Is The Uptrend on Gold and Silver Already Lost?

First half of the year for Gold and Silver was amazing. The price managed to break the downtrend line and significantly beat the highs from 2015. In the middle of the year, upswing was further driven by Brexit and fear surrounding Deutsche Bank and generally the whole banking system, mostly in Europe. But in the second half of the year something snapped. Brexit had lower impact on the markets than many thought and Deutsche Bank &Company (e.g. Monte dei Paschi) suddenly stopped being a risk and a headline in the media (Miracle Healing?). On top of that, we had an overwhelming dollar strength, which was a direct bearish influencer on the price of precious metals.

Latest correlation of the EURUSD and Gold is very high (over 85%). When EURUSD, driven by better US macro data, was crushing supports and making lower lows, Gold and Silver were doing the same. As we know from one of the principles of the technical analysis, price likes to follow trends. Fair enough, but they need a correction too and in those both cases, price almost in the same time, found local supports. In the EURUSD that would be a multiyear low around 1.0530 and on Gold it would be 61.8% Fibonacci (on Silver, horizontal support on 16.15 USD/oz). So suddenly there is a hope. Hope which is strongly supported by the technical analysis.

Local supports

This one on silver looks much stronger than on Gold. On Gold, we do have only 61.8% Fibo and a resistance from the October 2015 but on Silver we do have additionally resistance from March and support from May 2016, all in one place – 16.15 USD/oz. Ok, but we all know that the key here is the price action on those S/R and here we do have good news for buyers. Price in both cases bounced and created a bullish reversal candlesticks formations (Silver – bullish engulfing, Gold – pinbar) and more, they are following this signal on Monday and creating higher highs and higher lows. That vastly increase the chances for success.

The uptrend on precious metals is not lost but unfortunately is very close to collapse. In my opinion, buyers would have to consider abandoning their bullish view if those supports mentioned above would be broken. We do not have anything significant below them, which creates a very dangerous situation. It seems that those levels are the last chance here (Both for metals but also on the EUR/USD). One could say that rising rates would definitely strengthen the USD which will cause the breakout here.However, this is already discounted and my bet goes here for ‘buy the rumours and sell the facts’ kind of action.

To sum up, the price found strong supports on Gold, Silver and EURUSD (which is strongly correlated with precious metals). First reaction on that levels is bullish and as long as those levels are defended, the sentiment stays positive but it seems like this is the last chance and bearish breakout can be the end of the 2016 prosperity.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis