Precious Metals – Weekly Technical Analysis, 29/07

After breaking below the $1150 psychological support few weeks ago, Gold prices remained under pressure as the precious metal was seen trading near five year lows. Keeping up the pressure is the market expectations for the Fed’s FOMC statement today and the pricing in of a rate hike later this year.

The monthly charts for Gold shows the strong bearish moves that came after the technical support at 1198.50 was broken after the long term trend line was breached and retested in January this year. The monthly chart for Gold shows prices currently trading near a monthly support of 1082.15, which shows a clear rejection of prices on the monthly chart. There is a strong support level between 1082.15 through 1044.34, which is also supported by the minor equidistant channel.

From the monthly charts, we could therefore deduce that in the shorter time frame, Gold prices could see a minor recovery. This same view is further validated by the weekly chart, where the bear flag pattern that was formed is nearing the end of its measured objective. The current bounce near 1071 is indicative that Gold prices could rally back either to the broken support at 1171.3 or to 1140 – 1150 region of support to establish resistance. The bear flag pattern will be complete on a test to 1041.35.

From the current levels, we can anticipate a short term bottom in Gold prices, but we need further evidence or confirmation for this. It is very likely that Gold prices could enter a short term correction, which as pointed out in the daily chart below shows the correction to end near 1150 region. A break above 1150 could see Gold post a much deeper correction which could see prices test as high as back to $1200. To the downside, the longer term target remains at 1040.

Silver prices broke down the long term monthly support at 15.45. This level managed to hold prices for close to 8 months and the break out was preceded by a bearish engulfing candlestick pattern. We could therefore expect to see Silver close this month below the $15.45 level of support from the monthly charts.

On the weekly charts, when comparing price to RSI we are noticing that a bullish divergence is being built up as the RSI is failing to confirm the new low in prices. We could therefore expect to see a major correction take shape in Silver in the medium to long term perspective, with the potential to test the previously broken support at 18.73 for resistance.

Finally, on the H4 chart time scale, the RSI bullish divergence is currently resulting in Silver prices heading into a correction. Resistance comes in at 14.95 through 14.85, which if holds prices could see Silver post another new low. In the unlikely event that Silver prices break above the resistance zone of 14.95, we could expect to see a test back to 15.69 which also marks the major monthly support that was broken.