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Author: Mauricio Carrillo
Senior Reporter
Mauricio Carrillo

Gold on Consolidation Mode, Silver Looks Ready For Another Run

The bullish mood in metal markets seems to keep intact despite the sell-off experienced at the end of the last week. Even when the dollar is fighting back to stop losses, gold and silver are sustaining levels and getting ready for another run.

The question here now is where the next frontier lies for both metals?

Gold and silver are taking advantage of the dollar weakness, a mix of risk aversion for COVID-related economic impact and Chinese-United States political problems, and a notion of free money being pumped from governments worldwide.

In that framework, people are buying metals, especially gold, with the notion of safe heaven but also a safe investment, and as a bit of inflation and interest hedging tool against negative rates.

That's for gold. But what's silver? Well, silver is the second most popular metal in terms of investment, plus it is highly correlated with gold. On top of it, a weak dollar also fuels silver prices.

Before taking into metals, let's see what's going on with the dollar index.

The Greenback Tries to Get Back

The dollar index is trading mixed on Monday as investors digest Trump's executive orders and the possible challenges it could face in the Congress and the political impasse between China and the United States.

At the beginning of the session, the greenback advanced, but it lost steam in the American morning. Currently, DXY is trading 0.08 percent positive at 93.47.

Technically, the chart suggests a change in the middle term trend, but it is too soon to be confirmed. As for now, resistances are at 93.70 and 94.00. To the downside, supports are at 93.30, 93.00, and 92.50.

Gold Consolidates Levels After a Multi-Day Rally

XAU Daily Chart

Gold is consolidating levels above the 2,020 level after testing the 2,080 area last week. Overbought conditions and profit taking ahead of summer vacations are the reason. However, let's not forget the USD's recent strength.

As FXStreet's analyst Dhwani Mehta said in a recent report, the US dollar demand could resurface amid uncertainty over the US fiscal aid.

Besides, Dhwani said:

The escalation in the US-China tensions following the ban on the Chinese tech-titans could likely bode well for the US dollar and cap the upside attempts in gold. Also, investors remain wary ahead of the US CPI release and August 15 trade talks between the world's two biggest economies.

In the same line, Commerzbank analyst Carsten Fritsch highlighted that Friday's correction was not surprising.

We had made repeated reference to the extremely high RSI last week and warned of a correction, partly for that reason. The extreme deviation of prices from their 100-day moving averages should also have prompted caution.

As for now, XAU/USD is trading 0.12 percent negative on the day at 2,032.69. According to experts, the chart looks bullish, and any pullback would be seen as a buying opportunity.

To the upside, resistances are now at 2,050, 2,070, and 2,100. To the downside, supports lie at 2,020, 2,000, and 1,980, the real floor for the next bullish leg.

Silver on The Rise Again

XAG Daily Chart

Silver is trading positive on Monday after experiencing a sell-off on Friday due to brief dollar strengthening and profit taking from multi-year highs.

On Monday, XAG/USD used the 28.00 area as support to resume its uptrend, and it is currently testing the 29.00 level with 2.35 percent gains in the session.

The silver picture is even more promising for some experts and even analysts at TD Ameritrade said that the silver is "our precious metal favorite."

Silver continues to outperform and remains our precious metal favorite as a clean positioning slate, strong investment flows and robust industrial demand combine for strong performance at a time when the microstructure creates a disincentive for silver bullion traders to sell.

Meet The Author
Mauricio Carrillo
Mauricio Carrillo
Senior Reporter

Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.

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