Gold, Silver Forecast: Precious Metals Reverse Violently – Where Next?

Gold, Silver Key Points

• After big rallies yesterday, Gold has lost more than $2T in market cap, while silver dumped -12% in a violent intraday reversal that lasted a little over an hour.
• As long as $5100 holds, gold’s near-term uptrend remains intact and traders may continue to buy the metal on intraday dips
• For silver, a hold of today’s low at $107 would be a healthy development for the longer-term uptrend, as would a period of consolidation around $110.

Last night’s big rally in precious metals certainly had the feel of a “blow off top,” and now traders are seeing the other side of the coin, no pun intended!

Despite a lack of clear catalysts – some analysts have pointed to escalating tensions between the US and Iran, though that’s been in the news for weeks – gold and silver buying accelerated as Asian markets opened up, taking gold fresh records as high as $5600, while Silver tagged along to reach $120+. The move had the feel of a large fund capitulating or a massive short squeeze after months of consistent gains.

After digesting the gains this morning, the precious metals edged below near-term support levels, triggering stops and reversing the entirety of yesterday’s surge in short order. Gold alone lost more than $2T in market cap (essentially the entire market capitalization of the cryptoasset markets), while silver dumped -12% in a little over an hour.

Once again, as is often the case in volatile, speculative-driven market environments, there is little in the way of a clear catalyst as we go to press. The only notable headlines have been a dash of positivity around the potential that the US government will avoid a shutdown at the end of the month; this is a bearish development at the margin for precious metals, but not the type of news that would drive such a big move under normal trading conditions.

Ultimately, today’s price action serves as a reminder that highly volatile markets can be…volatile as short-term speculative traders flood in, leading to sharp swings in either direction. In these types of environments, risk management is absolutely paramount. Below, we break down the damage (or lack thereof!) to the longer-term trends in both gold and silver.

Gold Technical Analysis: XAU/USD Daily Chart

 

Source: Tradingview, StoneX

Starting with Gold, today’s price action is on track to create a massive “dark cloud cover” candlestick formation on the daily chart. For the uninitiated, this pattern shows a violent reversal after a break to new highs and increases the odds of a near-term top forming. At a minimum, this type of price action usually takes the proverbial wind out of the bulls’ sails and leads to a period of consolidation.

Interestingly, the longer-term technical damage is contained so far; indeed gold has seen rapid dip buying below $5200 and is still trading higher than where it opened trading yesterday. As long as today’s low near the 38.2% Fibonacci retracement of the January rally at $5100 holds, the near-term uptrend remains intact and traders may continue to buy the metal on intraday dips. A break below that level would open up the 61.8% or 78.6% retracements at $4775 and $4550 as logical support zones that keep the longer-term uptrend intact.

Silver Technical Analysis: XAG/USD Daily Chart

 

Source: Tradingview, StoneX

The technical outlook for silver is similar. Today’s price action represents an impressive reversal, but the bounce off $107 shows that buyers are still waiting in the wings to buy the precious metal on any near-term dips, even if those dips are to levels we had never seen before this week. Once again, a hold of today’s low at $107 would be a healthy development for the longer-term uptrend, as would a period of consolidation around $110.

Despite the violence of today’s intraday reversals in precious metals, the medium-term and longer-term technical uptrends remain intact, suggesting that as long as today’s lows hold, we may see more record highs in gold and silver sooner rather than later.

-- Written by Matt Weller, Global Head of Research

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