GOLD SEES UPSIDE REJECTION AT 50 SMA, RISKY OF MOVING LOWER
Jerome Powell’s speech at the Jackson Hole Economic Symposium came across as rather hawkish, despite the fact that this is a technical article. However, the Fed chairman did throw a small lifeline to doves by mentioning that as policy tightens even further, it will be appropriate to slow the pace of rate rises at some point.
The dollar started off the week trading down, but it has since more than recovered those losses and begun to strengthen as the week comes to a close. Naturally, we saw a deliberate decline in gold.
The technical picture for gold is now rather complicated. Today’s negative market action has almost erased the previous countertrend bounce, and gold is now getting close to the August and September 2021 lows at approximately 1722. The 50-period simple moving average prevented the countertrend rally from happening (SMA).
Gold may revisit its recent lows at approximately 1676.70 in the next week if markets maintain the negative trend started by the hawkish Powell. The problem with gold right now is that we are in a “no man’s land” between the medium-term bullish advance that started after the bottom in July and the negative retracement of that move that started in mid-August.
The ‘mixed’ evaluation of this report is due to the difficulty in predicting future direction caused by the present market stance.
Daily Gold (XAU/USD) Chart
The important level of support around 1676.70, which has served as a pivot point for earlier excessive, impulsive bearish swings, is shown on the weekly gold chart.
WEEKLY GOLD (XAU/USD) CHART
RATIO OF GOLD TO SILVER RETENTS TREND AT EXTREMES, SUGGESTING GOLD COULD SELL-OFF
The gold-silver ratio, which aims to predict future gold and silver movement, is something to take attention of. The gold-silver ratio is now hovering around extreme historical levels (80–100), and both gold and silver charts are in a downtrend, suggesting that gold may eventually outperform silver in terms of selling. Of course, it is always wise to allow price action serve as your primary guidance.
SILVER-GOLD RATIO (MONTHLY CHART)
SILVER (XAG/USD) OFFERS A BETTER GUIDE TO BEARISH CONTINUATION.
On the other hand, the silver chart gives us a clearer threshold for a negative continuation. In the first place, the recent gain missed the opportunity to test the resistance (previous support) zone between 21.40 and 22.10, with the turning point around 20.87.
Following Powell’s speech, silver moves closer to the area of support that links the 61.8 Fibonacci retracement of the big move in the 2020–2021 time frame and the 18.65 level corresponding to the resistance level in the 2019–2020 time frame. In the next week, a break below the zone of support would emphasize 1695 as the next level of support, with 15.65 remaining far away.
DAILY CHART OF SILVER (XAG/USD)