted that the day’s explosive CPI data “had put the Federal Reserve in a bind,” forcing the institution to make a difficult choice between controlling inflation and stimulating economic growth.
Following the release of the CPI data, various external markets underwent a cascade of reactions
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The U.S. dollar index steadily rose, directly putting pressure on the dollar-denominated precious metals pricesConcurrently, crude oil futures traded lower on the New York Mercantile Exchange, hovering around $72.50 per barrelThe yield on the benchmark 10-year U.STreasury bond has also been on an upward trajectory, currently sitting at 4.633% post-CPI reportThese shifts across market indicators have, in varying degrees, influenced investor decision-making in the precious metals arena.
From a technical perspective, the futures market for April gold still maintains a strong overall technical advantage in the near termThe price trend on the daily candlestick chart demonstrates an upward movement, reflecting sustained bullish sentiment among market participants regarding goldThe upcoming target for the bullish side will be to close above the solid resistance level at $3000.00. Should this key level be breached, the prospect for a new wave of upward momentum in gold prices appears highly promisingHowever, for the bears, the next immediate target will be to push the futures price below the robust technical support level at $2800.00, which would pose a serious challenge for the bullsCurrently, the first resistance level stands at $2900.00, followed by the overnight high at $2927.90, while the first support level aligns with this week's low at $2879.90, followed subsequently by $2855.00. Taking various factors into account, our market rating stands at a robust 9.0, suggesting that despite short-term volatility, the overall market sustains a strong position.
Similarly, the bullish side for March silver futures appears to have a technical edge in the short term, evidenced by the rise visible on the daily chart
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The next target for silver bulls is to achieve a closing price breakout above the solid technical resistance level at $34.00, which will further validate the upside trend in silverConversely, bearish traders will aim for a closing price under $31.00, where substantial support liesA break below this decisive level could subject silver prices to considerable downward pressureThe primary resistance level is evident at the overnight high of $32.415, followed by this week's peak at $32.805. The next support level will materialize at this week’s low of $31.65, and subsequently at $31.25. Given the current market conditions, we assign a market rating of 6.0 for silver, indicating that while there is relative balance between upward and downward momentum in short-term fluctuations, bulls still hold a position of strength.
In conclusion, the significant decline in gold and silver prices on Wednesday morning in the U.S. is the result of a confluence of factorsWhile short-term market volatility is high, both gold and silver bulls persist with certain advantages from a technical standpointMoving forward, it's imperative for investors to keep a close eye on shifts in U.S. inflation data, the Fed's policy decisions, and developments in the global economic landscape to seize investment opportunities in the precious metals market.