Gold and Silver Technical Analysis: Recovery from Major Support Signals Next Upside Phase

Gold (XAU) price increased to $5,000 on Monday in Asian trading hours. This positive move in the gold price is due to the weaker US dollar and persistent central bank demand. With the U.S. labor market report for January delayed until Wednesday, traders are looking at wider signals of macro and geopolitical nature. The absence of flow of immediate data has dampened short-term volatility and given gold some breathing space to recover as investors re-evaluate their outlook on interest rate movements.

A major reason for the dollar’s weakness has been concern about the independence of Federal Reserve. U.S. Treasury Secretary Scott Bessent’s refusal to rule out a criminal investigation into Kevin Warsh has set off institutional jitters. The potential threat to Fed independence and policy credibility has been a pressure on the Greenback. Since the price of gold is denominated in dollars, any weakness in the currency is likely to boost the value of metal.

Meanwhile, strong and constant demand from the People’s Bank of China continues to support the metal’s long-term outlook. In January, the PBOC added to its gold reserves for the 15th consecutive month, to 74.19 million ounces. This build-up is a sign of strategic diversification from dollar-based reserves. China is the largest consumer of gold in the world, such moves provide a good demand floor, adding to the bullish story.

Gold Technical Analysis

The daily chart for spot gold shows that the price has found strong support around the 50-day SMA. This support also intersects with support for ascending broadening wedge pattern. Therefore, this region is a strong key in the gold market. The emergence of a bullish hammer at this support region indicates continued upside potential. However, the price must break $5,090 to initiate the next move higher.

The 4-hour chart for spot gold also shows the formation of strong support at $4,400, which is shown by the red shaded area in the chart below. The recovery from this support and the formation of bullish price action indicate continued upside for the next few days. However, a break above $5,090 is required to maintain bullish momentum in gold. Moreover, the RSI is rebounding from the oversold level, which increases the possibility of upside breakout.

Silver Technical Analysis

The daily chart for spot silver (XAG) also shows emergence of the bullish hammer at the major support of $64. This bullish candle indicates continued upside in silver toward $100. However, a break above $100 will indicate further upside for the next few days. A strong drop from $120 and then the emergence of a bullish hammer at major support indicate that this correction in silver is a healthy sign.

The 4-hour chart for spot silver shows a strong recovery from strong support of $60 to $70. This recovery indicates that silver will likely continue higher. The strong resistance remains at the $100 level.

Bottom Line

Gold and silver continue to show strength after recent corrections supported by good technical support in place. Gold’s move to $5,000 has been sustained by a weak US dollar, continued central bank accumulation and rising uncertainty about the independence of the Fed. These forces have helped to decrease volatility and enable gold to bounce back from critical support of $4,400.

From technical perspective, gold charts are pointing to bullish setup, but it takes a decisive break above $5,090 to trigger the next leg higher. Meanwhile, silver has also rebounded from that $60-$70 region with bullish hammer formations confirming strength at support. A break above $100 is still the key trigger for the next rally phase of silver.