Gold, Silver, US Dollar Technical Analysis: Will Inflation Risks Drive Next Move?

The robust hiring in December, with a 256K increase in employment, demonstrates strong economic momentum. The chart below highlights US total nonfarm employment and unemployment rate data. Total nonfarm employment has increased, reflecting positive momentum in late 2024. However, unemployment rates remained low but fluctuated during the same period.

On the other hand, employment in cyclical sectors, such as manufacturing and construction, remains near its peak. This indicates that the economy is operating close to full capacity. The chart below illustrates the addition of employees in the manufacturing, construction, and transportation sectors. It shows that employment in these sectors is nearing its peak. Moreover, a low unemployment rate of 4.1% and a sharp decline in initial unemployment claims to 201K confirm that the labor market is tightening. These factors suggest that wage pressures could increase, potentially driving inflation higher.

This employment data presents mixed signals for the US dollar index (DXY). Strong hiring and low unemployment indicate a resilient economy. This could attract foreign investment and strengthen the dollar in the short term.

However, a tightening labor market and rising inflationary pressures may push the Federal Reserve to maintain or raise interest rates. While higher rates can support the dollar, prolonged inflation could weaken its purchasing power, posing long-term risks.

Additionally, the widening gap between job openings and unemployment levels, as shown in the chart below, highlights tightening labor market conditions. This can lead to upward pressure on wages and potentially fuel further inflation.

As discussed above, rising inflationary pressures and tightening labor conditions could support gold (XAU) and silver (XAG) prices. Prolonged inflation risks and potential long-term dollar weakness could further boost demand for gold and silver as safe-haven assets. The market expects the release of CPI data today, which will provide further insight into the US inflationary trend.

Gold (XAU) Technical Analysis

Gold Daily Chart – Ascending Broadening Wedge

The daily chart for gold shows that the price is trading within an ascending broadening wedge pattern. The price forms a symmetrical broadening wedge within this pattern, reflecting positive momentum. The RSI remains above the mid-level, indicating a bullish trend toward $2,720. A breakout above $2,720 could trigger the next leg higher. Conversely, a break below $2,550 would signal a potential price correction in gold.

Gold 4-Hour Chart – Symmetrical Triangle

The 4-hour chart for gold shows that the price is trading within a symmetrical triangle and is attempting a breakout. The market is awaiting inflation data before making significant moves. The RSI indicates price consolidation within the current range.

Silver (XAG) Technical Analysis

Silver Daily Chart – Falling Wedge Pattern

The daily silver chart shows price consolidation at the apex of a triangle. The price is stabilizing near the 200-day SMA, indicating positive developments. A break below $28.70 would negate the bullish trend and signal further downside. Conversely, a breakout above $32.50 will confirm a higher move.

Silver 4-hour Chart – Descending trendline

The 4-hour chart for silver shows that the price is trading below the descending trendline, thereby reflecting uncertainty. Notably, this trendline currently intersects at $30.60. However, if the price remains above $27.80, the likelihood of an upside breakout increases. Furthermore, a break above $32.50 could ignite a rally toward the $35 region.

US Dollar Index (DXY) Technical Analysis

US Dollar Daily Chart – Bearish Hammer

The daily chart for the US dollar shows that the index has formed a bearish hammer after a strong surge in recent weeks. This bearish hammer suggests the index is encountering resistance and may be poised for a correction. This correction could likely trigger a rally in EUR/USD and exert pressure on USD/CHF. However, the overall trend in the US dollar index remains positive. Moreover, this correction may support the gold and silver markets in the short term. The release of inflation data will provide further direction to the market.

US Dollar 4-Hour Chart – Ascending Channel

The 4-hour chart for the US dollar index shows that it trades within an ascending channel and appears positive. The index is correcting toward its support level, around 108.70. If it remains within the ascending channel, it may continue its upward trend.