What’s inside:

  • More follow-through with USD weakness should help keep a bid in precious metals
  • Gold prices have support around 1217, silver prices in low-17s
  • Better clarity will present itself with a little more time

Last week, we expressed our view that precious metals looked at risk of a rebound on a bearishly postured US dollar heading into the FOMC announcement. As anticipated, USD got crushed and gold/silver prices ripped. Resistance in gold around the 1217 line wasn’t even a nuisance, and has now become a line of possible support. The 17/17.30 area in silver was initially shredded in the 24-hrs after the Fed, but overall silver isn’t acting as well as gold. Nevertheless, support may be found in the low-17s.

Gold: Daily

Gold, Silver Prices Find Further Support from Weak US Dollar

Created with TradingView

Silver: Daily

Gold, Silver Prices Find Further Support from Weak US Dollar

Created with TradingView

The outlook at the moment for precious metals is a little murky on this end. So, we’ll turn to the US dollar for some clarity, where conviction on direction is higher. The US Dollar Index (DXY) broke sharply last week and given the proximity of support (~99.25/98.75) there is room for the dollar to weaken further.

DXY: Daily

Gold, Silver Prices Find Further Support from Weak US Dollar

Created with TradingView

With that in mind, it doesn’t mean precious metals will trade higher, but it does mean they will likely at the least hold a bid if the dollar continues to slide. The one-month correlation between gold/DXY is only -26%, and silver/DXY is right around the zero-line, however; the one-week correlations are both right around -98%. This very strong short-term correlation could come unhinged at any time, so don’t get married to it.

All-in-all, risk looks skewed neutral to higher from here for precious metals while USD continues to search for support. Once we gain better clarity from the charts, we’ll make note of developments in gold and silver.

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---Written by Paul Robinson, Market Analyst

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