Gold, silver forecast: Metals drop to test key support levels

Following the release of stronger-than-expected PMI data from the US, the US dollar strengthened and this weighed heavily on precious metals prices. It caused silver to drop more than 3.5% on the session, and gold turned sharply lower after rising to a new high for the week earlier. Despite the volatility, the long-term bullish silver forecast remains unchanged as both metals continue to consolidate their 2024 gains. There’s no clear trend in the short-term outlook, with investors put off a little by the dollar’s continued strength, and reduced demand for haven assets in general with the yen continuing to drop to multi-decade lows and equity indices remaining largely supported. As the US dollar extended its gains, the USD/JPY closed in on its multi-decade high of 160.21 hit in April, while precious metals plunged to test key support levels.

Gold, silver forecast: long-term outlook remains positive

In the months ahead, our gold and silver outlook remains positive. Inflation continues to rise in the US, and although it has significantly decreased in Europe and other regions, the risk of deflation is minimal, particularly with the recent surge in oil prices. Investors and central banks who missed the major upward trend will be eager to acquire the precious metal during any significant price drops. Many investors perceive the metals as providing appropriate protection against rising prices, after several years of above-forecast inflation eroded the purchase power of fiat currencies.

Silver forecast: technical levels to watch

Today’s drop has sent silver back below $30 where it was probing liquidity at time of writing, and testing key short-term support around $29.65-$29.70 area.

Source: TradingView.com

While there is a risk that silver could drop a little deeper, it is worth remembering that all this volatility is happening inside a bullish continuation pattern, namely a bull flag. Key support at $28.70 held last Thursday. Assuming the metal can continue to hold above this area, and defend it bullish trend line, silver looks like it is gearing up for another major breakout.

The metal broke above a major resistance area of $29-$30 earlier this year, although demand concerns over China meant the breakout would quickly run into trouble. Still, the white metal has lots of ground to make up on the yellow metal and it could narrow the price gap to near the historical average.

A potential rise back above the trend resistance of the bull flag around $30.50 is what could trigger the next phase of technical buying pressure now that prices are no longer at overbought levels on oscillators like the RSI.

A potential rally to $35 for silver in the coming weeks shouldn't be surprising, considering the significant breakout observed on long-term charts recently.

However, let's first wait for confirmation of the bullish breakout before making any premature assumptions!

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.