Gold and silver test important longer-term trendline support
The daily chart for gold through 2018 so far shows a bear trend following the sideways action in the first four months of the year.
Note how the blue 100-, red 200- and green 500-day moving averages all played their part, acting as effective support and resistance zones, before the move accelerated to the downside once the 500-day moving average gave way.
While the daily chart outlook remains negative in the bear trend, the longer-term monthly chart shows the price testing important 13-year trendline support at around $1210/1200. We have bottomed exactly here. After five consecutive weeks of losses this is the big chance for bulls to regroup and seize control.
The short-term four-hour chart shows a descending wedge. This is a bullish pattern because it is against the prevailing three-month bull trend. It begins wide at the top, with the lower trendline starting at the beginning of May and upper trendline starting at the beginning of June. The wedge contracts as prices move lower.
Once prices break and hold above the upper trendline resistance at $1213/16 we get a confirmation buy signal. This indicates the bull trend has started and we will see a strong recovery off the 13-year bull trendline.
Therefore a sustained break below $1190 would signal that the 13-year trendline and the descending wedge have failed. This would mean we would have started a new leg lower. Clearly we are at crucial levels in gold.
Focus on silver
When we see important technical analysis levels in gold it is useful to check if they are backed up by the technical outlook for silver. The silver futures daily chart shows similar action to the downside in recent weeks.
The trendline support for silver futures is slightly shorter-term, starting in late 2009. So it is an 11-year trendline, still extremely significant and acting in the mid-to-low $15 area. This is where we are trading now.
As long as prices hold above $15 this week we can build a base. Bulls then need a break above the short-term trendline, moving average and Fibonacci resistance at $1545/50 on the four-hour chart to signal a bullish breakout.
It is worth having a look at the US Dollar Index chart to see if there is potential weakness ahead. This would of course be required if gold and silver are to head higher against the dollar.
As you can see in the daily chart above, the green 500-day moving average resistance in the 95.50/60 area is doing the job perfectly. The weekly chart below also shows important 100- and 200-week moving average resistance converging in the same area. So it is no surprise that bulls appear to have hit a brick wall.
With further important resistance from the 500-month moving average at 95.80/90, dollar bears and gold and silver bulls now have a golden (sorry!) opportunity to seize control.
Technical Analyst & Trader
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