Gold and Silver Technical Update

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XAU/USD (Gold)


Gold prices have fallen sharply since last week, and starts this week extending the slide to the 200 period simple moving average. The daily chart shows that the range is similar to Friday's $130 dip. However, a long tail is developing in the latest daily candle, reflecting buyers at the $1530 level. The JPY and USD are winning as safe havens. Gold's sell off may be used as a way to fund treasury flows as short-term interest rates for the USD and other currencies rally.

Note in the daily chart that gold has topped off in a dramatic double top manner. However, after such a sharp sell-off, gold is now hovering above a mean price action for 2011. Although gold is now $390 off the record high at $1920 an ounce, the recent volatility is making is less sound for safe haven flows. Now, a wave of risk appetite might lower the USD from its recent ascent, and therefore support gold, but it would not give gold a reason to rally outside of the context of a minor consolidation. Only a combination of weak USD, and risk aversion at the moment can give gold it's luster back.

Silver is falling with gold, and has dropped nearly 40% in September roughly from 44 to 26. From the 49.85 high in April, this slide is nearly 47.5%. The weekly chart below shows that this second downswing in late August through September has completed an ABC correction that has C=A wave equality. The current level of support is 26.00 down to 24.26, 61.8% retracement of the bull run since 2008 when silver was at $8.44. After these weeks of panicky slides, gold and silver might spend the next couple of weeks in consolidation.

XAG/USD (Silver)

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Fan Yang CMT
Chief Technical Strategist