GOLD AND SILVER TECHNICAL LEVELS AND ANALYSIS
- Reduced volatility expectations increase gold, favouring range-bound setups.
- Invalidation of silver's bearish pennant and identification of upper limits
- Key support and resistance levels and chart patterns are used in this article's analysis. Visit our extensive education library for additional details.
GOLD LIFT ON REDUCED EXPECTED VOLATILITY
At a time when gold prices have recovered from the swing low recorded at the end of June, expected 30-day gold volatility has continued to trend lower. Given that the market lacks the persistent momentum to emerge from a phase of consolidation in pursuit of a fresh direction, lower volatility often supports range-bound trading circumstances.
GOLD BULLS ATTEMPT A RECOVERY
Since the metal's new all-time high in May of this year, gold bulls have fallen out of favour, as prices have dropped by about 9% to the most recent swing low. Additional hawkish interest rate advice from the Fed poses a danger to raise interest rates in the US, which the market is already increasingly pricing in. Markets have lagged behind the Fed because they believe that market pressures will result in interest rate reductions.
However, US economic statistics has been remarkably stable. An unexpected higher revision to the December GDP growth figure last week indicates that the economy is doing well relative to other economies. The employment market also continues to demonstrate its toughness as employers continue to be encouraged to cling onto employees out of concern that they won't be able to locate acceptable replacements.
Gold is getting close to the previous level of support for the consolidation channel between 1937 and 1985. The recent bullish comeback may be tested here, and bearish may look for signs of a reversal. Because gold is not a yield-bearing investment, it loses appeal as interest rates rise, increasing the chance to own gold.
1937 may also be considered as a tripwire for a bullish extension, in which case 1985 would be the next level of precious metal resistance. Although the MACD indicates that momentum is in favour of the recovery in this case, 1937 continues to be crucial.
SILVER BREAKS OUT OF PENNANT FORMATION
Given the recent break above what appeared to be a pennant formation, silver has a decidedly more bullish vibe. Pennant formations normally presage negative continuation situations, however the current situation is invalidating such a move.
Bullish momentum hasn't been very strong so far, and prices seem to be finding it difficult to trade strongly above 23.10, the pennant's highest point. Before 24.65 comes into focus, bullish targets could be thought of around 23.83.
If the metal tests 23.10 before moving lower, the 38.2% Fibonacci retracement of the 2021–2022 major move at 22.35 will come into view for bears.