Fed Signals More Hikes: A Game-Changer for Gold?
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In a game-changing turn of events, the FOMC meeting shattered hopes of a quick, dovish U-turn as the Fed announced the possibility of raising rates twice this year.
Yesterday’s FOMC and the following press conference were groundbreaking. Rates stayed, but Fed said about raising them twice this year = no U-turn!
This is a game-changer because so many investors were still believing in a quick, dovish U-turn. And those dreams were just dispelled.
The fact that rates were not hiked yesterday doesn’t matter as much as the fact that their expected future path is still to the upside.
While the core CPI didn’t move recently, inflation is moving down. With inflation moving down and interest rates going higher, what does that imply?
Much higher real interest rates!
And this is one of the two key fundamental drivers for gold prices. The other is the USD Index, and yesterday’s FOMC was a game-changer for its short-term trend as well.
The USD Index Soars on FOMC
USD Index Chart
All intraday breakdowns below the flag pattern were quickly invalidated. And given the Jun. 14 reversal, the odds are that the correction is over.
The invalidation of the move below the 50% Fibonacci retracement suggests the same thing.
This means that gold price now has not one but two headwinds.
And boy, did the gold price react!
Gold Price Chart
Gold was initially hesitating to decline, which is normal, given that the investment public didn’t necessarily fully grasp the implications of what just happened yesterday, and it might be starting to realize it fully only in the following days.
Gold overnight trading, however, showed where the next move is going to take the yellow metal – lower.
It’s currently trading at new June lows, but it seems that we’ll see a move below May lows any day (or hour) now.
Silver Price Chart
Silver price is down significantly, but most importantly, it just moved below its rising support lines. The next big decline is likely underway.
And junior miners?
Junior Mining Stocks Already Broke Lower
GDXJ Daily Chart
Even though it might not be clear on the above chart, the fact is that junior miners closed the day below their rising red support line. This is a breakdown that didn’t happen in May, so the situation is now more bearish than it was back then.
Let’s keep in mind that it was before gold’s overnight decline! This means that junior miners are likely to catch up with gold by sliding more. This will likely cause the breakdown to be verified and lead to a bigger decline in the following days.
The next short-term stop is at about the $33 level, as that’s where we have the 61.8% Fibonacci retracement and 2023 low (so far).
In fact, please take a look at what the VanEck Junior Gold Miners ETF (NYSE:GDXJ) is doing in today’s London trading.
GDXJ Price Chart
The GDXJ just briefly moved below its May lows, indicating what comes next. It might need the U.S. trading hours to break below this level, though.
And given that the investment public is just starting to realize what the implications of yesterday’s FOMC were (after they read reports prepared by professionals), the odds are that the decline in the GDXJ will continue – and accelerate.
Please note that you knew about the upcoming decline in advance – well before the FOMC, based on technical analysis, relative valuations, and other things that I’ve been describing recently.
I saved the best for the last part.
In my analysis yesterday, I focused on the stocks and why they are not as bullish or invincible as many claim.
SPX Chart
The rally stopped, and the S&P 500 futures are down in the pre-market trading. This – plus the fact that the investment public is likely to still digest what just happened – implies that the momentum is gone.
And with the momentum gone, rising rates, and RSI at extremely overbought levels, there is one very likely action that stocks are going to take.
Slide.
Please remember that junior miners broke below their rising support line even without the stocks’ help. But as soon as they get it, they are likely to truly tumble.
