Gold and silver have stalled in consolidation after earlier breakouts this month, with the US dollar holding firm and historic macro correlations breaking down. Traders are now watching Wednesday's July FOMC minutes as the potential catalyst, while silver separately tests a critical support zone near $61-$63 amid rising bond yields and US-Iran tensions.
The bullish breakouts in gold and silver seen earlier this month have given way to consolidation, with traders now waiting for a catalyst to see whether the move extends or reverses. The release of the minutes from the July FOMC meeting later Wednesday may provide that spark, given historic drivers currently offer little guidance.
Dollar holds firm as correlations break down
A strong positive relationship between gold and silver remains intact, with five-day correlations sitting at 0.96. Beyond that, the picture is muddled: over the past five days gold has shown correlations of 0.77 with US 2-year yields, 0.78 with 10-year yields and 0.75 with 10-year real yields, the opposite of what would normally be expected. Silver tells much the same story, at 0.66, 0.70 and 0.71 respectively.
Meanwhile there has been virtually no relationship with the US dollar, with five-day correlations at 0.00 for gold and 0.01 for silver. That makes sense given the dollar index has broken its uptrend from the January lows yet turned rangy, attracting bids below 99.50 down to the 38.2% Fibonacci retracement of the January-to-June bull move, while offers cap gains above 100. Its 50, 100 and 200-day moving averages are flattening out, a stall that may be capping what had looked like a promising precious-metals breakout.
Gold consolidates beneath $4,450
Gold surged as high as $4,450 an ounce after breaking out of the bearish trend in place since the January highs, then consolidated. The price attracted bids beneath the 23.6% Fibonacci retracement of the January-to-June bear move at $4,333, with this week's low set at $4,312. A clean break above the 200-day moving average would put the 38.2% Fibonacci retracement at $4,580 in view, while a break below $4,312 may open a run back toward $4,200. RSI(14) is setting lower highs and lows and moving back toward neutral 50, while MACD, though still positive, is converging on its signal line.
Silver tests critical support as yields rise
Silver futures traded near $63.20 on August 18 after an intraday low of $63.08, just above a technical support zone. Higher global bond yields, rising energy prices and renewed inflation concerns are the immediate fundamental pressure, and silver fell sharply on August 18 as higher yields reduced demand for the non-yielding metal. US-Iran tensions and higher oil prices are simultaneously raising inflation uncertainty and complicating Federal Reserve policy expectations.
Holding the $62.65-$61.26 zone and closing back above $64.67 would strengthen the case for a move toward $65.10, $66.06 and $66.99, while a decisive failure below $61.26 would signal another downside extension. Tuesday's bearish engulfing candle had already pushed silver back toward the lower end of its range, with the 50-day moving average and $61 now forming the key support beneath the current range.
Sources: Investing.com, Investing.com
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