Issue 44 – The week of December 12th, 2022

Key Resistance and Supports: Upcoming Week

Reports of Note due out this week:

There are several reports due out this week with the most significant being the interest rate policy announcement from the US Federal Reserve on Wednesday. Market watchers are expecting a 50 basis point rate hike which would signal the slowing of the previous four hikes of 75 basis points each. A 50-point hike would be bullish for precious metals prices going into the year end as the Fed conveys that they are winding down their aggressive attack on inflationary pressures.

Before the Fed announcement, both Canada and the US will release CPI figures. The US on Tuesday and Wednesday for Canada. These will be key for both countries looking validation their aggressive rate hikes have stemmed the tide of inflation. Markets are looking for a fall in the inflation rate which would be beneficial for precious metals prices as markets look for reduced rate hikes for 2023.

Geopolitics

After mass protests began breaking out across China, the Chinese government announced they will start taking steps towards ultimately ending the zero Covid policy. The economy desperately needs to get back up and running again. There will be some hurdles along the way through. The first will be the rise in cases as people begin to congregate, both socially as well as returning to work and travel rises in the country. They need to expect a rise in cases but not react with panic when this happens. These steps are long overdue to get the Chinese manufacturing sector back online and restore confidence in global supply chains. This too will aid in reducing inflationary pressures and be bullish for precious metals markets as manufacturing resumes.

The Biden administration continues to pursue a policy of returning tech manufacturing to US shores. The US is setting itself up to not just become self-reliant but become a global supplier of tech hardware. This is not a short-term project but will set them up for decades into the future with new tech infrastructure.

The Call

It all comes down to the Fed this week. Given their statements to markets last week they have pretty much made their intentions clear. Those intentions are for a 50-point rate hike. This would be just the catalyst that precious metals need to leg up for the next move higher going into the new year before markets begin to thin out for the holidays.

Needless to say, this isn’t yet a fait accompli. The Fed has surprised markets before. A fifth rate hike in a row of 75 basis points would take some of the shine of gold,  probably shaving $20 off the price.

Look for the US CPI number to give an indication of what action the Fed will pursue. A surprise rise there will increase the possibility of a 75-point hike. A fall in CPI is only a 50-point hike.

Last Week in Review

• Precious metals had a strong week, but gold was unable to close above the 1800 handle. Silver continues to be the leading market showing a stronger hand.
• Bank of Canada raised interest rates by 50 basis points to 4.25% the highest level in 15 years.
• Peru announced gold production was up 5.2% in October.
• US passes National Defence Authorization Act which prohibits US entities from transacting or transporting gold from Russia’s central bank reserves.