Gold and silver are moving almost in lockstep with the US dollar, with the inverse correlation between the metals and the dollar index near historic extremes. The dollar index sits just above a key support zone, and US inflation data due Thursday and Friday could decide which way gold and silver break next.
Dollar correlation nears historic extremes
Over the past ten trading days, gold's correlation with the US Dollar Index has fallen to around -0.88, while silver's stands at -0.83, according to LSEG data cited in the analysis. Those readings sit around the 3rd percentile for gold and the 4th percentile for silver relative to their own history, meaning the inverse relationship has rarely been stronger.
The 20-day relationship is also tight, with gold's correlation near -0.76 and silver's near -0.73, ranking near the 6th and 5th percentiles. Should the dollar index break below its support level while that extreme relationship holds, it points to increased upside risk across the precious metals complex.
Dollar tests support as the yen strengthens
Meanwhile, the dollar index is struggling beneath its 200-day moving average, having slid back below it late last week. It now sits above a support zone made up of the May 29 low of 98.75 and the 50% retracement level at 98.68, after two unsuccessful probes beneath the zone in August.
Downside momentum on the oscillators appears to be building again, and the Japanese yen continues to strengthen, with USD/JPY hitting levels not seen since February on Tuesday. A sustained yen unwind would add further downside risk to the broader dollar index, especially if the euro joins the move.
Gold wedged below $4,450 resistance
Gold's early gains in Asia reversed later in the session, with the push higher stalling just beneath the confluence of the August downtrend and horizontal resistance at $4,450 an ounce. Below current levels, $4,367 is the first support on the radar, followed by the 23.6% Fibonacci retracement at $4,333 and the early September low of $4,283.
RSI sits just beneath 50 and MACD runs parallel to its signal line in slightly negative territory, leaving the technical picture neutral. Dollar performance around Thursday and Friday's inflation data may determine which direction gold shifts next.
Silver's triangle points to breakout risk
Silver has staged a similar reversal late in the Asian session. On the four-hour chart, the price continues to coil in an ascending triangle, with moves above $67 capped by resistance at $67.50 for now, while dips toward the early-September uptrend continue to attract buying.
Overhead, silver struggled beneath $70 in late August before one breakout stalled at $70.90. On the downside, $65.50, the September 4 low of $64.75, and $63.30 are the focal points before $62.90 comes into view. RSI sits at 48 while MACD flatlines just above its signal line, a neutral setup that leaves price action, rather than a directional bias, as the key signal to watch.
Source: Investing.com
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