Gold, Silver Price Forecast: Will 100-Day SMA Hold or Break?

GOLD & SILVER PRICE OUTLOOK:

• Gold prices consolidate at US$ 1,860 after breaking a key support at US$ 1,910
• Silver prices are testing the 100-Day SMA at 22.80, with momentum biased to the downside
• The US Dollar retraces slightly from a two-month high, but may rise again on election and Brexit risks

Gold and silver prices consolidated for a third consecutive week as traders kicked off profit-taking following a massive bull rally seen from March to August. Unwinding activities are also based on a tepid inflation outlook as job growth appears to have slowed recently and a second viral wave has likely emerged in Europe. A stronger US Dollar also weighed on precious metal prices. A clear negative correlation between gold and the US Dollar Index (DXY) was observed in the past 52 weeks (chart below)

Recommended by Margaret Yang, CFA

How can central banks impact markets?

Get My Guide

Gold has retraced over 10% from its all-time high of US$ 2,075 observed on the 7th August 2020, after rising more than 40% from March low. Similarly, silver has fallen over 27% from its recent peak of US$ 29.40, after rallying over 150% from March through to August.

The near-term outlook for gold largely depends on the US Dollar, which is facing a string of market events this week. The final round of Brexit talks on Monday in Brussels, the first US presidential election debate on Tuesday and US non-farm payroll data on Friday will be critical for the US Dollar.

Gold Price vs. US Dollar Index – 52 weeks

Source: Bloomberg, DailyFX

From a long-term perspective, however, gold prices appeared to have entered a period of consolidation within a mega bull trend. The macro-environment (ultra-low interest rates and QE) remains accommodative to precious metal prices, albeit a short-term pullback is underway.

Gold Price vs. Fed Balance Sheet

Source: Bloomberg, DailyFX

Technically, gold prices are consolidating at the 100-day SMA (1,870) after breaking the 50-day line last week. The momentum appears biased towards the downside, with the next key support level likely found at US$ 1,809 – a previous resistance level.

Gold Price – Daily Chart

IG Client Sentiment indicates that gold traders are heavily leaning towards the long side, with 82% of positions net long, while 18% remain net short. As gold prices fell, traders favored short (+4%) exposure rather over long (+3%) however, compared to a week ago, traders have trimmed some short (-5%) bets while adding some long (+7%) positions.

Recommended by Margaret Yang, CFA

Don’t give into despair, make a game plan

Get My Guide

SILVER PRICE OUTLOOK:

Silver prices are also testing the 100-day SMA at US$ 22.80, which is a critical support level to watch. Near-term momentum remains bearish-biased, with the next support level likely found at US$ 21.80 – the 76.4% Fibonacci retracement.

Silver Price – Daily Chart

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter