Technical outlook: Silver, Gold

Summary:

  • Impressive rally on silver market
  • The gold pulls back from YTD highs
  • A chance for a short-term correction?

Impressive rally on silver

Today's analysis will focus on two precious metals - gold and silver. Both markets saw strong gains recently. Silver can be found among this year's top movers and we will start today’s analysis with it. Looking at the weekly chart, the rally managed to reach a key resistance level. The purple-coloured zone is marked with highs from April 2017 and the 61.8% Fibo level of the downward wave started in July 2016. Uncertainty over the condition of the global economy as well as Sino-US trade relationship can be named as the main factor behind the move. Silver price increased over 5% this week. The rally is really impressive - the precious metal rallied over 25% since the end of May. Upward momentum on the silver market is bigger than on the gold market, what is the result of silver’s prior undervaluation.. Silver may be overvalued in the short-term, but even a larger correction should not harm the upward trend that we have been observing for the past 3 months. Technically, the price reached an ideal place for the downward correction to start. However, a signal would have to appear at least on the D1 interval to make it worth playing against the trend. In the downward move is launched, the first key support can be found at the 61.8% Fibo level. Recent de-escalation in the Sino-US trade talks supports bearish outlook but one should keep in mind that U-turns on trade front are common.

Source: xStation5

Gold struggles to extend gains

Moving to the gold market, one may observe a strong upward trend, just like in the case of silver. However, momentum is slightly weaker than the one observed on silver. Nevertheless, it seems that last week gold overcame the supply barrier marked with the 61.8% Fibo level and lows from the distant past - 2011 and 2012. However, in spite of opening the week higher, gold struggles to extend gains, what may hint at short-term overvaluation. Break back below the 51.8% Fibo level could be treated as a bearish signal. In case such a break occurs, one could expect a downward move towards the lower limit of the Overbalance structure.. The invalidation of the Overbalance structure (break below it) could herald a bigger decline. One should be remembered that the main trend remains upward but more concrete declarations from China or the United States could trigger a reversal. 

Source: xStation5

Moving onto the lower time frame on the gold market, one should take into account the local 1:1 structure, which we have mentioned in our previous analysis. We can see that the price returned below the local highs from 13 August ($1533), what could be a signal for a deeper decline. In case we see a larger correction over the next few days, the price could test the $1503 handle, where the lower limit of the 1:1 structure can be found (mentioned earlier). The $1503 handle should be the first major support. Break lower could see declines accelerate. When considering such a scenario, one should also take into account a larger 1:1 structure from the W1 chart (with lower limit around $1470) and then the 61.8% Fibo level marked with the high from 19 July.

Source: xStation5

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