WTI, Gold, Silver – commodities weekly forecast for the week ahead

We’re heading into a busy week on the calendar and the main focus is going to be on central banks. The Federal Reserve will conclude its two-day meeting on Wednesday, February 1st, followed by the Bank of England and European Central Bank on Thursday the 2nd. 

The latest round of softening economic data in the US, which includes consumer inflation, factory gate prices, retail sales and industrial production, have fuelled market expectations that the Fed will opt for a smaller rate hike at this meeting, increasing the fed funds rate by 25 bps to 4.75%. I expect the statement and messaging from Chairman Powell will remain geared towards elevated inflation, but investors will be looking for hints on what the FOMC is looking for with regard to data to determine the end of its hiking cycle, something they are unlikely to give up on just yet. 

It’s likely that we see some consolidation in the first part of the week in absence of any other significant market movers as traders adjust their portfolios heading into the meetings. Risk on sentiment has taken a bit of a pause for breath as the latest round of economic data slightly spooked investors, who are now not so convinced that bada data continues to be good for markets, and what impact this can have on the prospects of a soft landing.

WTI: oil prices have been moving higher in recent weeks as the reopening of China prices in more demand for crude in the coming months. That said, the prospect of a harsher economic reality in 2023 as suggested by the slowing in consumer spending continues to dampen the hopes of WTI buyers and limits the upside momentum. So far, resistance hangs around the 82.50 mark, which has halted gains for the past week and also back at the beginning of December. If the price isn’t able to break above 83.30 in the coming days then the bullish momentum will continue to fizzle out and risk a pullback towards 78.50. The good thing so far is that it remains above its 50-day SMA (77.90) which was an area of resistance in the past and may now have turned into short-term support. 

WTI Crude Oil – Chart: Capital.com, Source: Tradingview

Gold: unlike stocks, gold has been able to keep the Fed pivot rally alive from its start back in November. The precious metal has continued seeing higher highs and lows as it built momentum from $1,630 to just below $1,950 but it seems like we’ve come to an area where there may be some profit-taking ahead of the Fed meeting last week. For a while now I’ve been saying that gold’s time to shine would come when recession fears took over inflation fears and that has been the case with the continued drop in CPI since November. Thursday’s US GDP reading confirmed the economy held up in Q4 (2.9% vs 2.6% exp) despite the softening in inflation, which worried investors that the Fed would be stubborn and continue on its tightening path which would lead to believe that inflation is still somewhat of a threat to the economy, at least in their eyes. Because of this, it's likely we see XAU/USD hovering around $1,930  in the first few days of the week with the potential for a reversal back to $1,900 in search of further support.

Gold Chart – Chart: Capital.com, Source: Tradingview

Silver: unlike gold, silver’s bullish momentum started to fizzle out in December, at which point the commodity started to trade sideways with failed attempts at breaking higher. An area that has been key as resistance is $24.12 to $24.53 and will likely remain to do so in the short term. The RSI has started to point downwards and is seeing lower highs as it goes along, which matches the price action over the last month, suggesting that the appetite to push higher is wearing out. For now, losses seem to be contained around $23.40 and $23.09 but a further pullback towards the $23 mark cannot be ruled out.

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#Dollar (USD) #Gold #Oil #Silver #Commodity #Market Analysis

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