Gold and silver markets have both been pressured over the last few weeks on expectations of aggressive Fed hikes. On Tuesday this week both headline and core inflation printed at the high end of expectations. The reaction in the market was predictable and offered good opportunities to astute traders. Stocks, bonds, and precious metals all sold off while the USD gained.
Why that pressure should remain on gold and silver
The pressure for gold and silver to the downside should remain for the first half of this week. Why? Because the high inflation print means expectations have now risen for the Fed to hike by 100bps. This has pressured both the USD and real yields higher which are both natural headwinds for gold and silver. The usual reaction is that as yields and the USD rise then gold and silver fall.
The potential trade in gold and silver
On the weekly chart, we can see that gold has formed a harami inside bar. Typically a break of the IB should see a run lower and with major support at $1680 the chance of a quick run on stops below looks possible. Risk can be managed tightly and it would be not unreasonable to see a run lower in gold ahead of the FOMC next week.
Silver shorts can be run with stops as follows:
There is no guarantee that gold and silver will run lower into the FOMC next week as this is based on current sentiment remaining, and even growing, into next week’s Fed meeting. Also, once the Fed meets sentiment could quickly reverse on new information from the Fed.