Gold (XAU) and silver (XAG) prices rebounded on Monday in early Asian trading as fresh energy news shapes the outlook for both metals. Gold trades near $4,158 an ounce while silver rises to around $61.40.
The soft US jobs data support the recovery but renewed tensions in Yemen add another risk. The government of Yemen announced a new offensive against the Houthis on Sunday. This raises concerns about the stability in the region.
The escalation in the conflict in the Middle East could increase demand for gold as a safe haven. But any disruption to energy supplies could also push oil higher. That would raise the risk of inflation and complicate the outlook for interest rates.
The latest pricing decision by Saudi Arabia offers some relief. Aramco unexpectedly cut November prices for Asian buyers and lowered the Arab Light price by $3 a barrel from October. Brent oil also eased toward $104.80 on early Monday as the recovery in the export of Middle East helped reduce the supply concerns.
The cheap oil could ease inflation pressure and support both metals. But the US 10-year Treasury yield remains near 5.26%, which keeps the rebound vulnerable. In my view, a sustained decline in oil and Treasury yields is required to build a strong recovery in gold and silver prices.
Gold Price Forecast: $4,100 Support Faces a Test
The daily chart for spot gold shows that the price remains under pressure after breaking below the 50-day SMA in the $4,330 area. The rebound so far on Monday is weak. A break below $4,100 will indicate further downside towards $4,000 in the short term. But a recovery above $4,220 will offer another rally towards the $4,320 area.
The price structure on the weekly chart remains bearish and points to a drop towards the $3,900 to $4,000 area. This is considered a key zone in the gold market. If prices break below $3,900, it will confirm the formation of a head and shoulders pattern and offer downside to $3,700. However, any recovery above $4,500 will offer another strong rally towards $5,000.
The price attempted to close below the ascending trendline that stretches from the October 2023 lows. Now the price must produce another negative weekly candle this week to confirm this break and push the price towards the $4,000-$3,900 area.
The 4-hour chart for spot gold also shows strong uncertainty in the short term as the price produced a rebound from support in the $4,100 area. The key resistance in the spot gold market remains at $4,300. Now the price has formed a strong consolidation between $4,100 and $4,300. A break of either of these levels will likely define the next move in the gold market.
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See all Gold forecastsSilver Price Forecast: $60 Support Faces Breakdown Risk
The daily chart for spot silver shows that the price has formed a triangle pattern and shows negative price action. A break below $60 will likely trigger another drop toward the support of the triangle in the $55 region.
On the other hand, the immediate resistance in spot silver remains at $65. A break above $65 will push prices towards the $72 area in the short term. As long as the price remains below $72, the possibility of a strong consolidation is high. But a break below $55 will signal a stronger decline in silver prices in the short term.
The 4-hour chart for spot silver shows that the price has been consolidating between $60 and $62.60 in the short term. As long as the price remains between these levels, the next move in silver remains uncertain. A break below $60 will offer another drop towards the $55 area. But a recovery above $62.60 will indicate another rally towards $65 in the short term.
What to Watch Next in Gold and Silver
Gold and silver remain vulnerable as high Treasury yields limit the rebound in metals. The ISM services report on Monday will provide fresh clues about the business activity and price pressures. The Fed minutes on Wednesday, October 7, could clarify the views of policymakers on further rate hikes. The University of Michigan survey on Friday will put consumer sentiment and inflation expectations in focus. The strong activity or rising expectations of inflation could lift yields and pressure both metals.
Traders should also watch developments in the Middle East as further disruption to energy supplies could push oil higher. A break below $4,100 in gold and $60 in silver could open the way towards $4,000 and $55, respectively. However, a break above $4,220 in gold and $62.60 in silver would strengthen the rebound in the short term.
Read more: Strong Dollar and High Yields Put $50 Silver in Focus
