Gold and Silver – False Breakouts Suggest Further Pressure

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Gold and Silver - False Breakouts Suggest Further Pressure

Gold and Silver has been consolidating since the week of Christmas. As we begin the first full trading week of 2015, we can assess the price action in the past couple of weeks and they suggest further downside risk in the previous metals.

Gold (XAU/USD) 4H Chart 1/15
gold 4h chart 1/5
(click to enlarge)

False Breakout: In December, price retreated from 1238.25 to 1170.60. We can see the falling channel in the 4H chart, which was broken at the end of the year. However, this bullish breakout failed to sustain and price retreated from 1210 and is now starting the week below 1200.

Bearish Outlook: Now, direction is very unclear because price action has been messy within a consolidation mode. However, the fact that gold had a failed bullish attempt above 1200 can be a sign that bears are still in charge. A break back below the common support around 1180 should put pressure back on the 1170 low, with pressure of further downside risk towards the 2014-lows in the 1130-1140 area.

Above 1200: A rally back above 1200 might invalidate the bearish clue given by false bullish attempt, bringing gold back to square 1 in terms of building directional clues.

Silver (XAG/USD) 4H Chart 1/5
silver 4h chart 1/5
(XAG/USD)

False Breakout: Silver had similar price action in December, retreating from 17.32 to 15.53, then trading sideways since mid-December. The 4H chart shows the range-bound price action finally broken to the upside last week.

However, price failed to sustain the breakout and came back down to test the range low at the end of last week.

A false breakout like is often a sign of pending bearish attempt. The fact that price bounced up but found resistance at 16.00 also suggests bears are in charge.

Bearish Outlook: For silver, a break below 15.50, with the 4H RSI dipping back below 40 should open up the 2014 lows in the 14.40-14.75 area.

16.00: If price starts to trading above 16.00 and closes above it this week, the current bearish bias would be invalid, and we are back to square one in collecting directional clues.

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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.