Gold, Silver Technical Analysis

• US inflation data brings real interest rates into focus
• Gold traders patiently await US CPI as price action trickles along
• Silver technical analysis: bearish pennant hints at bearish posturing
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

US Inflation Data Brings Real Interest Rates into Focus

The end of 2023 and the start of 2024 presents an environment that is broadly supportive of gold prices. Interest rates are expected to be cut back aggressively, as such, the US dollar and Treasury bond yields have been in broad decline. Since gold is a non-interest-bearing asset, it can often become more appealing during times when interest rates are falling (or expected to fall soon) as the opportunity cost of holding the precious metal declines.

The one issue here is if inflation sees further progress and interest rates remain well above 5%. Such a scenario would see real interest rates (nominal interest rate – inflation rate) rise and this can be bad for gold. On a broader macro level, this is why the unemployment rate is so important because a robust labour market fuels consumer spending leading to a situation where inflation struggles to reach 2% and interest rates need to stay higher for longer.

Gold Traders Patiently Await US CPI as Price Action Trickles Along

Gold has nestled its way to trendline support where it currently hovers ahead of tomorrow’s US inflation data. Not too far below support is the 50 simple moving average (SMA), followed by the $2010 marker but as things stand, gold respects the trendline acting as support.

Expectations are for core inflation to breach beneath the 4% mark (3.8%) while headline inflation is anticipated to rise slightly so the potential for a mixed print remains alive, although, it will take a lot to question the disinflation narrative currently underway. Therefore, a strong move higher in the dollar is unlikely, meaning gold could see a lift off of support in the absence of any surprises. One potential risk to a move higher from here is the reluctance to trade higher over the last two days, evidenced by those upper wicks on the daily candle but CPI could provide the catalyst to overcome a prior lack of conviction.

Gold (XAU/USD) Daily Chart

Source: TradingView, prepared by Richard Snow

Silver Technical Analysis: Bearish Pennant Hints at Lower Move

Silver trades below the 200 SMA and recent price action has formed a bearish pennant-like formation. Today’s daily close could be telling as it may reveal a breakdown of the pennant pattern, which typically suggests a bearish continuation. In search of greater conviction, a move below the $22.70 level could be assessed. Thereafter the 38.2% Fibonacci retracement of the major 2021 to 2022 decline becomes the next strong level of support ($22.35). Resistance appears at the 200 SMA, followed by the 50% Fib retracement at $23.83.

Silver (XAG/USD) Daily Chart

Source: TradingView, prepared by Richard Snow

The chart weekly below reveals silver price trends through a long-term lens and also highlights the significance of the 38.2% Fib level over time as it has supported price action multiple times before

Silver (XAG/USD) Weekly Chart

Source: TradingView, prepared by Richard Snow

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