Gold and silver at key technical junctures

Gold and silver were both trading higher earlier today, but as I go to press they have turned mixed with the former turning flat. The metals found support from a weaker dollar which fell on the back of some mixed-bag US data. Among the data highlights, consumer sentiment took a surprise tumble in November while the third quarter GDP was unexpectedly revised higher. The Conference Board’s composite index based on a survey of about 5 thousand households showed a reading of 88.7 for this month. This was markedly lower from 94.1 in October, and significantly below the consensus expectations of 96.0. In fact, this was the worst reading since June and worryingly it was the expectations sub-index that decreased more sharply, which does not bode well for consumer spending and therefore growth in the fourth quarter. The news weighed on the dollar, which underpinned the likes of the EUR/USD and also some dollar-denominated commodities. In fact, even a surprise upward revision to the third quarter GDP estimate, which was released earlier in the day, had failed to lift the greenback. The GDP is admittedly a lagging economic indicator but the fact that it was revised unexpectedly and by a good 0.4 percentage points to 3.9% from the initial estimate of 3.5%, it should have provided at least some short-term support to the dollar. The fact that it didn’t suggests that the dollar may be due for a correction, which in turn could underpin gold and silver. That, or traders are simply choosing to maintain their current positions in the dollar ahead of the Thanksgiving holiday in the US on Thursday. Tomorrow is another busy day on the economic calendar, so it will be interesting to see how the dollar and indeed gold would react to those releases.

From a technical point of view, gold and silver are both testing or approaching key levels. For the yellow metal, the area around $1205 marks a significant resistance region: here, the 50-day moving average converges with the 61.8% Fibonacci retracement level ($1208) of the last downswing. On Friday, gold momentarily traded around this area before pulling back slightly. Thus, gold may have already ended its corrective trend. If not, another attempt at this key area should provide a definitive answer. If the bulls’ attempt is again rejected here then we could well see a sharp sell-off in the subsequent days, especially if the $1177/83 support area is also taken out in the process. On the other hand, a potential break higher could lead to a sizeable rally, particularly if it also takes out the 78.6% Fibonacci resistance level at $1228/30. Indeed, given that gold has already managed to climb back above the key $1180 level (or more specifically the $1177/83 area), some of the significant players that are still not long may well be waiting for one more bullish confirmation before potentially showing their presence.

Silver meanwhile has pulled back slightly after touching the old level of support at $16.70/75. Further resistance is seen ahead at just shy of the $17.00 mark: a bearish trend meets the 50-day SMA there. So, the grey metal is also at a key technical juncture and what happens next could determine the direction for the next several days or even weeks. On a side note, if the grey metal manages to break above some of the aforementioned resistance levels then the yellow metal could follow suit. Precious metals traders should therefore watch both metals closely.

Figure 1:

Source: FOREX.com.

Figure 2:

Source: FOREX.com. Please note this product is not available to US clients.