Gold, Silver Weekly Forecast: Bearish
- Gold heads for second weekly decline as war premium dissipates
- A soft U.S. inflation print next week presents a risk to the current decline
- Silver tests the 38.2% retracement with the 23.6% in sight
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
Gold Heads for Second Weekly Decline as War Premium Dissipates
Gold has declined around 2.5% this week in what has been a trying time for the metal which not too long ago was on track to retest the all-time high. As the conflict in Gaza continues, it appears as if the safe haven bid behind gold’s prior ascension is under threat.
Gold has dropped around 3.5% after rising just shy of 11% as a number of fundamental headwinds appear for bulls. As the conflict in the Middle East drags on, markets appear to have discounted the probability of a broader conflict in the region which had previously helped to elevate prices.
Another dynamic currently affecting price action is the dollar – which moves according to the prevailing narrative at the time. Since softer labour prints (NFP) and other fundamental data, the dollar eased off. However, the greenback has since made a recovery and was further emboldened by the Jerome Powell’s comments yesterday which the market perceived as hawkish.
Powell expressed that the committee is not confident that interest rates are high enough to conclude that the fight against inflation is done, sending the dollar and U.S. Treasury yields higher. The higher dollar weighs on the price of gold for foreign buyers, making it relatively more expensive.
Weekly Gold (XAU/USD) Chart
Source: TradingView, prepared by Richard Snow
The daily chart shows the pivot point at $2010 which capped upside momentum, sending gold prices hurtling past $1985, towards $1937. If softer US data withdraws broad support for the US dollar, we may see a period of consolidation – this appears to be the new norm after softer US data has already began and according to the Fed, the outlook for Q4 economic growth is likely to show a material drop off from Q3.
Gold (XAU/USD) Daily Chart
Source: TradingView, prepared by Richard Snow
Implied 30-day gold volatility has fallen sharply after an impressive rise. GVZ was at one stage approaching similar levels witnessed during the second appearance of the regional bank turmoil earlier this year but ultimately fell short. The trough to peak percentage was nevertheless very impressive at a time of great uncertainty as the conflict evolved.
Implied 30-Day Gold Volatility (GVZ)
Source: TradingView, prepared by Richard Snow
Silver Tests the 38.2% Retracement with the 23.6% in Sight
Silver currently tests the 38.2% retracement of the larger 2021-2022 decline where a hold below the level could open up a return to the 23.6% retracement at $20.52 – which coincides with channel support. Silver has traded almost exclusively within the bounds of the descending channel as prices edge lower slowly. Levels to the upside include $23.20, the upper bound of the descending channel and a distant $25 level.
Silver (XAG/USD) Weeky Chart
Source: TradingView, prepared by Richard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
