Gold and silver prices have risen sharply in October, as investors sought safe-haven assets amid escalating conflicts in the Middle East. However, the precious metals are facing strong resistance levels that could limit their upside potential. Here are the key factors and levels to watch for gold and silver.
Precious Metals Benefit from Risk Aversion
The main driver of the rally in gold and silver prices has been the increased risk aversion among investors, as tensions between Iran and Israel escalated in recent weeks. Iran has accused Israel of being behind a series of attacks on its nuclear facilities and vowed to retaliate. Israel has also warned of a possible military strike on Iran’s nuclear program, if diplomatic efforts fail to prevent it from acquiring nuclear weapons.
These developments have raised fears of a wider war in the region, which could disrupt oil supplies and global stability. As a result, investors have flocked to safe-haven assets such as gold and silver, which are seen as a hedge against inflation and geopolitical risks.
According to the World Gold Council, gold demand increased by 12% year-on-year in the third quarter of 2023, driven by strong inflows into gold-backed exchange-traded funds (ETFs). Silver demand also rose by 10% year-on-year in the same period, according to the Silver Institute, as industrial and investment demand picked up.
Fed’s Policy Stance Supports Precious Metals
Another supportive factor for gold and silver prices has been the dovish stance of the US Federal Reserve, which has signaled that it will keep interest rates near zero until at least 2024. The Fed has also indicated that it will tolerate higher inflation for some time, as it aims to achieve maximum employment and price stability.
This has weighed on the US dollar and US Treasury yields, which tend to have an inverse relationship with gold and silver prices. A weaker dollar makes precious metals cheaper for foreign buyers, while lower yields reduce the opportunity cost of holding non-yielding assets.
The market is now awaiting Fed Chair Jerome Powell’s speech later this week, which could provide more clues on the Fed’s policy outlook and its views on inflation. The market is currently pricing in a 90% probability that the Fed will leave interest rates unchanged at its next meeting on October 31-November 1.
Technical Charts Show Resistance Levels for Gold and Silver
Despite the rally in October, gold and silver prices are still below their record highs reached in August 2023, when they hit $2,075 and $29.85 per ounce respectively. On technical charts, both precious metals are facing significant resistance levels that could cap their gains.
For gold, the resistance level is around $1,953 per ounce, which coincides with the September high, the 89-day moving average, the 200-day moving average, and the upper edge of the Ichimoku cloud on the daily chart. This level has proven to be a tough barrier for gold bulls, as they failed to break above it several times in September and October.
Moreover, the 14-day Relative Strength Index (RSI) has not been able to clear the 60-65 zone, which suggests that the momentum is not strong enough to sustain a bullish trend. A break below Monday’s low of $1,905 per ounce would indicate that the rally has lost steam and that gold could resume its downtrend.
The next support level for gold is at $1,805 per ounce, which corresponds to the February low and the 200-week moving average. A decisive break below this level would confirm that the rally since early 2022 was corrective and not the start of a new uptrend.
For silver, the resistance level is around $25 per ounce, which aligns with the September high, the 89-day moving average, and the upper edge of the Ichimoku cloud on the daily chart. Silver has also struggled to overcome this level in recent attempts, as it faced selling pressure from profit-takers.
The 14-day RSI has also failed to breach the 60-65 zone, indicating a lack of bullish momentum. A break below immediate support on a horizontal trendline at about $22 per ounce would trigger a bearish triangle with a potential price objective toward the October low of $19.80. A break below $19.80 would suggest that the rally since 2022 has reversed. Subsequent support is at the 2022 low of $17.50.