Precious Metals – Real or Fake Breakout? Sector Overview

The rush of consumer demand mirrors what the manufacturing sector is experiencing and adds to the story that the economy is rapidly heating up. All 18 services industries reported growth in May, led by retailers, wholesalers, construction firms, and entertainment and recreation providers.

Also similar to the manufacturing sector, services businesses are experiencing higher input costs and a backlog of orders, with the latter climbing to a new record.

The employment measure, meanwhile, slipped more than three points, with ISM noting that the labor pool for the services sector is currently even tighter than it is for manufacturing. ISM also predicts that demand for services could continue to outstrip the sectors capacity for the next four-to-six months, citing pent-up consumer demand as people start re-engaging.

Gold analysis

A few weeks ago we had a look into Gold cycles, Intermarket forecasts, and COT. At that moment gold was flagging. As you know it usually follows this pattern very well. But it doesn’t mean always. The current breakout wasn’t qualified as we didn’t have a downclose candle prior to the breakout candle. Moreover, in 2012 we had a similar situation and it was a false breakout. So, I want to see more price action to figure out what is happening.

In case, this breakout turns to be real, the market will target 2600 in 1 – 3 years. With all that in mind, let’s have a closer look into smaller time frames. Last week the price tested the 1856 level. It was previously a strong resistance. So, no surprise price found support there. The 4h MA200 is at 1837. Technically it should be enough to build a base and start a new wave to the upside with targets 1932 and 1960. This pattern is valid till the price holds above 1800. If this level fails, the bears could take control of this market.

Silver forecast

We have a bit different situation in Silver. The flagging formations on the monthly chart failed more compared to Gold. In fact, in 2012 there was a clear depreciation in this market – flagging formation that broke to the downside; tight consolidation followed by the final breakdown. Certainly, it is too early to jump into this market, but in the case, we see a breakup in this market, bulls could target the 38 – 40 range.

Overall a lot depends on the dynamic of key economic indicators. It’s worth noting that inflation is growing quite rapidly in China’s manufacturing sector, which many economists warn could translate to higher costs for a wide range of goods across the globe. If inflation worries spread on major markets, the precious metals sector will shine and deliver amazing returns for qualified traders.