SLV - Big Directional Move In Precious Metals Seems Imminent (Technical Analysis)

2023-07-24 18:47:40 ET

Summary

• I expect a big directional move in precious metal prices this week, likely coinciding with the resolution of key event risks such as the FOMC meeting.
• Precious metal prices have displayed a change in character, breaking out of their near-term downtrends. These are attractive levels to buy gold and silver.
• The technical chart of gold miners is similar to that of spot gold and silver. Gold miners can be a higher-beta play on precious metal prices.

Big directional move in precious metals imminent

We are likely to see a big directional move in precious metals gold and silver this week.

The week is chock full of data releases and events, and as I wrote in "Major Decline In USD, And Rise In Precious Metals, Could Be Imminent (Technical Analysis)", precious metals are already at a key turning point.

I do expect the prices of precious metals to resolve higher after this week. There could be a great amount of volatility though, so patience is required. Below, I will detail my trading plan for gold and silver.

First off, let us review the event risk for the week:

Wednesday: Fed rate decision

Thursday: US GDP, BOE rate decision

Friday: US PCE index, BOJ rate decision

As we may observe, there are many rate-sensitive events to take note of. As such, the markets may chop around, and may only choose a direction after the events are cleared.

A 25bps rate hike is almost fully priced in by the markets. At the time of writing, the probability of a 25bps rate hike stands at 99.8%. As such, unless the Fed makes a different decision on the day, the focus will be on Powell's press conference.

Hence, I do not expect a 25bps rate hike on Wednesday to lead to selling pressure in precious metals.

Now, on to the technical charts of gold and silver.

Gold ( GLD ) has put in quite a turnaround of late. As we may observe from the daily chart below, gold has broken above downtrend resistance that had been in play since May. Secondly, gold has now pushed above its key moving averages (10, 20, 50 day).

Daily Chart: XAU/USD

The recent pullback in gold prices has been shallow and lacking momentum. It is notable that the past 4 days of price action (albeit lower) have been contained within the bullish candle on 18th of July.

Overall, this tells me that the bulls are in control, and there is a high probability that the trend has now turned higher. A bounce is likely at current levels, and if this materializes on the lower time frame (60min chart), I will begin building a long position.

I plan to remain open-minded this week. Sometimes the markets can move or breakout before a key event is over. If gold starts to make a move higher prior to the FOMC meeting, I might participate, but with lower risk. I will be more confident to add size after the FOMC event has passed.

Silver ( SLV ) has also seen a change in character. Prices have now broken above downtrend resistance that had been in play since May, as well as broken above the June swing highs. Prices are now above key moving averages on the daily chart.

Daily Chart: XAG/USD

The picture for silver looks very similar to that of gold, and I think the $24.30 pivot will be an attractive level to go long, but I want to first see signs of a bounce at those levels first.

The gold miners ETF ( GDX ) is a higher beta play on spot gold prices. The technical chart looks very similar, in the sense that downtrend resistance was broken, prices have broken above a key pivot, and are now trading above the majority of key moving averages. The 2x leveraged ETF on gold miners ( NUGT ) may be considered too, but be mindful that the ETF provides double the exposure compared to GDX.

Daily Chart: GDX

Overall, I think precious metals are in a bull market, but they have lost a bit of steam in recent weeks amidst a strong equity rally.

Now, there are signs that they are coming out of a near-term downtrend, and I think this is the week that could ignite their moves higher.

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