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Has the Next Phase of the Rally Started for Gold and Silver?

By:Christopher Vecchio - CFA

Both /GCQ4 and /SIU4 are primed for meaningful price swings in the coming sessions

  • Precious metals traded higher in thin conditions last week and are being met by sellers in the first full week of July as data showed China did not buy gold for a second consecutive month.  

  • Gold prices (/GCQ4) have broken the downtrend from the May 20 and June 21 swing highs, but are working on an inside day today. 

  • Silver prices (/SIU4) have broken the series of lower highs since late-May and are starting to treat the one-week moving average (daily 5-EMA) as support. 

Week-to-date price percent change chart for /GC, /SI 
Week-to-date price percent change chart for /GC, /SI 

Market Update: Gold prices up +1.01% month-to-date 

There’s been much ado about nothing in precious metals for a few months. Both gold (/GCQ4) and silver prices (/SIU4) have been largely constrained to choppy, sideways ranges since the beginning of April. But recent price action suggests another bullish impulse is unfolding, whereby a retest of multi-month range highs can’t be ruled out.  

Catalysts this week are aplenty, from Federal Reserve Chair Jerome Powell’s testimony to three important Treasury auctions to the June U.S. inflation report—not to say anything of a potential release from China regarding last month's gold. Both /GCQ4 and /SIU4 are primed for meaningful price swings in the coming sessions. 

/GC Gold Price Technical Analysis: Daily Chart (September 2023 to June 2024) 

Gold (/GCQ4

In a sense, very little has  changed for gold prices (/GCQ4) in recent weeks, as the range in place since early April, between 2300 and 2475, has been maintained. In the previous update it was noted that “a consolidation following an uptrend is typically a continuation pattern, which warrants attempts to buy at range support … a further advance toward the middle of the range would make directionally neutral strategies like an iron condor or short strangle increasingly valid.” 

Both of those strategies remain valid, although the break of the downtrend from the May 20 and June 21 highs shifts attention toward range highs at 2475. Before then, however, the June 7 high – formed around the announcement China had stopped adding gold to its reserves, which it said it did so for a second consecutive month – needs to be cleared first. Above this technical hurdle, a move to the yearly highs dramatically increases from a technical perspective. 

/SI Silver Price Technical Analysis: Daily Chart (July 2023 to June 2024) 

silver prices (/SIU4)

Patience has been prudent in silver prices (/SIU4). In the previous two updates, it’s been observed that “over the past several months, silver prices (/SIN4) have showcased a reliable pattern: break out higher, then quickly retrace to the daily 21-/34-EMA (exponential moving average) cloud. This happened in late-February; at the end of April; and at the start of June. As the saying goes, “the trend is your friend,” and until the trend of buying into the daily 21-EMA (one-month moving average) fails, there’s no reason to fix what’s not broken. The trend remains bulls’ friend, as /SIU4 (and /SIN4 before it) has bounced from near 29 and the one-month moving average once more.”  

Today’s inside day in /SIU4 has found support at the one-week moving average (daily-5 EMA), suggesting bulls remain in control. Moreover, establishing a higher swing high – breaking the downtrend from the end of May – reaffirms the uptrend in place since the late February low. It thus remains that long deltas are appropriate against 29. 

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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