Hawkish Powell drives gold and silver declines

Powell reiterates hawkish stance as inflation remains stubborn

US inflation has slowed its decline of late, leading many to question just how reliable calls for a 2023 cut to interest rates actually are. Jerome Powell has ensured that markets are left with no uncertainty over the current priority at the Federal Reserve, with the Governor taking a hawkish tone in his testimony before the Senate Banking Committee. With US employment remaining surprisingly strong, the Federal Reserve are afforded the luxury of raising interest rates further in a bid to drive down prices. Powell admitted that the Fed had been taken back by the strength of recent data, with the pace of interest rate hikes potentially having to accelerate once again in a bid to drive down a stubbornly high core CPI figure. Whether this translates into a 50-basis point hike in two-weeks time remains to be seen. However, the tone struck by the Governor certainly provided a risk-off move into the dollar to the detriment of equities.

Precious metals in the firing line

Precious metals have been hit-hard in the wake of Powell’s comments, with gold and silver both heading sharply lower. Much of the downside we have seen comes in response to the dollar strength we are seeing today, with any further hawkish moves from the Fed likely to drive another move lower for precious metals. The chart below highlights the relationship between the dollar, gold, and silver.

Gold technical analysis

Gold is heading sharply lower after a rally into the 61.8% Fibonacci resistance level, with price continuing the bearish pathway in play since the high established on 2 February. The decline we have seen since brings expectations of further downside, with a break below $1804 likely to drive another two-month low for gold. This bearish outlook holds unless price rallies through $1890 resistance.

Silver technical analysis

Silver has similarly headed sharply lower, with gold more volatile sibling seeing a fresh four-month low after breaking $20.42 support. Coming off the back of a bearish reversal that took shape from the 2 February high, we look to be continuing this bearish trajectory once again here. With that in mind, further downside looks likely as long as price remains below the $21.30 swing-high.