Gold trades sideways – Watch for a potential breakout

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gold bar

Gold prices closed February on a bullish note after a brief run-up to the 1250 handle before easing back. The bullish move in prices comes, following January’s close above December’s doji highs. Price action from here on could show signs of exhaustion with the potential to pull back lower. For the week, Gold prices are up 0.37% while Silver has gained 0.45% in a week to date basis.

Looking ahead, economic data from the US will come into focus which will determine the price action in the precious metals markets. More importantly, this week’s NFP data will be key shaping future prospects of Fed rate hikes. Currently, the markets expect the Fed to stand pat on policy in March, but leaving the door open for future meetings for a possible hike in interest rates. A better than expected NFP print with the US unemployment rate staying below the 5.0% threshold could keep the rate hike speculation alive.

Gold – Technical Outlook

The weekly candlestick shows prices closing last week in a near doji/spinning top pattern, noticeable with the small body and long ranges of high and low in comparison. An inside bar close this week could potentially spell a breakout which will determine further price action that could be led by strong momentum. The risks for Gold remain to the downside as a pullback is expected considering the strong rally off the 1080 levels. But the declines to the downside will most likely see prices being tested near the 1200 psychological support. So far, we have had only a few attempts from the daily time frame. The fact that prices have been consolidating within the highs of 1250/1265 and the lows of 1200 will see the sideways price action eventually break one way or another. From the weekly chart, the focus remains on the doji’s high formed at 1253.40. A break above this level could see 1275 0 1284 region of resistance coming into play, while to the downside, 1200 will be the support to watch for.

Gold – Weekly Chart, prices remain flat within last week’s doji range
Gold – Weekly Chart, prices remain flat within last week’s doji range

On the daily time frame, price action is inconclusive and choppy at best. The price action on the daily charts indicates it is best to stay on the sidelines before entering any new positions. Support levels near 1183 – 1180 will be key to the downside on a break below 1200. Below 1180, the next support at 1140 – 1136 will be likely to support prices to the downside.

Gold – D1 Chart, strong consolidation building up
Gold – D1 Chart, strong consolidation building up

In conclusion, Gold prices remain range bound on the daily chart and unless we see a clear break below 1200, or above 1250, Gold could remain caught in the range.

Silver – Technical Outlook

Silver prices have fallen sharply last week marking two weeks of declines after test below the $16 handle. Prices are currently trading near the lower support of 14.6 – 14.40 support as anticipated, but a firm test such as closing prices on the weekly will confirm the test of the support level. To the downside, a break below 14.40 on the weekly could see a continuation towards 13.86 support where prices formed a base.

Silver – Weekly Chart, Price between 15 – 14.6 resistance/support
Silver – Weekly Chart, Price between 15 – 14.6 resistance/support

On the daily chart, Silver prices are seeing dynamic support off the lower median line. The Stochastics oscillator is moving into the oversold levels, and any signs of bullishness could see a short-term recovery in prices. In either case, Silver could form a lower high before the decline to test the lows at 14.40 levels. On the daily chart, the support at 14.4 will be key as a bearish close below this level could potentially send Silver prices lower to 14.12.

Silver – Daily Chart, downside opens below 15.45
Silver – Daily Chart, downside opens below 15.45

In conclusion, watch for Silver to form a lower high ahead of a decline lower to test the support near 14.40.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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