Gold’s Piercing Pattern and Silver’s Bullish Engulfing Pattern

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Gold's Piercing Pattern and Silver's Bullish Engulfing Pattern

Gold and Silver prices ended last week continuing their respective downtrends. While gold was approaching the 2013 and 2014 lows, silver was already moving south of its 2014 lows into levels not seen since 2010. It is now pushing towards the 2010 low seen in an earlier look at the long-term levels in gold and silver.

At the start of the week, during the Monday (10/6) session, both previous metals rebounded. Let’s start with gold in the intra-session before highlighting the piercing pattern seen in the daily chart.

Gold (XAU/USD) 4H Chart, 10/7
gold 4h chart 10/7

(click to enlarge)

The 4H gold chart shows that price rebounded from right above the 2013-2014 lows, which are around 1180.20. Price has returned above 1200, but this 1200-1210 area is a key resistance.
1) There is the 50-period simple moving average in the 4H chart around 1210.
2) Previously, there was a consolidation pattern, which had common lows/support in the 1205-1210 area. If gold is bearish, this area should provide resistance.
3) Also, if gold is to remain bearish, the 4H RSI should hold below 60, which would reflect maintenance of the bearish momentum.

If price breaks above 1220, and the 4H RSI pops up above 60, we can start considering a bullish correction. However, because of the prevailing downtrend, we should probably observe a whole week’s price action before determining if price is indeed trying to find a bottom.

Gold (XAU/USD) Daily Chart 10/7
gold 10/7 daily chart
(click to enlarge)

Piercing Pattern:
In the daily chart, gold’s price daily candle can be considered a “piercing pattern”. This could be an early warning of reversal, especially with the RSI showing bullish divergence, but again, it is too early to tell. If price starts to hold above the middle of the piercing pattern, we can start to have more confidence of a price bottom in development. Otherwise, the downtrend is too strong to fight against at the moment.

Silver (XAG/USD) 10/7 4H Chart
silver 4h chart 10/7

(click to enlarge)

Silver shows price rallying from the 16.75 area. It is now above 17.00 and approaching a key support/resistance pivot at 17.45. With the 4H RSI at 60, we should see sellers here if silver is to remain bearish.

If price pushes above 18, and the 4H RSI pushes above 70, we can start considering buying on the dip, but we will need the rest of this week before we can see if a price bottom is forming.

Silver Daily Chart 10/7
silver 10/7 daily chart

(click to enlarge)

Engulfing Pattern:
Even though we don’t have enough price action to call a price bottom, we do see some early signs in the form of an engulfing pattern after the completion of the 10/6 session candle. The thing is, this might indicate some consolidation ahead, but if price fails to break above 18.00, the bearish outlook is still strong.

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