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Gold, Silver: Is Now the Right Time to Buy Before the Next Breakout?

Published 08/05/2024, 10:20
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  • A series of weaker data may prompt the Fed to cut rates later this year.
  • Meanwhile, gold prices are consolidating near $2300 and silver is testing an important support level.
  • Is now the right time to start accumulating the precious metals?
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  • Gold and silver prices experienced a correction in April, particularly in the latter half of the month. This pullback follows a period of strong gains and coincides with a slight strengthening of the US dollar after the Fed maintained its hawkish stance. Additionally, reduced buying activity from central banks like China's further dampened demand.

    However, the medium and long-term outlook for precious metals remains optimistic. A key driver of this optimism would be a potential shift in the Fed's monetary policy due to recent weak data from the US. This data includes inflation figures, GDP growth, and the labor market, all of which have come in below forecasts.

    Fed Remains a Key Factor for Gold and Silver

    The recent Fed meeting left monetary policy unchanged. Analysts are closely monitoring key economic indicators, as a series of consistently weak readings could trigger a policy change. If inflation remains stubbornly high (above 3%) despite slowing growth and a weak labor market, the Fed may face a difficult decision.

    If the Fed prioritizes preventing a recession over controlling inflation, cuts could become a possibility. This would weaken the dollar, reduce pressure on bond yields, and support a long-term upward trend in gold and silver. However, until further economic data clarifies the situation, we may see the current sideways price movement continue.

    Gold's Technical Outlook

    Gold prices have been consolidating for over two weeks, fluctuating between $2,300 and $2,360. A breakout above or below this range will be crucial for determining the short-term direction. A break below the lower limit could signal a continuation of the downward trend, with the next potential target at $2,250 per ounce.


    Gold Futures 5-Hour Chart

    Conversely, a climb above $2360 could pave the way for a retest of historical highs above $2400.

    Silver Finds Support at $26

    The bulls in the silver market are showing strength, successfully defending the key support level near $26 per ounce. This positive momentum is bolstered by the formation of a double bottom on the chart.

    Silver Futures 5-Hour Chart

    Looking ahead, the bulls face their next hurdle at $28.70 per ounce, where a resistance zone has formed. However, a break below the critical $26 support would signal a significant downside move. This scenario would likely require a strong US dollar, potentially fueled by the Fed maintaining a hawkish stance.

    ***

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    Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.

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