Gold and Silver Stage Precious Minor Rebounds at Critical Support
Gold and Silver Stage Precious Minor Rebounds at Critical Support
Gold prices are down 0.72% for the month so far
- News of a halt in Chinese gold buying and hotter May U.S. payrolls sent precious metals spiraling at the end of last week.
- Gold dropped to a support level in a two-month range today before rebounding.
- Silver prices have returned to their one-month moving average.
For all the sound and fury about precious metals in recent months, neither gold (/GCQ4) nor silver prices (/SIN4) have done anything consequential for some time
Gold remains in its two-month range. And silver is trading at levels seen in mid-May and mid-April. The price action underscores the shifting dynamics of the metals market.
Chinese central bank halts gold buying
On Friday, news that China’s central bank had halted its 18-month gold buying spree seemingly removed a potential fundamental catalyst off the table. Then, a stronger than expected U.S. jobs report for May stoked speculation that the Federal Reserve won’t be able to cut rates in the next few months and may not at all in 2024.
But then European parliamentary elections over the week rekindled memories of the fractured politics during the Eurozone debt crisis, giving safe havens like the Swiss franc and precious metals some reprieve. Like in the 2010s, strength in precious metals is seen alongside weakness in global bonds, evidence of market participants questioning the fiscal path of not just the Eurozone, but the U.S. as well.
Against this backdrop, even with the May U.S. inflation report and June Federal Reserve rate decision both due on Wednesday, it’s far too soon to declare the metals’ bull moves finished. After all, both /GCM4 and /SIN4 are sitting at a support level, having not yet broken below key thresholds.
Typically, it’s smart to buy at trend support during bull markets. And while that may be the prudent perspective today, it’s likewise important for precious metal bulls to have an alternative plan of action if price action turns even more modestly weaker.
/GC Gold price technical analysis: daily chart (September 2023 to June 2024)
Gold prices (/GCQ4) have been trading between in a two-month range, finding support near 2300 today. A consolidation following an uptrend is typically a continuation pattern, which warrants attempts to buy at range support. Given the volatility profile (IVR: 65), selling a tight OTM put spread (short 2300 p + long 2275 p) may be prudent so long as 2300 holds on a closing basis.
The alternative scenario is that a double top is forming. Given the distance between support and resistance, a break of 2300 would open a downside target of 2130 for /GCM4. Consistent with the uptrend from the October 2023 and February 2024 lows, this means support would likely be found closer to 2200 in a leg lower; a break below 2200 increases the odds of the double top playing out to the measured move of 2130.
/SI Silver price technical analysis: daily chart (July 2023 to June 2024)
Over the past several months, silver prices (/SIN4) have highlighted a reliable pattern: breakout higher, then quickly retrace to the daily 21- to 34-day exponential moving average (EMA) cloud. This happened in late-February; at the end of April; and now, at the start of June.
As the saying goes, “the trend is your friend,” and until the trend of buying into the daily 21-EMA (one-month moving average) fails, there’s no reason to fix what’s not broken. A drop below 29 would invalidate the breakout as well as the uptrend from the February and May swing lows, setting up a return towards 26.75.
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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