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Gold and silver technical outlook: gold softer ahead of Fed meeting

Risk of a minor pause in Gold’s rally, but the broader trend remains up; short-term range outlook for silver remains unchanged and what are the key levels to watch?

Source: Bloomberg

Gold technical outlook - bullish

Lower timeframe charts suggest gold’s near three-month rally is beginning to look a bit tired, pointing to the risk of a minor pause in the rally in the near term. However, the broader trend continues to be up.

  • Prive overview

Gold's downtrend has reversed from the end of last year. The break in December above the 200-day moving average reaffirms the near-term bullish bias.

  • Sentiment

IG Client Sentiment data shows 60% of traders are net-long gold with the ratio of traders long to short at 1.47 to 1. The number of traders net-long is 3% higher from last week, while the number of traders net-short is 8% lower from last week.

  • Narrative

Narrative of the US Fed having to slow or stop rate hikes in the next few months has translated into weaker USD and a drop in US real yields, lending support to gold. Positioning data shows USD net longs have reduced significantly from mid-2022, while speculative long gold positioning is up since the end of 2022.

To be sure, there is no sign of reversal of the multi-week uptrend (refer to the previous article for more discussion on the trend). Even on the hourly and the four-hourly charts, XAU/USD hasn’t broken any meaningful support that could point to an imminent pause/minor retreat.

One such support is the mid-January low of 1896. Any break below could open the way toward the 30-day moving average (now at about 1878), with a fairly strong cushion around 1855 (including the 200-period moving average on the four-hourly chart).

XAU/USD four-hour chart

Source: TradingView

Beyond a few days, the yellow metal’s trend remains bullish after the grand reversal at the end of last year – from a downtrend channel to a rising channel (see the daily chart). The repeated breaks above key barriers, including the 200-day moving average, have confirmed that the interim trend remains up. Stiff resistance is at the April high of 1998, near the psychological 2000 mark.

XAU/USD weekly chart

Source: TradingView

Zooming out, from a multi-month perspective, XAU/USD remains in a broad sideway range of around 1650-2050. In this regard, the rebound last year from a vital floor on the 200-week moving average was an encouraging sign for bulls, keeping hopes alive that the uptrend from 2015 remains in force.

Source: IG

Silver technical outlook - neutral

Silver’s outlook remains unchanged from last week, that is, continuity of a range, with a possible minor downward bias over the next few days.

XAG/USD four-hour chart

Source: TradingView

As highlighted last week, XAG/USD is weighed by a tough ceiling on a downtrend line from 2021. Despite the sharp rally since the end of 2022, the 14-week Relative Strength Index remains capped at around 60 – similar to the previous two rallies in Silver in 2021 and 2022.

There is the immediate support on a horizontal trendline from last week at about 23.10. A break below could pave the way toward quite a solid floor at the mid-December low of 22.50, roughly the price objective of the sideways topping pattern (see four-hour chart).

Source: DailyFX

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