The markets have been quite volatile today. We saw big moves in precious metals as they broke out of their recent ranges, thanks to a weaker US dollar, which extended its decline against commodity dollars. Commodity dollars have been rising sharply owning to the gains in underlying prices of commodities, all due to expectations for a strong global economic recovery from the pandemic. As well as gold and silver, most other commodities also continued their recent upsurge, including lumber, coffee, corn, wheat, soyabean and cotton.
Fed reassurance sends commodities and stocks higher, yields lower
Supporting gold and silver further was the drop in government bond yields. After Janet Yellen, the former Fed chair and the current Secretary of the Treasury, inadvertently caused a bit of panic by her comments regarding tightening of monetary policy a couple of days ago, we have seen a chorus of Fed speakers come out to reassure the market that QE will not be tapered any time soon. they are not even considering tapering any time soon. Kaplan aside, Rosengren, Clarida, Mester, Evans, Williams and Kashkari have all come out to reaffirm the Fed’s current policy stance. This is exactly what the stock market bulls would have liked to hear and we have consequently seen growth stocks leap higher, sending the Dow to repeated new all-time highs.
Tech stocks set for comeback?
With sentiment towards the equity markets remaining positive, yields falling, and zero-yielding gold and silver rising, we could see technology stocks make a comeback. In the last few days, the Nasdaq has been falling sharply while the Dow has hit new records. There has been rotation into value stocks. But now we could see the tech sector make a comeback.
Gold breaks outs
Now I mentioned gold above and looking at the chart, the bulls seem to have regained full control of price action once again:
Source: ThinkMarkets and TradingView.com
After the metal found strong support on two separate occasions in March around the $1675-$1700 area, prices went into a period of consolidation after taking out resistance at $1765. But now they have broken further higher, taking out the next resistance at $1800 today. This level is now going to be the most important support to watch. Dips back into $1800 could be defended by the bulls, leading to a potential move higher towards the levels shown on the chart, including around $1850 where the 200-day average and a bearish trend line converge.