Gold, Silver Look for Support After Strong US Growth Propels the Dollar Higher

Gold, Silver Analysis

• Dollar boost poses a threat to the long-term uptrend in gold
• Silver on track to achieve second lower low as metals sway to the tune of the dollar
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Dollar Boost Poses a Threat to the Long-Term Uptrend in Gold

The long-term uptrend in gold, signified by the ascending channel came under pressure during the week ending 23 June after registering a break and close below channel support. This was followed up by multiple weeks beneath said support until last week price action unsuccessfully attempted to trade back within the upward sloping range.

In the event we close out the week around current levels, it would register a second successive week where a rejection of the channel can be seen via extended upper wicks on the weekly candles. A close below 1956 represents a weekly decline and the potential for gold to head lower into the start of next week but, admittedly, a lot of that will depend on the sustainability of the dollar’s recent directional move.

Gold Weekly Chart

Source: TradingView, prepared by Richard Snow

The daily chart shows a more granular view of recent price action after yesterday’s sizeable drop appears to have found support at the 50-day simple moving average (SMA) before seeing a slight lift in early trading.

The MACD indicator hints at an imminent bearish crossover which would excite dollar bears in the event 1960 proves too much of a challenge. The outlook for gold however, continues to rely on the outlook for future Fed hikes and the overall stability of the US economy. If inflation continues to cool on all fronts, markets may revise the probability of the remaining 25 bps hike lower – which can be supportive for gold. Furthermore, any dislocations in the economy as a result of restrictive financial conditions, or another flare up in the banking sector, is likely to add to gold’s appeal as a safe haven asset.

However, the pace at which the US economy is advancing may cause some concern within the Fed after Q2 GDP beat estimates yesterday by a sizeable margin (actual 2.4% vs 1.8% expected). Historically low unemployment, combined with a strengthening economy, poses a potential threat to higher inflation which may be sufficient to warrant further hikes, lead to a firming of the dollar and perhaps see some weakness in gold.

Gold Daily Chart

Source: TradingView, prepared by Richard Snow

Silver Appears Weak as Metals Sway to the Tune of the Dollar

The recent dollar advance sees declining prices for silver too. Should we get a positive close on the daily candle today, the metal would have printed two lower lows without a higher high along the way – suggesting more weakness to come.

24.45 is a level of interest to the upside as it was influential throughout April and May as support, now turned resistance. In fact, failure to trade and close above yesterday’s swing high maintains a bearish view for the commodity.

Levels of support come into play at the 50% retracement (23.83) of the major 2021 move followed by the 50 SMA around 23.62.

Silver Daily Chart

Source: TradingView, prepared by Richard Snow

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX