With the US dollar (USD) showing signs of a building correction and bond yields stuck in a downtrend, the outlook remains positive for gold if these conditions continue. Technical analysis of precious metals charts shows markets testing a key inflection point. If they can break higher it could be a move that can open decisive recovery.
- The conditions are set for further recovery gains on gold, as negative correlations with yields and the USD holding firm.
- Gold technicals show a test of key resistance is underway.
- Silver is testing a confluence of key near term barriers to recovery.
- Palladium has picked up but has a lot to do to break resistance
Correlations are set up for continued recovery for Gold
The two key correlations that drive the gold price are well set up for continued gains for the yellow metal. Treasury yields are falling and the USD rally has rolled over. On a historic basis, gold retains a negative correlation with both.
With the US 10 year Treasury yield there has been an average negative correlation of -0.34 since the beginning of 2021. The chart shows a consistent decline in yields since April which has been supportive for gold.
This negative correlation is even stronger with the USD. Since the beginning of 2021, the correlation has averaged -0.6. The one slight anomaly was in mid-July when Gold and USD rallied together, but the traditional negative correlation is reasserting once more.
These correlations are strong and crucial to the outlook for gold. If yields keep falling and the USD rally tracks back lower, this should continue to underpin support for gold.
Gold technicals at a key inflexion point
We have seen an appetite to support Gold (MT5 code: XAUUSD) whilst the dollar was strengthening in the past month. Now we have seen the USD rally rolling over, gold has picked up. Technically, the market is testing key resistance around $1832, but if the market can push above $1845 this would be a decisive shift in sentiment.
For several weeks, gold has been stuck around the middle of a broad range that the market has been in for much of 2021. It is in a mid-zone of $95 between near to medium-term support at $1750 and resistance at $1845. This settling period is reflected in the RSI between 40/60, classic ranging conditions.
However, if gold can break the shackles of this middle consolidation zone and move above $1845 it would open the upper area towards $1900/$1916 once more. The RSI holding above 60 would confirm the improvement. Holding above the support band $1790/$1815 will also continue to help the improvement.
Silver is at a crucial confluence of resistance
The rally on Silver (MT5 code: XAGUSD) is now up to a crucial point. A big confluence of resistance and technical barriers are now being tested:
- A 7-week downtrend
- Overhead supply of the old lows between $25.50/$25.75 which are now key resistance
- The falling 21 day moving average which has been a basis of support during April/May now turned resistance during June and July.
- The level of 50 on Relative Strength Index was a basis of support during April and May, but a basis of resistance during June and July.
If one or more of these barriers begin to be broken then it would suggest a growing positive outlook for recovery. Seeing the price holding decisively above $25.75 would open a test of $26.60/$27.00.
Palladium with a key barrier overhead as it looks to recover
With Palladium (MT5 code: XPDUSD) it is all about reaction around the pivot areas. These are the key turning points for the outlook. However, if they can be overcome, it usually brings out a shift in sentiment as traders look ahead to the next pivot.
The overhead pivot barrier for the bulls to break through is around $2667/$2728. However, this is turning into a bit of a struggle right now. With last week’s reaction high at $2728, the RSI has recently become stuck under 50, whilst the near to medium term moving averages (21 & 55 day) are also falling overhead.
If yesterday’s failure to get above $2667 begins to be something of a theme then this will certainly add cause for concern for the bulls. However, if gold and silver can break through their respective barriers, we would feel more confident of Palladium being able to do the same. For now though, with Palladium it is more of a wait and see positioning.
A move back under $2579 initial reaction low would increase the risk of a deeper retracement back towards $2445/$2500 area.
The backdrop of falling bond yields and USD slipping back should be supportive of precious metals. The outlook for Gold is pressuring higher but barriers to recovery remain. This is similar to Silver and Palladium, with all these markets around key inflection points.