Gold and silver technical outlook: have precious metals turned bearish?

Gold technical outlook - bullish

Precious metals may have retreated most recently, but technical charts suggest it may be too soon to conclude that the three-month-long uptrend is over.

The upward pressure in gold and silver has faded over the past couple of weeks after surprisingly strong US jobs data, triggering a repricing higher in US Fed rate expectations. US rate futures are pricing the Fed’s target rate to peak over 5% in July Vs below 5% at the end of last month.

Price facts, sentiment, narrative

Price Facts

• Gold's break in December above the 200-day moving average reaffirms the broader bullish bias. However, the recent fall below key support at 1895-1900 has raised the odds of a range developing in the near term.

Sentiment

• IG Client Sentiment data shows 64% of traders are net-long gold and 36% of traders are net-short gold. The number of traders net-long is 1% higher from last week, while the number of traders net-short is 23% higher from last week.

Narrative

• The narrative continues to be broadly gold supportive: US Fed having to slow or stop rate hikes in the next few months, translating into a weaker USD and lower US real yields. Positioning data shows USD net longs have reduced significantly from mid-2022, while speculative long gold positioning is up since the end of 2022. Moreover, central banks continue to be buyers of gold (purchases surged in 2022). Most recently, though, gold has been weighed by a repricing higher in Fed rate expectations after surprisingly strong US jobs data.

In this regard, Philadelphia Federal Reserve President Patrick Harker’s remarks on Friday were comforting – he flagged the prospect of rate cuts in 2024 should inflation continue to ease and did not alter his view that moving to smaller interest rate rises would be a good strategy. Harker echoed Fed Chair Powell’s disinflation tone last week.

A key focus is now on US inflation data due Tuesday. US monthly consumer prices and core CPI likely rose 0.4% on-month in January. Core CPI likely rose 5.5% on-year and the headline inflation rose 6.2% on-year last month. A softer-than-expected data could reaffirm the view that US inflation is peaking and soothe investors’ nerves.

XAU/USD daily chart

On technical charts, while XAU/USD’s fall below 1895-1900 confirms the upward pressure has faded a bit in the short term, it may not be sufficient to conclude that the uptrend is over. Gold continues to hold above the strong support area of 1775-1810, coinciding with the 200-day moving average and the lower edge of the Ichimoku cloud.

Moreover, the retreat so far is less than 38.2% of the rise from November – retracements of 38.2%-50% are considered to be reasonable, and not necessarily the end of the prevailing trend. However, gold would need to break above the support-turned-resistance at 1895-1900 for the immediate downward risks to ease. In sum, the broader bullish view for gold remains intact, unchanged from the previous update even though the short-term outlook is Neutral.

Silver technical outlook - neutral

Silver is approaching a vital cushion area, including the 200-day moving average and the lower edge of a rising channel from mid-2022 (around 21.00-22.00). This follows a break below a horizontal trendline from early January at about 23.10, opening the way toward the mid-December low of 22.50, roughly the price objective of a sideways topping pattern. For the imminent downside risks to fade, XAG/USD would need to break above 23.00-23.10.

XAG/USD daily chart

On technical charts, while XAU/USD’s fall below 1895-1900 confirms the upward pressure has faded a bit in the short term, it may not be sufficient to conclude that the uptrend is over. Gold continues to hold above the strong support area of 1775-1810, coinciding with the 200-day moving average and the lower edge of the Ichimoku cloud.

Moreover, the retreat so far is less than 38.2% of the rise from November – retracements of 38.2%-50% are considered to be reasonable, and not necessarily the end of the prevailing trend. However, gold would need to break above the support-turned-resistance at 1895-1900 for the immediate downward risks to ease. In sum, the broader bullish view for gold remains intact, unchanged from the previous update even though the short-term outlook is Neutral.