A Gold Price Bounce Arrives

Gold and Silver Price Recovery: What to Expect Next

After steep declines that led to sharply oversold conditions, the prices of gold and silver are bouncing as the new week begins. So is that it? Is the worst over, or should we expect more price weakness before the end of the month? Let's explore that today.

First of all, the Monday rally is being brought about by news, short-covering, and profit-taking. Very sharp and brief rallies are often seen during periods of price pullback, and today's moves are not unexpected. In last week's column, we discussed possible price drops to $2560 in COMEX gold and $30.50 in COMEX silver. Not coincidentally, those levels are very close to where prices bottomed on Thursday and Friday.

Understanding Gold's Oversold Conditions and RSI Levels

The sharp and brief counter-trend rallies mentioned above often come about due to deeply oversold conditions. After relentless and seemingly endless selling from November 6 through November 15, both COMEX gold and silver reached those oversold levels with the daily Relative Strength Index for COMEX gold falling to near 30 late last week.

Gold - Daily Candlestick Chart

The result? Some concerning news out of Ukraine over the weekend started a safe-haven bid for the precious metals as soon as trading resumed Sunday evening. The buying continued in China and London, and, once COMEX trading began, some short-covering led to further gains.

Gold Futures

Impact of the U.S. Dollar Index on COMEX Gold and Silver

But what happens next? And how will we be able to determine whether the lows are in or if this is just a bounce before a possible double bottom next week? First of all, keep an eye on the U.S. dollar index. Just as COMEX gold got deeply oversold last week, the dollar index got deeply overbought, with its highest daily RSI in over a year. It ran into resistance at the 107 level, and now the waiting begins. If it blasts through 107, then the COMEX metals are almost certain to pull back again. If, however, more selling appears and the index falls below 105.50, we should see the COMEX metals find more solid footing for a December rally. As such, let's watch the dollar index very closely this week and next.

U.S. Dollar Index - Daily Candlestick Chart

November's COMEX Expirations and Price Volatility

One more thing to keep in mind: November is the only month of the year that sees front month expirations for both COMEX gold and COMEX silver. As such, next week will bring a heavy COMEX option expiration as well as the move of the Dec24 contracts off the board and into "delivery". This period typically brings with it some considerable volatility, so be sure to keep that factor in mind, too, as you look for a sustainable bottom to this recent pullback.

Key Price Levels for COMEX Gold and Silver Recovery

Lastly, let's check the price charts to see if there are some price levels to watch. The old adage states that "what was support becomes resistance and vice versa," and that works in the present day, too. In last week's post, we stated that $2620 was expected support but, if that level failed, then a price drop to near $2560 was likely. That level was hit last Thursday, and now that the price is bouncing, reclaiming the $2620 level would/will be the first step toward recovery and a potential December rally.

Gold - Daily Candlestick Chart

For COMEX silver, the expected support level was near $30.50, and it got tested pretty severely late last week with Friday's close of $30.30. As such, today's bounce could not have come at a better time. Eventually, the key level to watch will be $32.50, but that's still a ways off and we're unlikely to get there this month. For now, watch $31.50 instead and beware of a double bottom near $30.50 as those expirations loom for next week.

Silver - Daily Candlestick Chart

In closing, this is a lot of information about price, and for some it may seem trivial. However, the best strategy in gold and silver accumulation for me has always been a form of dollar cost averaging where I try to use dips—both short and long term—to add to my stack. If you can take advantage of "sale" prices due to market overreactions, your cost basis can shrink over time. In the end, however, physical gold and silver need to be accumulated, during rallies and pullbacks, as they are the only sound money protection you have in this current period of monetary madness.

Buy gold and silver today to safeguard your wealth from market volatility and economic uncertainty.