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Gold and Silver Poised for Spike in Volatility After Fed Meeting

Gold and Silver Poised for Spike in Volatility After Fed Meeting

2014-01-29 10:02:00
David de Ferranti, Currency Analyst

Talking Points

  • Crude Climbs Above $97 on Upbeat Confidence Data
  • Commodities Turn to FOMC for Further Guidance
  • Silver Breakout from Consolidation Looks Imminent

Crude Oil climbed back above the $97 handle as an upside surprise to the January US Consumer Confidence reading buoyed investors’ risk appetite. However, gold was little changed for the session alongside muted moves in the US Dollar. This may reflect some hesitation from traders ahead of the upcoming FOMC meeting.

If the Federal Reserve cuts stimulus by less than the consensus estimate of US$10 billion or suggests a less aggressive “taper” timeline, it may create weakness for the US Dollar and strengthen oil and gold. Conversely if in their statement the central bank appears undeterred by recently disappointing economic data (such as December’s payrolls figures), this could dampen demand for gold as a fiat-money alternative. In either scenario the recent consolidation in prices suggests a potential spike in volatility may occur in the aftermath of the meeting as traders may have a firmer commitment to a directional bias.

While the Fed meeting takes center stage, the Department of Energy Inventories report may provide some additional guidance for the WTI contract. Crude stockpiles are expected to build at their fastest pace since November 2013 and a downside surprise could signal stronger than anticipated demand for the commodity and support oil prices.

CRUDE OIL TECHNICAL ANALYSIS Oil’s rebound came at the 38.2% Fib Retracement level, signaling some buying support at $95.29.While recent price action has been suggesting a short-term uptrend is in play, the descending trend line from the Sep 2013 high and the $98.10 level may provide hurdles to additional gains, leaving a mixed technical bias for the commodity.

Gold_and_Silver_Poised_for_Spike_in_Volatility_After_Fed_Meeting_body_Picture_4.png, Gold and Silver Poised for Spike in Volatility After Fed Meeting

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS Following the declines from $1,270 a Dark Cloud Cover candlestick formation may be warning of further falls for the precious metal. However the 20 SMA may again provide some buying support for the precious metal, as it has done over the past several weeks leaving a mixed technical bias for the commodity.

Gold_and_Silver_Poised_for_Spike_in_Volatility_After_Fed_Meeting_body_Picture_3.png, Gold and Silver Poised for Spike in Volatility After Fed Meeting

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS Silver is testing the bottom of the ascending triangle formation on the daily which comes as sellers have kept prices contained within the descending channel. A break to the downside may open up the psychologically significant $19 handle, which offered buying support in December 2013.

Gold_and_Silver_Poised_for_Spike_in_Volatility_After_Fed_Meeting_body_Picture_2.png, Gold and Silver Poised for Spike in Volatility After Fed Meeting

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS The technicals are continuing to suggest weakness for copper in the near-term. The Head and Shoulders pattern on the daily has offered a target of 3.15 that is aided by the descending trend channel and prices tracking below the 20SMA. A retracement to the $3.287 neckline (also the 23.6% Fib Retracement level), may be a preferred opportunity to look at shorts.

Gold_and_Silver_Poised_for_Spike_in_Volatility_After_Fed_Meeting_body_Picture_1.png, Gold and Silver Poised for Spike in Volatility After Fed Meeting

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM Australia

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Contact and follow David on Twitter: @DaviddeFe

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