Gold (XAUUSD) & Silver Price Forecast: $5,200 Ceiling Holds – Bull Trap or New Rally?

Market Overview

Despite the escalating tensions in the Middle East Gold (XAU/USD) kicked off the new week on the downswing, edging lower around 5,080 and slumping to a low of 5,015 – though big picture the downward trend has as much to do with inflation concerns as it has to do with anything else.

The US Federal Reserve’s chances of cutting interest rates anytime soon just got a lot slimmer, and that in turn has given the US dollar a boost putting more pressure on gold.

Silver (XAG/USD) is in the same boat and currently down by 1.21% at 83.32, it’s also being squeezed by a stronger dollar and inflation worries. But on the other hand, all this Middle East business may actually help limit silver’s losses – who knows.

US Dollar Strength Looks Like It’s Here to Stay Amid Inflation Fears and Middle East Tensions

The US dollar has had a great day, although you could argue it’s had even better days. Behind it all is the inflation story – after all, crude oil has just spiked by over 25%. That tends to increase the risk of inflation, which in turn makes the Fed rather less likely to cut interest rates anytime soon. And that’s exactly what’s been driving the dollar upwards to its highest point in ages – since last November, to be precise.

Now of course, all eyes are on the Middle East too – US and Israeli forces have now been pounding Iran for 10 days straight and still there’s no end in sight. It’s just gotten a whole lot worse in the last 24 hours with Iran naming the Ayatollah’s son as the new top guy, which likely just means business as usual and more tensions with the Western world.

Another thing that’s got investors spooked is the Strait of Hormuz – this is one of the key bits of shipping infrastructure that keeps the world’s oil and gas flowing. If this gets gummed up you can bet the world’s economies are going to feel the pinch – and fast.

Gold (XAU/USD) Technical Outlook: Range Compression Below $5,175 Resistance

Gold’s bouncing around $5,105, hedged in by a strong resistance zone that runs from $5,175 to $5,200. The 2-hour chart shows a pretty tight trading range after gold shot up against the $5,410 high, with lower highs jamming up against the supply zone.

The 50-EMA is pretty much flat near $5,130 but the 200-EMA at $5,015 still looks like it’s in an uptrend, given the ascending trendline from early February. Lately, the rejection candles are showing up right near resistance, while buyers are stepping in above $5,015 – we’re getting a bit of a triangle-like squeeze in the short term.

RSI is just hovering around 50, which doesn’t really give us any clue about momentum. If gold can break through $5,200, you can bet the first stop is $5,276. On the other hand, if it drops below $5,015, it’s a risk that takes us all the way down to $4,935.

Trade Idea: Consider buying above $5,200, with a target of $5,276, and stop if I fall below $5,120.

Silver (XAG/USD) Technical Outlook: Ascending Trendline Holds as $85 Caps Recovery

Silver’s currently trading at around $83.52, taking a breather after getting knocked down from that big chunk of supply between $91.20 and $96.20. On the 2 hour chart, the price is stuck between a horizontal line at $85.45 which is acting as a bit of a barrier and that rising trendline support that’s floating around the $80.50 level. It’s starting to look like a pretty tight squeeze.

The 50-EMA is edging its way around $84.00, while the 200-EMA is hovering just above that, really driving home the point that $85 is a big deal. If the price does manage to break out above that $85.45 line, we might see this thing suddenly shoot all the way up to $88. But if it gets knocked down below that $80.50 level, watch out – it could send the price careering all the way down to $76.13

Trade Idea: Consider buying above $85.50 and targeting $88. Set your stop just below $83.80