Gold and Silver Await Consolidation Breakouts

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Gold and Silver Await Consolidation Breakouts

Gold and Silver have both been bearish since July, swept along a multi-month current of commodity declines that include oil, platinum, dairy prices etc. As we begin another week (9/29-10/3), gold and silver prices are consolidating with the prevailing downtrend intact. They are waiting for a breakout to either continue the current trend, or to signal more significant consolidations, bullish corrections.

Gold (XAU/USD) 9/29 4H Chart

gold 4h chart 9/29

(click to enlarge)

Gold is bearish in the 4H chart.
1) The 200-, 100-, and 50-period simple moving averages are in bearish alignment, sloping down, and price is still below all of them.
2) The RSI has tagged below 30, and held below 60, showing maintenance of the bearish momentum.

The 4H gold chart shows price holding above 1208 last week. After fading from 1234.30 the 1208 level held again, establishing a consolidation range. If price breaks below 1208, it is likely to push towards 1200 with downside risk toward the 2013-2014 low just above 1180.

A failure to push below 1208 and a rally above 1235 would clear the 100-period SMA and complete a double bottom. The bullish outlook should first be limited to the 1255-1260 area, which include a previous support/resistance pivot and the 200-period SMA.

Silver (XAG/USD) 4H Chart 9/29

silver 4h chart 9/29

(click to enlarge)

Silver is also bearish in the 4H chart, with the similar technical conditions seen in the SMAs and the RSI. Price fell to 17.34 and found support. Then after rallying to almost 18, price fell again, only to be supported at 17.34 for a second time, suggesting a possible double bottom.

In this consolidation amid a strong downtrend, we should first anticipate a break below 17.30, which would open up 17.00, which is not only a psychological level, but common support in April through September of 2010. Below that, the 2010 low of 14.63 could be in sight.

Now, if price breaks above 18.00, its first resistance will be in the 18.45-18.50 area, which include a previous support pivot, and the 100-period SMA.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.