Gold, XAU/USD, Silver, XAG/USD – Outlook:
- Gold and silver have risen sharply due to escalating geopolitical tensions.
- Both gold and silver are testing major resistance.
- What is the outlook and what are the key levels to watch for XAU/USD and XAG/USD?
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The recent sharp rise in gold and silver has raised questions about whether it is time to reassess the pessimistic outlook. While this could indeed be a turning point, it might be worth waiting for confirmation before committing to a trend reversal.
XAU/USD has hit a 3-month high, largely due to escalating tensions in the Middle East. The US Federal Reserve’s moderation of hawkish rhetoric has kept the global USD under control, which has also benefited gold. If the rise in gold prices is largely due to geopolitical concerns, it’s hard to expect a sustained rally in the precious metals. From a fundamental perspective, the main drivers that have driven gold prices lower in recent months remain intact – a solid US economy and rising US yields/real yields.
Admittedly, some Federal Reserve officials have shifted to a less hawkish tone given the recent rise in long-term yields. Tightening financial conditions undoubtedly reduces the need for imminent tightening, but probably not a Fed pivot that Fed Chairman Powell appeared to hint at on Thursday.
XAU/USD weekly chart
Chart created by Manish Jaradi using TradingView
Gold: Testing the most important hurdle
On the technical charts, gold is testing key resistance at the July 1987 high. A decisive break higher would confirm that several weeks of downward pressure has eased. Such a break would justify a reassessment of the pessimistic outlook. Additionally, a break above the May 2072 high changes the medium-term outlook to an uptrend.
Severely oversold conditions (RSI below 20) earlier this month triggered a rebound from strong converging support at the 200-week moving average around the February low of 1805 and the lower edge of a rising pitchfork channel dating back to 2011.
XAG/USD daily chart
Chart created by Manish Jaradi using TradingView
Silver: Testing 200-DMA ceiling
Silver is testing major converging resistance at the 200-day moving average, the late September high of 23.75 and the top of the Ichimoku cloud on the daily charts. XAG/USD needs to break above the 23.25-23.75 area for the immediate bearish pressure to subside.
From a slightly broader perspective, as highlighted in the Q4 outlook, XAG/USD needs to break the 25.50-26.25 resistance for the outlook to become constructive. See “Gold Q4 Fundamental Forecast: Weakness to Persist as Real Yields Rise Further,” published October 6, and “Gold/Silver Q4 Technical Forecast: Tide Remains Against XAU/USD & XAG/USD,” published October 1.
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— Written by Manish Jaradi, Strategist for DailyFX.com
— Contact and follow Jaradi on Twitter: @JaradiManish