Gold and Silver Forecast: Precious Metals in a Gold-ilocks Market

Gold, Silver Key Points

• Between fiscal deficits, above-target inflation, questions about the independence of the Federal Reserve, and the global geopolitical drama, the fundamental case for precious metals has arguably never been stronger.
• There is little technical evidence of an imminent bearish reversal in Gold prices so far.
• Contrarian Silver traders could monitor for early signs of a reversal in the price action to signal a pullback, toward at least last week’s breakout point at 83.50 if not lower.

I’m not the first to observe this, but if you were to imagine a perfect scenario for precious metals, it would look nearly identical to the current backdrop: Between wartime-level fiscal deficits across the developed world, persistently above-target inflation, the independence of the Federal Reserve under fire, and the global geopolitical drama (Venezuela, Greenland, China, etc.), the fundamental case for precious metals has arguably never been stronger.

Whether an investor views gold and silver as safe haven hedges, protection against stagflation, insurance against de-dollarization and currency debasement, or even just short-term seasonal trades, it’s hard to find a reason NOT to buy.

Undoubtedly, gold and silver could extend their gains toward $5K and $100 respectively in the coming days, but it is worth highlighting that many of the potential bullish catalysts are already running full steam; in other words, if we see inflation come in a tick below expectations, the hullaballoo about Greenland simmer down slightly, a mild move toward fiscal awareness or any other developments that don’t aggressively reinforce today’s dominant themes, precious metals are prone to a sharp pullback as traders reassess market sentiment.

As always with trading, you have to get both the direction AND the timing correct, so readers should be hyper-attuned to the charts of gold and silver for any signs of fading bullish momentum.

Gold Technical Analysis: XAU/USD Daily Chart

Source: Tradingview, StoneX

Looking at gold first, there’s little to suggest an imminent bearish reversal so far. The precious metal spent most of Q4 consolidating in the low-$4000s before breaking out convincingly above resistance near $4400 to start Christmas week.

After a brief consolidation last week, gold is once again breaking out to extend its rally into record territory above $4750, bringing the $4800 handle into sight next. While the 14-day RSI is technically in “overbought” territory, it is still well below the extremes seen in October or December, hinting that gold may have further to run unless one of the fundamental drivers noted above shows signs of fading.

Silver Technical Analysis: XAG/USD Daily Chart

Source: Tradingview, StoneX

Turning our attention to silver, the recent rally has been even more staggering. The price of gold’s “little brother” has essentially doubled in the last two months in nearly a straight-line fashion. The market is clearly “stretched” and the 14-day RSI is currently showing a possible bearish divergence, where price makes a higher high (today and last week) while the oscillator makes a lower low. This raises the risk of a sharp reversal and argues against hopping on the bullish trend if you’re not already long, especially from a risk management perspective.

In the coming days, contrarian traders could monitor for early signs of a reversal in the price action to signal a pullback, toward at least last week’s breakout point at 83.50 if not lower, though trend-following traders are likely to step in quickly to “buy the dip,” at least until a lower high forms.

-- Written by Matt Weller, Global Head of Research

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