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Gold, Silver Forecast: Powell's Testimony to Underpin XAG/USD, XAU/USD

Gold, Silver Forecast: Powell's Testimony to Underpin XAG/USD, XAU/USD

Daniel Moss, Analyst

Gold, Silver, Fiscal Stimulus, Federal Reserve, Powell Testimony – Talking Points:

  • Rising inflation expectations, depressed real rates, and a weaker USD may underpin precious metal prices.
  • Double Bottom reversal could trigger further gains for gold prices.
  • Silver poised to extend climb higher after clearing key resistance.
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As mentioned in previous reports, the combination of climbing inflation expectations, depressed real rates, and a weaker US Dollar may provide a tailwind for gold and silver prices in the coming months. The impending delivery of a substantial fiscal support package will likely limit the Greenback’s potential upside and in turn pave the way for precious metals to recover lost ground.

The House of Representatives is expected to put President Joe Biden’s proposed $1.9 trillion coronavirus-relief package to a vote on Friday. Federal Reserve Chair Jerome Powell’s upcoming testimony before Congress may also open the door for anti-fiat assets to gain ground.

Powell is expected to reiterate the central bank’s commitment to supporting the economy by keeping interest rates at record lows and continuing to purchase at least $80 billion of Treasury securities and $40 billion of agency-mortgage-backed securities a month “until substantial progress has been made towards the Committee’s maximum employment and price stability goals”.

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The chairman may also repeat his calls for more fiscal support to bolster the nation’s nascent recovery, given his previous statement that “it will require a society-wide commitment, with contribution from across government and the private sector” to restore the labour market to pre-pandemic levels.

With that in mind, gold and silver prices may trudge higher in the coming weeks on the back of fiscal aid progress, the Federal Reserve’s dovish stance and climbing expectations for consumer price growth.

Gold Price Daily Chart – Double Bottom Reversal in Play?

Gold, Silver Forecast: Powell's Testimony to Underpin XAG/USD, XAU/USD

Gold futures daily chart created using Tradingview

From a technical perspective, gold could be poised to extend its recent recovery from the yearly low set on February (1759), as prices carve out a Double Bottom reversal pattern above support at the 50% Fibonacci (1770).

Bullish RSI divergence, and a bullish crossover on the MACD indicator, suggests that the counter-trend correction from the 2020 high (2089) is running out of steam.

A daily close above range resistance at 1820 – 1830 is needed to open the door for buyers to challenge the monthly high (1867). Breaching that brings Descending Channel resistance and the psychologically pivotal 1900 mark into the crosshairs.

However, if the 21-EMA successfully neutralizes buying pressure, a retest of the monthly low (1759) could be on the cards.

Gold, Silver Forecast: Powell's Testimony to Underpin XAG/USD, XAU/USD

The IG Client Sentiment Report shows 85.81% of traders are net-long with the ratio of traders long to short at 6.05 to 1. The number of traders net-long is 1.96% lower than yesterday and 10.80% higher from last week, while the number of traders net-short is 32.15% higher than yesterday and 10.01% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

Silver Daily Chart – Break of January High Hints at Further Upside

Gold, Silver Forecast: Powell's Testimony to Underpin XAG/USD, XAU/USD

Silver daily chart created using Tradingview

Silver also looks set to continue gaining ground, as price surges away from the trend-defining 55-MA (26.23) and pierces resistance at the January high (27.92).

With the RSI climbing above 60, and the MACD indicator tracking firmly above its neutral midpoint, the path of least resistance seems higher.

Gaining a firm foothold above 29.00 is ultimately required to signal the resumption of the primary uptrend and carve a path to challenge the 50% Fibonacci (30.77).

However, if price slips back below psychological support at 28.00, a short term pullback to the 34-EMA (26.69) could be in the offing.

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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