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Gold, Silver Price Analysis: Gold Gears Up for Break as Silver Leads the Way

Gold, Silver Price Analysis: Gold Gears Up for Break as Silver Leads the Way

James Stanley, Senior Strategist

Gold, Silver Talking Points:

  • It’s been a big week for metals, with both Silver and Gold posing meaningful breakouts. But – there’s been divergence with strong out-performance from Silver, jumping by almost 12% over the past two weeks while Gold has been up a more modest 3.6%.
  • Silver can be a more attractive venue for near-term momentum themes while Gold presents pullback potential at the prior spot of resistance around 1830.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Gold prices are nearing a key spot on the chart as Silver prices have already broken-out to fresh highs. It’s perhaps the backdrop with which these breakouts have shown that make the matter most interesting. Yields remain elevated and stocks are on their back foot; rates markets are pricing in as many as seven hikes out of the Fed this year with a median expectation for four 25 basis point adjustments. And while there’s been a lot of talk about Bitcoin replacing Gold as an inflation hedge, well that’s down, too, threatening to breakdown below the 40k support that came into the picture earlier in the week.

Next week brings the FOMC for the January rate decision and while there’s scant expectation for any actual moves at this meeting, the focus is on whether or not the bank highlights a March rate hike along with how they signal their plans for later in the year.

Perhaps the bigger question than even rate hike policy is the prospect of Quantitative Tightening, in the event that the Fed looks to whittle down the massive balance sheet that’s been accumulated since Covid came into the picture almost two years ago. At this point, QE is set to end in March – right as markets are looking for that first hike out of the FOMC. But, will the bank also take the next step in that direction by allowing bonds in their portfolio to mature without being replaced?

Gold Nears Breakout at 1850

Gold prices have been building in a bullish channel ever since the December FOMC rate decision. That channel was buffered by a big spot of resistance at the 1830 spot on the chart and failed to break through after three attempts in the early-part of the year.

But, the 4th time was the charm when bulls pressed the bid yesterday. And that breakout still has yet to stop, as there’s been a mere pause in the move ahead of another key spot of resistance on the charts, plotted around the 1850 level.

Gold Four-Hour Price Chart

Gold four hour price chart

Chart prepared by James Stanley; Gold on Tradingview

Taking a step back on the chart for the bigger-picture and it becomes a bit more evident that we’re nearing a key decision point in the matter. The level around 1850 has come into view and this is confluent with a trendline projection taken from the 2020 and mid-November swing-highs.

This can keep the door open for breakout potential, but for traders looking to take advantage of near-term momentum in this theme, there may be a more attractive venue elsewhere in Silver, which I’ll look at a little lower in this article.

But, Gold is nearing a big spot of resistance and that can be looked at for breakout potential. The alternative mechanism for joining the trend on the long side would be waiting for prices to pullback for a support test of that 1830 spot that was resistance on three separate occasions over the past few weeks – along with another three iterations in the second-half of last year. This is a big area so if bulls are going to charge-higher, it makes sense that we see a support test there.

Gold Daily Price Chart

gold daily price chart

Chart prepared by James Stanley; Gold on Tradingview

Silver

While Gold gears up for a possible breakout from that descending trendline, Silver has already made a pretty noticeable move on a similar setup. The trendline here is a bit different, however, spanning from June and November swing highs. But, there’s some other peculiarities that don’t quite match up which I’ll look at a little later.

For now – bullish momentum has remained in Silver bulls’ favor with prices taking-out a key spot of confluence on the chart. That trendline is confluent with the 61.8% Fibonacci retracement of the 2008-2011 major move, plotted at 24.26.

The combination of this trendline and that Fibonacci level served to produce a pause point in the breakout, as can be seen below. But bulls were not deterred and this merely slowed the advance on the way up as prices have continued to break out.

Perhaps most impressive is the pace of gains – as Silver prices are up by 11.9% in less than two weeks. Meanwhile Gold prices are up a more modest 3.6% over the same period of time.

Silver Four-Hour Price Chart

silver four hour price chart

Chart prepared by James Stanley; Silver on Tradingview

Silver: Big Picture Pecularities

There’s an internet community of traders that have been closely following Silver, and there was even some cross-over with Reddit/memestock themes last year. But, as Gold prices flew-higher in 2020 on the back of the Fed’s easy money policies, Silver prices stayed very subdued. As Gold flew up to a fresh all-time-high, Silver merely pushed up to the 30-handle after it had visited the 50-spot (or just under it) during the financial collapse in 2008.

This level of divergence in these two precious metals was odd, and this has led to a number of wide-ranging accusations as to what may actually be behind it.

But, charts don’t lie and that 30-spot could potentially be vulnerable upon a third test; and given how grindy price action has been in Gold, Silver seems to have less baggage should these themes of momentum continue; and this can make Silver as an attractive candidate for bullish metals themes.

Silver Monthly Price Chart

Silver monthly price chart

Chart prepared by James Stanley; Silver on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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