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Where Are Gold And Silver Heading Next?

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Gold and silver rebounded off their lows in the past few weeks thanks to the U.S. dollar's pullback, dovish sentiment regarding Fed policy, oil's bounce, and geopolitical turmoil. In the past week, however, precious metals have softened as the dollar bounced. Where are they headed next? Let's take a look at some charts.

Gold bounced off of its $1,140 to $1,150 support zone after the March FOMC meeting that sent dollar reeling, but has since struggled at its key psychological level at $1,200. If gold's bounce continues, $1,300 (the January high) is the next resistance level to watch. A decisive break below the $1,140 to $1,150 support zone or above the $1,300 resistance level is necessary to confirm gold's next major directional move.

Source: Finviz.com

Similar to gold, silver is trading in a range between $15 and $18.50. One of these levels must be broken to signal the next major directional move.

Source: Finviz.com

I am watching the U.S. Dollar Index for cues regarding precious metals' next move. The dollar and precious metals move inversely, and technical signals given in the dollar often help to determine gold and silver's next move. The Dollar Index is just above its January high support level and may also be forming a pennant pattern, which may foreshadow another directional move upon a breakout or breakdown from this pattern.

A convincing breakout in the Dollar Index may lead to further gains for the dollar and weakness for precious metals, while a breakdown could result in more dollar weakness and further bullish action for gold and silver. Petr Krpata, the world's most accurate currency forecaster, is skeptical of the dollar’s pullback and stated, “We just see the latest correction as a perfect opportunity to get into the trade again.”

Source: Finviz.com

The euro, which is positively correlated with precious metals and inversely correlated with the dollar, may also be forming a pennant pattern. The euro is beneath its major resistance zone between 1.10 and 1.12. Societe Generale recently gave four reasons why the euro is likely to keep falling.

Source: Finviz.com

I am also watching crude oil for insight into gold and silver's next move. Precious metals are seen as inflation hedges, which is why they are correlated with oil. WTI crude oil is still in its $10, three month-old trading range between its $46 per barrel support and $56 resistance levels. I want to see a convincing break above or below one of these levels as a confirmation of oil’s next move. Read my recent crude oil analysis for my views on oil.

Source: Finviz.com

For now, I am waiting for a catalyst that causes the dollar to break up or down from its recent consolidation, which should influence both precious metals and oil. In situations like this, I take an agnostic, reactive approach in which I wait for a confirmation signal rather than predicting which way the market will move.

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(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)