Commodities Analysis & Opinion

Gold and Silver Have Room to Fall

 

Gold continues to test the bottom and today fell back below $1810. Since the beginning of February, the dynamics suggest an almost perfect reversal of the uptrend, where the initial sharp pullback on the 2nd and 3rd was followed by a downtrend with nearly daily updates of intraday lows.

Gold Weekly Chart
 
Until the middle of last week, gold’s decline fit into a typical technical correction, but it is now trading below the 61.8% level of the rally from $1617 in early November to a high of $1960 on the 2nd.
 
Gold’s reversal began after touching the overbought region on the weekly RSI, and the latest pullback has brought the index back into the mid-range.
 
Technically, gold’s sustained decline could continue to the $1775-1787 area for some time. The lower boundary is the 200-day moving average, while the upper boundary is the 50% retracement of the last few months’ gains. The RSI on the daily timeframe has yet to enter the oversold territory, suggesting that there is room for further declines.
 
Gold Daily Chart

Although the $1800 level looks like a nice round level, there were no meaningful stops and reversals near it in December, increasing the chances that there will not be this time around.
 
A key indicator for the gold market is silver. The pullback towards $20.60 has brought the price back below the 200-day MA, which could put additional pressure on the market. A death cross has formed on the weekly timeframe as the 50-week moving average is below the 200-week moving average.

Silver Weekly Chart

This technical picture suggests the possibility of a decline to $18.50. This is where silver could find support from buyers, as it did last August. It is also the former multi-year resistance that turned into support last year.

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