Gold and Silver Awaiting Breakout for Another Leg Down

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Gold and Silver Awaiting Breakout for Another Leg Down

FOMC Reaction: Gold and Silver fell to fresh lows on the year after the FOMC announced the end of QE last week. They are at 10-year lows. As we begin the week, these metals are consolidating, Let’s look at the breakout scenarios.

Gold (XAU/USD) 4H Chart 11/4
gold 11/4 4h chart
(click to enlarge)

Oversold and Consolidating: After marking a new low on the year around 1161, gold has been consolidating. The RSI is recovering from the oversold area. If price consolidates further into the 11/4 session, the next time it gets to the 1175-1177 area, the RSI is likely going to be above 30, and reflect a non-oversold market.

If price extends above 1180, we might be seeing further consolidation/correction toward 1200, where we should expect sellers.

With the wind of USD-strength on its back, the bearish scenario is more likely. A break below 1161 is likely to initiate another bearish leg. Now, we know that after a strong push by something that was pretty much expected, we should be cautious of some consolidation ahead. A conservative target could be the width of the current consolidation ,around 15. A break below 1161 thus should draw a target around 1145.

Silver is a similar technical set up.

Silver (XAG/USD) 4H Chart 11/4
silver 11/4 4h chart
(click to enlarge)

Poised for a Bearish Continuation: After falling to 15.76, silver rebounded to around 16.23 from the new low on the year. It is no longer oversold in the short-term, and looks ready for another bearish attempt to break the 15.76 low. A break below 15.76 opens up a bearish continuation scenario. The width of the consolidation is about 0.50, putting a target for a breakout to around 15.25. A break above 16.24 opens up a bullish correction rally. The USD is still strong, so we should expect sellers in this scenario, especially if the RSI gets to 50.

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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.