Can gold and silver push onwards once more?

Both gold and silver have begun to drift lower from crucial resistance levels. Off the back of significant gains, what do we need to see to say that both markets are set for another major leg higher?

Silver bars
Source: Bloomberg

Gold and silver have come under pressure in recent days, as the recent ascent is called into question given the hesitancy around key historical resistance levels. With that in mind, it is worth understanding exactly where we stand in the grand scheme of things with regards to both markets.

Gold

The weekly chart highlights the fact that we have seen the price begin to turn lower from a crucial descending trendline, originating in July 2016. Above that we also have a key resistance zone of $1303-$1307, which marks the culmination of a host of tops and bottoms in the past two years. In some ways we have the clear creation of lower highs (as captured by lower highs), alongside the creation of lower lows with the December break below $1200. That would lead us to believe we are due to turn lower soon. However, another way of looking at this market would be that we have been retracing the falling wedge break-out back in January 2016. The fact that the market turned higher exactly on the 76.4% Fibonacci support level ($1125) back in December 2016, provides us with a clue that the downturn evident since July 2016 could be a retracement rather than reversal. This would then look to be a precursor to follow through on the early 2016 breakout. For that to be confirmed, we would need to see a break through $1337.

Gold weekly chart

The question is whether we are going to turn lower from this resistance zone or push higher once more. The four-hour chart helps us with that. The recent turn lower is notably more shallow than the recent rally, highlighting this as a potential retracement rather than a reversal. For now, it looks that way with a break below $1247 required to negate the uptrend. In the near term, we have an interesting inside trendline to contend with.

Gold four-hour chart

Silver

While gold is contesting with trendline resistance, silver reached an arguably more important resistance point this week, with the price attempting to break through the crucial $18.48-$18.64 resistance zone. This represents the neckline of an inverse head and shoulders formation. Crucially, while gold still has some space to make up before it breaks to a new higher high, silver can do that with a break through $18.64. Should that occur, it would point towards a more protracted resurgence for silver. The weakness we have seen this week has brought us back to both trendline and moving average support, with the 100 and 200 week simple moving average (SMA) coming into play. Given the potential for this market to follow up its similar 2016 long term wedge break, we would need to see a break through $18.64 to point towards another major leg higher from here

Silver weekly chart

The four-hour chart highlights that despite the pullback from the major resistance point, we have not seen a break below the first major swing low of $17.75 yet. To do so would create a double top formation, pointing towards further downside. Conversely, should we see this market turn around in the near future, it could point towards another challenge of $18.64 resistance, above which we would be looking for significant upside.

Silver four-hour chart

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