Gold and Silver Technical Analysis: Key Support Holds Amid Rising Volatility

Gold (XAU) price dropped to about $4,680 in early trading in Asia on Friday. Traders responded to losses in stock market and moved to cover positions. The market is now waiting for the Michigan Consumer Sentiment Index, which could influence expectations around inflation and interest rates.

The CME Group increased margin requirements for Gold and Silver (XAG) futures, thereby making it more costly for traders to hold positions. That change caused forced selling by some participants. The drop in tech stocks also forced traders to sell gold to meet collateral requirements which contributed to weakness in metal over the short term.

Meanwhile, the reduction in safe-haven appeal of gold is due to signs of easing geopolitical tensions between the US and Iran. But uncertainty about the future policy path of the Fed still remains. Comments from the US President cast doubt on the independence of the Federal Reserve, which should weaken the US Dollar and provide a cushion for gold in the sessions ahead.

Gold Technical Analysis

XAUUSD Daily Chart – Ascending Broadening Wedge Pattern

The daily chart for spot gold shows that the price has dropped quickly from $5,600 to $4,400 and then produced a rebound. This rebound is due to the strong support around $4,400, which is seen at the intersection of the 50-day SMA and the support line of the ascending broadening wedge pattern.

Moreover, the RSI is also hitting the 50 level as the price hits the support of ascending broadening wedge pattern. A strong recovery above $5,050 will indicate further upside in gold. However, a break below $4,400 will trigger another drop towards lower levels.

The strong support of the ascending broadening wedge pattern is also observed in the chart below. The chart below shows that the price hit the support of the ascending broadening wedge pattern for the second time, highlighted by the red circles.

A strong rebound from this level indicates positive momentum. However, the price may consolidate in the short term to normalize the strong drop from $5,600. Overall, the structure remains strongly bullish, and the price may continue higher once this consolidation is over.

XAUUSD 4 Hour Chart – Bullish Price Development

The 4-hour chart for spot gold also shows strong support around $4,400. This support is defined by red highlighted region, which is the support region marked by black dotted trend line of the ascending triangle pattern.

The bullish pattern’s formation in the short term, followed by the breakout above $4,500 and a strong surge towards $5,600, indicates that gold is facing strong volatility. This volatility may resolve to the upside if the price remains above $4,000.

Silver Technical Analysis

XAGUSD Daily Chart – Long Term Supports

The daily chart for spot silver shows that the price has hit strong support around $65 and rebounded higher. The $65 and $55 levels remain the strong support region for silver. As long as these support levels hold, the next move in silver will likely be higher.

XAGUSD 4-Hour Chart – Long Term Supports

The 4-hour chart for spot silver shows that the price trades within the ascending broadening wedge pattern between $60 and $100. As the price nears $60 support, the possibility of a strong rebound in silver develops. Overall, the price structure in silver remains strongly bullish and looks toward further upside.

US Dollar Technical Analysis

US Dollar Index Daily Chart – Consolidation

The daily chart for the USD Index shows a strong consolidation between 96.50 and 100.50. As long as the price remains between these levels, the next move in the USD Index remains uncertain.

The 50-day SMA trades below the 200-day SMA. However, the strong price fluctuations around these moving averages indicate uncertainty in the USD Index. The RSI has reached the midline, which indicates a correction may develop in the short term.

US Dollar Index 4 Hour Chart – Consolidation

These consolidations are also observed on the 4-hour chart, which shows that a break below 96.50 in the US Dollar Index will likely trigger another strong drop towards the 90 area. However, a break above 100.50 will negate bearish patterns and indicate further upside. As long as the price remains between these levels, the next move in the USD remains uncertain.