Gold And Silver Price Forecast: This Week’s Price Action Being Crucial To Trend

During last week spot gold prices rose 1.9% or nearly $22 to close at $1,173 as of the final tick on the New York COMEX.

Initial resistance is expected to be seen between $1,190 - $1,200, labeled below in red, with support coming from the broken 2013 – 2015 down channel, highlighted in blue.

Gold’s behavior near the $1,190 - $1,200 resistance level this week will be telling and thus important to watch. Broken support should act as resistance on the next advance. In plain English, what we are saying is that since buyers failed to show up at $1,200 last November in the wake of the post-Trump sell-off, all else being equal we would expect them to be absent this week when the price tests that level again.

If the gold price backs off in this resistance region as we expect it to, it will indicate a market that is set to spend the next few months range-bound between $1,200 and $1,115, with the possibility of grinding lower toward the 2015 lows near $1,045.

However, should the market disregard the $1,200 resistance and continue higher over the next 1-2 weeks, it will indicate that an entirely new class of buyers has emerged. Effectively, it would mean a different set of buyers are filling in for those absent last November.

Watching gold as it approaches $1,200 will thus be an important indicator for the remainder of 2017. A strong advance through this level will be telling us that the long-term 2011-2016 (magenta color) downtrend will not represent as significant of a challenge on the next attempt as it did during the multiple attempts of 2016: a new set of buyers will have entered the market to support prices. 

Silver Price Update

Last week silver finished higher by $0.52 or 3.3%, to close at $16.52 as of the final print in New York on Friday.

Watching silver’s advance from the short-term steep wedge breakout, which we have been referencing for several weeks will be telling us what to expect for the first half of 2017.

Should the short-term target of $17.25 be reached or exceeded on this advance, it would indicate a high probability that the recent $15.68 low from December 20 was the bottom for the current correction. However, should sellers emerge here and stop prices below $17.25, the odds suggest silver will make a new low during Q1 2017.

The more important test for silver remains the declining royal blue upper trendline, which, if it were to be tested today, would come in just above $18.00 in the spot market.

US Dollar Index

Since the entire precious metals sector is still trading with a high inverse correlation to the US Dollar, we continue to monitor the Dollar Index as per the technical breakout observed in November.

As can be seen from the zoomed-in cutout above, the dollar came back to test the 101.5 level on Thursday, labeled Initial Support Target, before bouncing on Friday.

A breakdown below 101.5 would hint that the US dollar is having trouble finding buyers. Consequently, the breakout is on hold, while a move below 99.5 would indicate a significant long-term reversal has been put into place for the US currency. As reversals from failed breakouts typically result in strong moves in the opposite direction, such would correspond to higher price accelerations in gold and silver. Precious metals investors are advised to continue closely monitoring the action in the US dollar at this juncture.

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