Gold and Silver Analysis: Precious Metals Await Breakout as Fed Risks Loom

Gold (XAU) is consolidating in a tight range on Monday’s opening. A weaker U.S. dollar encouraged buyers to return to the market. But the key factor remains the tensions between the US and Iran and the stalled negotiations. The market looks for any signs of the opening of the Strait of Hormuz. As long as the Strait remains closed, the geopolitical uncertainty will keep the financial markets volatile.

Rising oil prices have a mixed impact on gold. Higher oil prices lead to higher inflation because transport costs, production costs and energy prices rise. This can be good for gold as an inflation hedge. But, inflationary pressures may require the Federal Reserve to keep interest rates higher longer. This will make the dollar stronger and other interest bearing assets more appealing. Thus, gold may continue to be volatile until the Fed provides an update on its policy.

Silver (XAG) is slightly more vulnerable as it is both a safe-haven and industrial commodity. The dollar can have a negative impact on silver, but expectations of future interest rate hikes may constrain gains in the short term. Silver may continue to face pressure if oil related inflation continues to put pressure on the global economy due to weakness in industrial demand. However, if gold settles down and the dollar continues to fall, silver will rebound quickly because its long-term bullish trend is supported by inflation, liquidity and hard asset demand.

 

Gold Technical Analysis: Consolidation Below Key Resistance Continues

 

The daily chart for spot gold shows strong consolidation below the key level of $4,900. A failure to break above $4,900 will keep the consolidation between $4,400 and $4,800. A break above $4,900 will open the door for strong upside towards the $5,200 area. However, a break below $4,600 will indicate further downside towards $4,400.

Overall, the price structure for gold remains strongly bullish, and the next move will depend on the breakout of these key levels in the gold market.

The short-term price action also shows strong consolidation above $4,600. As long as the price remains below $4,900, the consolidation in gold will likely persist.

 

Silver Technical Analysis: Consolidation Builds Near Support

 

The daily chart for spot silver also shows strong consolidation above the $72 level. The emergence of a bullish hammer candle above the orange highlighted zone indicates a bullish price structure. Therefore, a break above $83 will indicate a strong upside move towards $100. However, a break below $72 will open the door for further downside towards the $64 area.

This consolidation in the silver market is also seen on the 4-hour chart, which highlights the red zone where the price is consolidating around the support of the ascending broadening wedge pattern. A break below $64 will open the door for a strong drop towards $50. However, a strong recovery above $83 will keep the bullish trend in the silver market.

Bottom Line

The precious metals are still in consolidation in the short term. But the long-term trend remains bullish. For gold, a clear break above $4,900 will signal a move towards $5,200, while a strong break above $83 for silver will signal a stronger push towards $100. But there remains the risk of a breakdown for gold below $4,600 and for silver below $72 and then $64. The U.S-Iran war, oil, the dollar and Fed policy will be the next big driver. Until these factors are more evident, both metals may remain choppy. But the long-term view is still backed by inflation, liquidity and safe-haven demand.

If you’d like to know more about how to trade gold and silver, please visit our educational area.