Gold Breaks Key Support On USD Rally

Gold

The yellow metal was heavily lower this week. A strong rally in USD saw the precious metal breaking down below key technical support. 

The main driver behind the USD rally was the release of Retail sales data for March. This saw the figure rising at its quickest pace in 18 months. The release was stronger than expected, printing 1.6% vs the forecast 1%.

Alongside this, there was a sharp drop in continuing claims. The number of US citizens filing for unemployment benefits hit 50-year lows, boosting the USD.

The data has been welcomed by USD bulls following the release of the March FOMC minutes last week. These saw the Fed stating that further rate hikes could still take place later in the year provided the economy performs well.

Gold prices have come under steady pressure since the meeting minutes were released. And, positive US data releases since have accelerated the decline. A small dip in risk sentiment midweek offered some support for gold. However, this was quickly overridden by strong US data. These moves have been exacerbated this week in light holiday trading ahead of the Easter Weekend with many markets closed for Good Friday.

Technical Perspective

Gold prices have now broken down below the 1280.58 level which has underpinned price action over the year so far. Gold is now trading within a bearish channel from the 2019 highs, with the channel low now coming in around the next structural support at 1251.71 – 1243.18.

The lower timeframe shows the current falling wedge pattern that gold prices are trading in. However, any topside break will likely be capped by a retest of the broken 1280.58 support level.

Silver

Silver prices broke their correlation with gold this week, managing to remain just in the green despite the heavy losses in gold.

A stronger US Dollar capped the strength in silver this week to see price ending the week broadly neutral. Resilient equities prices have kept silver prices supported this week, which is a dynamic often seen due to the common industrial usage of silver.

Silver prices have been under pressure over the year, selling off from initial highs on the year. However, investment banks continue to forecast higher prices for silver, linked to increased demand from the auto sector. However, the prospect of further US rate hikes later in the year is likely to keep silver prices restrained.

Technical Perspective

Silver prices are still sitting on the 14.9161 support which has held price up over the last few weeks. Price has tested the level three times recently. Although price briefly pierced below the level this week, silver quickly recovered above the support. If prices break down below here, the completion of the ACBD into the 14.3826 level will be the next technical structure to watch.

The lower timeframe charts show the consolidation that price is currently in, framed by the contracting triangle pattern which has developed over the last week. For now, focus remains on an eventual break to the downside.