Gold, XAU/USD, Silver, XAG/USD – Outlook:
- Next support for gold: 1805, 1785, 1720.
- Bearish head and shoulders pattern triggers in silver.
- What is the outlook and the key levels to watch?
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Gold and silver have below their respective multi-week range, pointing to further losses in the near term amid rising US Treasury yields.
US Treasury 10-year yield hit a 16-year high last week on the growing conviction of higher-for-longer interest rates, weighing on the zero-yielding precious metals. On technical charts, the US Treasury 10-year yield’s break above the 2018 high of 3.26% has opened the way toward the pre-Great Financial Crisis high of 5.33%.
Rising nominal interest rates coupled with easing price pressures/inflation expectations have pushed up real rates, raising the opportunity cost of holding the zero-yielding yellow metal. See “High Real Yields Starting to Bite Gold? XAU/USD Price Setup Ahead of US CPI,” published August 10.
XAU/USD Daily Chart
Fed Governor Michelle Bowman reinforced the hawkish view on Monday saying she remains willing to support another increase in the central bank’s policy rate at a future meeting if incoming data shows progress on inflation has stalled or is too slow. Furthermore, the temporary resolution to avert a US government shutdown removed the prospect of safe-haven bids in gold.
Gold: Bearish triangle triggers
On technical charts, XAU/USD has fallen below vital support on the 200-day moving average, around the June/August low of 1885-1890. The importance of this support was highlighted in “Gold, Silver Forecast: It’s Now or Never for XAU/USD, XAG/USD,” published on August 13. The break below has paved the way toward the February low of 1805, near strong support on the 200-week moving average. Subsequent support is at 1785 followed by 1720 (the 76.4% retracement of the 2022-2023 rally).
XAU/USD Weekly Chart
Gold is looking deeply oversold on the daily charts with the 14-day Relative Strength Index now below 20 – a level that was associated with a rebound in mid-2022. However, it wasn’t enough to end the slide. The implication is that deeply oversold conditions raise the odds of a corrective bounce but may not necessarily terminate the downtrend.
A decisive break below 1805 would seal the possibility that the spectacular one-year rally since early 2022 was corrective and not the start of a new uptrend – a point highlighted in recent months. See “Gold Could Find It Tough to Crack $2000”,published March 28, and “Gold Weekly Forecast: Is it Time to Turn Cautious on XAU/USD?” published April 16.
XAG/USD Daily Chart
Silver: Head & shoulders pattern triggers
XAG/USD has broken below key converged support, including an uptrend line from late 2022, coinciding with a horizontal trendline from June that came at about 22.00. The break has triggered a bearish head & shoulders pattern – the left shoulder is at the June high, the head is at the July high, and the right shoulder is at the August high – opening the way toward the March low of 19.85. The bearish move is also associated with a fall below the 200-day moving average, suggesting the uptrend from late 2022 has reversed.
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— Written by Manish Jaradi, Strategist for DailyFX.com
— Contact and follow Jaradi on Twitter: @JaradiManish