The past few trading sessions have been a tough time for gold and silver buyers. But the metals have pulled back a bit during the early trading session on Friday, as we continue to see a lot of noisy behavior ahead of next week’s FED meeting. As of this writing, gold price rebounded back to above $1915, and silver recovered sharply and moved back above $23.
A look at the daily chart of the dollar strength index reveals that the ongoing meltdown in gold and silver prices is fueled by broad-based strength in the dollar. The soaring bond yields and rising U.S. real interest rates also remained a major headwind for non-yielding assets.
This week the metals extended its slide after the latest batch of US economic data including US ISM services PMI, CPI, PPI, and retail sales pointed to a robust US economy, giving the FED some space to keep monetary settings restrictive or even raise interest rates further.
The biggest catalyst for the precious metals is next week's FOMC meeting outcome. The traders are seeing a hawkish pause from the Federal Reserve, where it could signal one more rate increase in the November or December meetings. Investors should also closely monitor the movement of the US dollar because the strength of the US dollar negatively affects precious metals.
However, despite the meltdown, there are chances the metals will regain strong momentum and it may be back on the bull trend. Growing uncertainty about the global economy and a possible weakening of the dollar due to an expected end to the US rate hike cycle this year, provide bullish conditions for precious metals to shine. The recent economic data shows that the Chinese economy is still far from being fully recovered.
Considering the above points, I expect both gold and silver prices will regain momentum in Q4 as it becomes clear the Federal Reserve will be reluctant to raise interest rates further.
Gold (XAUUSD) technical outlook
The medium-term trend is down according to the daily swing chart. A trade below $1900 will signal a resumption of the downtrend. Technically, a breakdown below the $1900 support will put the gold price prediction of $1880/75 on the cards. Before this level, the price may also get some support from the $1892 level. The $1880/75 level currently lies at the trend line. In the short term, $1900 looks good demand area but if gold were to dip near $1880, I would view this as a low-risk buying opportunity for an initial tranche in the metal.
The main trend and the bearish correction scenario will change once the metal breaks again above $1940 and a clear break above $1940 will open the doors to $1980/2000. On the other hand, if the market were to break down below the $1870/65 area, then it’s likely that gold could drop all the way down to the $1800 level.
Silver (XAGUSD) technical outlook
Silver price bounced back to above $23 after it found new buyers near $22.30. Although there was a slight rebound, we need more bullish confirmation. In the long term, the metal is set to bounce if the bullish sentiment improves. Silver has a perfect support zone at $22, and as long it can remain above this zone, we can expect further recoveries.
On the bullish side, watch for the weekly close above $23.60, a close above $23.60 is likely to push the stock into a new trading zone, which may offer further buying opportunities until $26. On the downside, the bears need to see a confirmed break below the crucial support $22 area to objectively tell us that the further bearish sentiment will continue. For the short term, the immediate support at $22.30 followed by $22.10.
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