Gold and Silver Price Analysis: Gold Braces for Break as…

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(MENAFN- DailyFX) Gold, Silver Talking Points:

  • It was an important week for metals, with silver and gold showing significant breakouts. But – there was a divergence with silver outperforming strongly, jumping nearly 12% in the past two weeks, while gold recorded a more modest 3.6% rise.
  • Silver may be a more attractive venue for short-term momentum themes while gold shows potential for a pullback to the previous resistance point around 1830.
  • The analysis in the article is based on price action and chart formations. For more on price action or chart patterns, check out our DailyFX Education section.

Gold prices are approaching a key point on the chart as silver prices have already reached new highs. It is perhaps the backdrop against which these breakouts have unfolded that makes the question most interesting. Yields remain high and stocks fall; Rates markets are pricing in no less than seven Fed hikes this year with a median expectation of four 25 basis point adjustments. And while there’s been a lot of talk about bitcoin replacing gold as an inflation hedge, well, it’s also falling, threatening to fall below the 40,000 support that entered on stage earlier in the week.

Next week the FOMC will make its January rate decision and while there is little expectation for any real moves at this meeting, the focus is on whether the bank highlights whether or not a rate hike in March as well as how it signals its plans for later in the year.

Perhaps the biggest question even in rate hike policy is the prospect of quantitative tightening, should the Fed seek to reduce the huge toll that has built up since Covid entered the scene it nearly two years ago. At this point, QE should end in March – just when markets are waiting for that first FOMC hike. But will the bank also take the next step in this direction by allowing the bonds in its portfolio to mature without being replaced?

Gold nears breakout at 1850

Gold prices have been building in a rising channel since the December FOMC rate decision. This channel was buffered by a large resistance point at the 1830 level on the chart and failed to break through after three attempts at the start of the year.

But, the 4th time was the charm when the bulls pressed the auction yesterday. And this breakout hasn’t stopped yet, as there was only a simple pause in the move before another key point of resistance on the charts, plotted around the 1850 level.

Four Hour Gold Price Chart

Map prepared by James Stanley; Gold on Tradingview

Stepping back on the chart for the big picture, it becomes a little more obvious that we are approaching a key decision point in this matter. The level around 1850 has emerged and this is consistent with a projection of the trendline from the 2020 and mid-November highs.

This may leave the door open for breakout potential, but for traders looking to take advantage of the short-term momentum of this theme, there may be a more attractive venue elsewhere in Silver, which I will review a further down in this article.

But, gold is approaching a big resistance point and this can be seen as potential for a breakout. The alternative mechanism to join the trend on the long side would be to wait for prices to pull back for a test of support from this 1830 spot which has held up three times in the past few weeks – plus three more iterations in the second half. from last year. This is a large area, so if the bulls are going to increase the charge, it makes sense that we see a test of support there.

Daily Gold Price Chart

Map prepared by James Stanley; Gold on Tradingview

Silver

As gold prepares for a possible breakout of this descending trendline, silver has already taken a rather noticeable step on a similar pattern. The trendline here is a bit different though, extending from the June and November highs. But, there are other particularities that don’t quite fit and which I will examine a little later.

For now, the bullish momentum has remained in favor of the silver bulls, with prices taking a key confluence point on the chart. This trendline is confluent with the 61.8% Fibonacci retracement of the major move from 2008-2011, drawn at 24.26.

The combination of this trendline and this Fibonacci level served to produce a breakout point in the breakout, as seen below. But the bulls were undeterred and that only slowed the upward advance as prices continued to break out.

Perhaps most impressive is the pace of gains, as silver prices rose 11.9% in less than two weeks. Meanwhile, gold prices rose a more modest 3.6% over the same period.

Four Hour Silver Price Chart

Map prepared by James Stanley; Money on Tradingview

Silver: special features of the overview

There is an internet community of traders who have followed Silver closely, and there have even been crossovers with Reddit/memestock themes in the past year. But, while gold prices have risen in 2020 thanks to the Fed’s easy money policies, silver prices have remained very subdued. While gold hit a new all-time high, silver simply hit the 30 mark after hitting the 50 mark (or just below) during the financial meltdown of 2008.

This level of divergence between these two precious metals was uncanny, leading to a number of high-profile accusations as to what might actually be behind it.

But, the graphs don’t lie and this 30 point could potentially be vulnerable in a third test; and given how lackluster gold’s price action has been, silver appears to have less baggage if these momentum themes continue; and that can make silver an attractive candidate for bullish metal charts.

Monthly Silver Price Chart

Map prepared by James Stanley; Money on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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