Commodities Analysis & Opinion

Gold and Silver face resistance ahead of US PCE data

Gold (XAU/USD) started the week trading with a positive bias after last week’s correction. The precious metal dropped over 4% as strong economic data in the US continues to hinder the hopes of rate cuts from the Federal Reserve. Commentary last week from several FOMC members continued to point towards a restrictive policy for the foreseeable future, at least until meaningful progress in disinflation resumes.

The pullback did serve bulls for one thing: to confirm that support remains intact at the 23.6% Fibonacci ($2,326), a level that has halted declines in the past. There is still a lack of desire to be a seller of gold, given the prospects of further appreciation when the Fed – eventually – starts cutting rates. Fear of a resurgence in geopolitical tensions also continues to limit the downside in gold.

However, the bullish drive that was so evident in the first quarter of the year has started to dissipate. The path of least resistance remains higher, but it is becoming more laboured, with tougher and more frequent levels of resistance. XAU/USD will likely remain volatile in the coming weeks as more insight into the path of interest rates is sought. The US PCE index released later this week could offer some momentum, especially if the data deviates from what’s expected. Further Fedspeak will also continue to determine the direction for the precious metal.

Technically, the daily chart shows that XAU/USD is primed for another rally as the RSI rebounds from just below 50. The support from Fibonacci has offered buyers a new chance to push higher but there is some resistance in the short-term. The 20-day SMA, currently at $2,351, has moved back above the price, which may suggest some continued weakness over the next few days. Any correction is likely to remain superficial as long as XAU/USD holds above $2,300.

Gold (XAU/USD) daily chart

Past performance is not a reliable indicator of future results.

Meanwhile, silver (XAG/USD) has been stealing the spotlight. Whilst the pullback last week also affected it, the metal has managed to recover much quicker. The fact that silver has been outshining gold in recent weeks is due mostly to its application in manufacturing. Whilst it also attracts safe haven demand – even though not as much as its yellow counterpart – its industrial demand has been driving the moves higher given the resilience in manufacturing activity in the US. The current setup is the perfect mix for silver to outshine gold, with geopolitical and economic concerns driving safe-haven demand, and a strong and resilient economy driving industrial demand.

However, the market seems to be trading with caution on Tuesday morning ahead of the PCE data later in the week. As with gold, a hawkish view from the Federal Reserve will hinder silver’s performance so we may see a lack of direction in the next few days heading into the data release on Friday.

Technically, the path of least resistance in XAG/USD remains firmly higher, with last week’s pullback serving for buyers to come in at more favourable levels. Support seems to be firmly set at the $30 mark with the moving averages quite far away below the current price. Buyers are likely to target recent resistance around $31.85 in an attempt to regain the $32 mark, but there is likely to be increased resistance in the short-term.

Silver (XAG/USD) daily chart

Past performance is not a reliable indicator of future results.

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