As expectations for a Federal Reserve rate cut weakened and the US dollar and Treasury yields rose, spot gold prices fell by 3% last week, marking the largest weekly decline since early December last year. However, from a technical analysis perspective, after last week’s substantial pullback in precious metal prices, both gold and silver are expected to rebound this week, with silver leading the way.
On Monday, the spot price of gold rose by 0.74% to $2,351.37 per ounce, while the price of silver surged by nearly 4% to $31.522, leading the metals sector.
From a technical analysis standpoint, gold (XAUUSD) appears to be rebounding from the cloud (the Ichimoku Cloud) between the 0.618 and the 0.786 retracement and the minor support level at around $2,326, but the price may still test the 0.786 retracement level at $2,314 before rebounding. A breakthrough above $2,385 per ounce could signify the restoration of the previous uptrend, with a potential upside target of $2,500. The 55-day moving average will provide additional support for the upward movement, while a close below $2,277 will confirm a downward trend.
The Ichimoku Cloud is a technical indicator that provides crucial information about market trends, direction, support and resistance levels, and momentum. When the price is above the cloud, the probability of an uptrend is higher. Conversely, a price below the cloud is considered a bearish signal.
Additionally, the Relative Strength Index (RSI) shows a divergence, indicating that the uptrend may be losing momentum. However, a return of the index to the key level of 60 and above the upper falling trendline would be a strong signal for another upward move in gold prices.
As for silver, spot silver (XAGUSD) has rebounded from the 0.382 Fibonacci retracement level at $30 per ounce, and the price of this precious metal is likely to recover its upward trend. The RSI on the daily chart still reflects positive sentiment without any divergence, suggesting that the silver price could rise above $32.52. Looking at the weekly chart, if it surpasses $32.52, the silver price may encounter minimal resistance before rising to the range of $34.40-35.40. However, if it falls below $30, silver may continue its downward trend to the 0.618 retracement level at $28.50.
In addition to technical factors, there are several other factors supporting the continued upward movement of gold prices. These include the high likelihood of a rate cut by the Federal Reserve this year, gold remaining a robust asset for hedging macroeconomic uncertainty and geopolitical risks, and the stable demand for gold from central banks and key physical markets. The Fed’s rate cut is only a matter of time, and the eventual decline in US Treasury yields and the US dollar may potentially boost gold prices.
