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Gold's Dog Days of October Appear to Be Over

By:Christopher Vecchio - CFA

Technical indicators suggest precious metals are positioned for higher prices

  • Gold and silver prices have reversed their losses in October.
  • Falling U.S. bond yields are helping precious metals regain their footing.
  • Bearish momentum has been broken, setting up the possibility for a return to the late-September highs.
Year-to-date price percent change chart for /GC, /SI
Year-to-date price percent change chart for /GC, /SI

Federal Reserve officials have hinted that the totality of the move in U.S. bond markets in recent months may have done the job for them: the rise in yields means that no more rate hikes are needed.

In turn, the bond breakdown has been halted, undercutting the U.S. dollar and putting a tailwind at the back of gold and silver prices. As brutal as the late-September sell-off was for precious metals, the worst may now be over.

/GC gold price technical analysis: daily chart (September 2022 to September 2023)

/GC gold price technical analysis: daily chart (September 2022 to September 2023)

Gold prices set a bullish outside engulfing bar—a key reversal—at multi-month lows on Friday. Coupled with geopolitical event risk ratcheting up, there are now bona fide technical and fundamental reasons to believe that the path of least resistance is higher for /GCZ3.

Bullion is back above its daily five-day exponential moving average (EMA), while holding just below its daily 13- and 21-EMA (the EMA envelope remains in bearish sequential order). Moving average convergence/divergence (MACD) is close to issuing a bullish crossover (albeit below its signal line), and slow stochastics have exited oversold territory.

/SI silver price technical analysis: daily chart (September 2022 to September 2023)

/SI silver price technical analysis: daily chart (September 2022 to September 2023)

The drop below 22.60 in late-September led to a flush in silver prices, but /SIZ3 never cleared out its March lows.

In the process, a double bottom around 21 may have begun to form. /SIZ3 is back above its daily 5-EMA, but like /GCZ3, remains below its daily 13- and 21-EMA (the EMA envelope is still in bearish sequential order). MACD is on the verge of issuing a bullish crossover (albeit below its signal line), while slow stochastics exited oversold territory.

Clearing 22.60 would be the surest technical signal that a significant bottom has been formed.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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