Gold, silver forecast: Metals drop to test key support levels

Following the release of stronger-than-expected PMI data from the US, the US dollar strengthened and this weighed heavily on precious metals prices. It caused silver to drop more than 3.5% on the session, and gold turned sharply lower after rising to a new high for the week earlier. Despite the volatility, the long-term bullish silver forecast remains unchanged as both metals continue to consolidate their 2024 gains. There’s no clear trend in the short-term outlook, with investors put off a little by the dollar’s continued strength, and reduced demand for haven assets in general with the yen continuing to drop to multi-decade lows and equity indices remaining largely supported. As the US dollar extended its gains, the USD/JPY closed in on its multi-decade high of 160.21 hit in April, while precious metals plunged to test key support levels.

Gold, silver forecast: long-term outlook remains positive

In the months ahead, our gold and silver outlook remains positive. Inflation continues to rise in the US, and although it has significantly decreased in Europe and other regions, the risk of deflation is minimal, particularly with the recent surge in oil prices. Investors and central banks who missed the major upward trend will be eager to acquire the precious metal during any significant price drops. Many investors perceive the metals as providing appropriate protection against rising prices, after several years of above-forecast inflation eroded the purchase power of fiat currencies.

Silver forecast: technical levels to watch

Today’s drop has sent silver back below $30 where it was probing liquidity at time of writing, and testing key short-term support around $29.65-$29.70 area.

Source: TradingView.com

While there is a risk that silver could drop a little deeper, it is worth remembering that all this volatility is happening inside a bullish continuation pattern, namely a bull flag. Key support at $28.70 held last Thursday. Assuming the metal can continue to hold above this area, and defend it bullish trend line, silver looks like it is gearing up for another major breakout.

The metal broke above a major resistance area of $29-$30 earlier this year, although demand concerns over China meant the breakout would quickly run into trouble. Still, the white metal has lots of ground to make up on the yellow metal and it could narrow the price gap to near the historical average.

A potential rise back above the trend resistance of the bull flag around $30.50 is what could trigger the next phase of technical buying pressure now that prices are no longer at overbought levels on oscillators like the RSI.

A potential rally to $35 for silver in the coming weeks shouldn't be surprising, considering the significant breakout observed on long-term charts recently.

However, let's first wait for confirmation of the bullish breakout before making any premature assumptions!

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R