Ever since gold and silver plunged in the spring of 2013, they have been consolidating in a narrowing trading range. I've been watching this range develop for a long time while trying to figure out which way they will break out from it. It appears that this range is a wedge pattern - a chart pattern that often leads to sharp moves in the direction of the breakout. In recent months, gold and silver's volatility have fallen significantly as this trading range gets narrower and narrower.
The weekly gold chart shows this range forming with a support level at approximately $1,150 and a resistance level at $1,250. A convincing breakdown from this pattern could lead to another rout in gold, while a bullish breakout could lead to a rally.
Here's the monthly gold chart:
Silver, which closely tracks the price of gold, seems like it is also forming a wedge pattern in this weekly chart:
Here's the monthly silver chart:
Gold and silver are likely waiting for a significant catalyst that will cause them to break out from their narrow trading range of the past two years. The upcoming Fed Funds rate hikes are a possible bearish catalyst because precious metals perform poorly in tighter monetary environments, which is why they plunged two years ago when the QE3 taper speculation started. Stronger economic performance may lead to more aggressive rate hikes, which could put pressure on precious metals. On the other hand, an economic slowdown in the U.S., a U.S. dollar bear market, or a catastrophic outcome for the Greek debt crisis are possible catalysts that could cause gold and silver to rally out of their current trading range.
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(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)
