Gold Wrap, Silver Lining: June 11, 2024

Given the strong and broad gains gold saw from January through May, you'd be forgiven for assuming it was a one-way bet for bulls this year. The usual calls for $3000 emerged with each new record high, but they've quieted down amidst the recent shakeout in prices. While I suspect gold will eventually reach $3000, it might not happen as quickly as many hope.

Gold technical analysis (monthly chart, logarithmic):

Gold has seen a solid rise since the 1998 low, which makes the post-GFC retracement between 2011 and 2015 look like a mere flesh wound. Prices have more than doubled since the 2015 low just above $1000, before consolidating in a 4-year bullish continuation pattern called an inverted head and shoulders (H&S).

The inverted head and shoulders pattern projects an upside target of around $2600, and gold prices came close to reaching it after a clean breakout of the neckline. However, $2400 appears to be a significant barrier, suggesting it could be the latest glass ceiling since the breakout above $2000

Seasonality may be on its side in Q3 looking at its average returns of the past 40 years. However, please keep in mind that as these are simply average returns and do no provide a roadmap for prices, it should be remembered that past performance is not indicative of future results.

• June: 0.6%, 53.5% win rate
• July: 1.25%, 51.2% win rate
• August: 0.7%, 53.5% win rate

Gold technical analysis (weekly chart)

Price action has certainly become choppy at the highs around $2400, which have entered a corrective phase. Yet the strong surge from $2000 to its all-time high (ATH) this year suggests prices may not be ready to roll over just yet. Gold may have suffered three consecutive bearish weeks, yet prices remain above the April low.

With a key US inflation report and FOMC meeting on tap, a break of the April low seems plausible. But I am also on guard for any such break to either provide limited downside or prove to be a bear trap.

Yet frustratingly, upside potential could also be limited. China has paused gold purchases after an 18-month spending spree on the yellow metal, and the US dollar and yields are hinting at a comeback. And this could see gold essentially behave like Bitcoin; choppy price action with some wild swings along the way.

US inflation, FOMC meeting in the driving seat:

Like most markets, gold's next likely direction hinges on this week's CPI figures and FOMC meeting. The release of inflation data just hours ahead of the Fed's interest rate decision could trigger a last-minute panic and elevated volatility if inflation comes in hot. This is plausible, given the stubbornly strong jobs market.

The Fed's options seem limited following the strong NFP report, as the data likely doesn't allow them to signal the September cut that traders desperately want to hear. This could lead to further declines in gold prices amid rising yields and a strengthening US dollar.

A key level of support for gold bulls to defend is the May low at 2277. A break below this level could send gold down to $2200, given the lack of technical support levels. However, with numerous factors supporting gold prices, any downward move is likely to be a healthy correction rather than the beginning of a bear trend.

Gold technical analysis (daily, 4-hour chart):

A cluster of support levels around the April low includes 50% and 38.2% retracement levels, which prices currently seem to be holding above. Additionally, bullish divergences have formed on both the daily and 4-hour RSI charts.

There's a logical argument for gold to rise ahead of the key events, and we may be seeing some cautious buying at the lows. A small double bottom formed on the 4-hour chart at $2286, and prices have pulled back towards these lows after a burst higher from the double bottom.

Bulls could seek to enter around current levels with a stop beneath the cycle lows or the April low, anticipating gold's rise into Wednesday's key events. Near-term targets for bulls could include the high-volume node around $2335 and the monthly pivot near $2350. A break beneath the April low invalidates the near-term bullish bias heading into the US inflation report.

Silver technical analysis (daily, 4-hour chart):

Silver's 43% surge over the previous three months was unsustainable, and a correction is now underway. While price action on the daily timeframe is choppy and volatile, the bullish trend structure remains intact. I wouldn't call it a bullish flag, but this might be a market that favours bullish setups at the lows and bearish setups at the highs in the foreseeable future.

A daily bullish divergence has formed on the RSI (2), and prices are attempting to stabilize around the 50% retracement level.

The 4-hour chart recently broke its cycle low, but I'm cautious about this move during low-liquidity trade, especially since gold is holding above its own low. Therefore, I'm inclined to believe prices will recover and rise ahead of the US inflation report on Wednesday.

However, with the potential for a hot inflation report and a less dovish Fed on the horizon, gold and silver could break lower once the anticipated bounces are complete.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge