Gold and Silver Technical Analysis: Bearish Hammer Hints at Price Correction

Gold (XAU) prices dropped on Friday after forming a double top at $2,940. However, this decline was primarily due to technical overbought conditions, while the overall trend remains strong, driven by economic uncertainty. Meanwhile, the US dollar index fell below the key 107 level, indicating further weakness. A weakening dollar and declining Treasury yields continue to create a favourable environment for gold, attracting institutional and retail investors. Therefore, this drop in gold and silver (XAG) will be a buying opportunity for investors.

Economic data from the US has been mixed, impacting market sentiment. Retail sales in January dropped sharply, adding pressure on the US dollar, while industrial production slightly improved. The retail sales data in the chart below highlights the most significant decline in 20 months. Lower real yields have increased demand for bullion, as gold prices typically move inversely to bond yields.

Central banks have played a crucial role in supporting gold’s continued strength. According to the World Gold Council, they purchased over 1,000 tons of gold for the third consecutive year. Following Trump’s electoral victory, these purchases surged by 54% year-over-year, indicating strong demand for gold as a reserve asset. This consistent accumulation and expectations of monetary easing reinforce the long-term bullish outlook for gold and could push prices beyond the $3,000 target in the coming months.

Gold (XAU) Technical Analysis

Gold Daily Chart – Bearish Hammer

The daily chart below shows that gold has formed a bearish hammer from the strong resistance zone of $3,000. This is the second bearish hammer after gold failed to break above $2,942. This price action suggests that prices may begin a short-term correction toward the $2,795 zone before the next move higher. The emergence of an ascending broadening wedge and an ascending channel indicates a strong bullish trend. A correction from resistance is considered a buying opportunity for gold traders.

Gold 4-Hour Chart – Double Top

The 4-hour chart for gold shows that the price has formed a double top and is attempting to consolidate lower. The RSI has corrected below the mid-level, indicating bearish price action. The strong support zone lies between $2,825 and $2,795.

Silver (XAG) Technical Analysis

Silver Daily Chart – Bearish Hammer

The daily chart for silver shows the formation of a bearish hammer. The price failed to break above $32.50, indicating that further consolidation is likely before the next move higher. Strong support lies between the 50-day and 200-day SMAs, around $30.50.

Silver 4-hour Chart – Key level of $32.50

The 4-hour chart for silver shows that the price is consolidating around the decision line of $32.50. The failed breakout above $32.50 has opened the door for further downside. The orange zone, between $31 and $29.60, remains the key area for potential upside.

US Dollar Index (DXY) Technical Analysis

US Dollar Daily Chart – Breakout

The daily chart for the US Dollar Index shows that the index has broken below the 107 level. This breakout has opened the door for a drop toward 105.20. Despite this negative price action, the 50-day SMA remains above the 200-day SMA, and both SMAs are rising. This indicates that the US Dollar Index remains in a strong uptrend.

US Dollar 4-Hour Chart – Breakout

The 4-hour chart for the US Dollar Index shows that the index has broken out of the ascending broadening wedge pattern, opening the door for a downside move. The downward pressure on the US dollar indicates strength in gold prices. A rebound to the 107 level in the US Dollar Index will likely lead to further declines. Increased market uncertainties due to the global trade war suggest intense price volatility.