ABC Refinery Monthly Precious Metals Technical Analysis Report September 2022

Dear reader,

Good day and welcome to the September monthly report, looking at gold, silver, the Dollar Index and the AUD via a more or less technical lens. As always, The Pod of Gold podcast with Shae Russell is great for a discussion on gold, silver and wider macro themes.

Gold faces significant pressure from a broad-based rise in the Dollar linked to both yield disparities and a flight to safety, along with a rise in real yields.
‘Long duration’ assets, which include gold, long-dated bonds, tech stocks and crypto (…) all face headwinds in a tightening cycle, unavoidably. Geopolitical tensions are positive for gold, but usually short-lived.

A beat on US CPI for August defined the middle of September – the figure itself wasn’t a fresh high on CPI, but came in above consensus, and importantly was broad-based, with 60 % of categories that make up the CPI exceeding 4 %. Markets quickly repriced the probability of 100 bps in this weeks FOMC. Weaker data (Philly Fed Manufacturing Index, US Core Retail sales) dented the more hawkish tilt however the CME Fedwatch calculations still indicate a 1 in 5 probability of a 100 bp rise in FFR, down from 1 in 3 after the CPI release. The expected ‘Terminal Rate’ nudges 4.50 %. Rising ‘shelter’ costs suggest inflation is likely to be stickier relative to other components in the inflation index, and messaging from the Federal Reserve is that Fed Funds will remain above 3 % through 2025. We are shifting from a world of not just significant tightening, but for longer.  US 2 year-10-year yield inversion is now -0.42 %, which in plain English, has not been that inverted since August 18, 2000, when it was briefly -0.51 %. A clear majority of observers polled recently expect inversion to increase, essentially expecting monetary tightening to result in a recession. Despite the gloomy outlook in Fixed income circles, US Employment data is strong and continuing unemployment claims (~1.40 million) are still low by historic standards, which helps maintain the Fed’s confidence in a hawkish stance.  The pathway to a hard landing may be convoluted but as Jan Hatzius noted last month, it is certainly narrow.

Read full report here.