The Technicals: Yet Another Battle at $1800

SchiffGold Gold Silver Pricing Analysis

Gold lost momentum last month but is trying to recover

Exploring Finance

This article first appeared on SchiffGold.

Gold looked very strong through mid-November. Recent trends in September and October had been pointing to a breakout. The market delivered sending gold up through $1870. Unfortunately, hard resistance kept the bulls in check, despite repeated attempts to breakthrough. The previous price analysis presumed that a Brainard nomination at the Fed would be the catalyst needed to break through $1880. It also assumed that a Powell nomination, though expected, would bring gold back down some.

Unfortunately, the gold market took the Powell news harder than expected. It dropped like a rock. The announcement occurred prior to market open which is when liquidity is lighter. This caused the price to fall quickly. Newly formed and fragile support was shattered and by the time the market opened, gold was falling quickly. Eventually it settled back into the $1750-$1800 range where it has been trapped for months.

Late this week, gold made another attempt to break through but failed to hold gains in the face of a rising dollar and closed the week just a shade under $1800 at $1798 (note: official Comex close was $1804). Will gold regain its footing and finally put $1800 in the rearview mirror or will it stay range bound in the near term?

Resistance and Support


As mentioned, gold has been stuck around $1800 for months. A “buy the rumor sell the fact” unfolded this week as the Fed had its most hawkish meeting in years. Gold bounced hard off the $1750 area but has now gotten trapped at $1800. It needs to break through soon or will face selling pressure. Hedge Funds are driving the price, but will only make so many attempts before retreating and closing longs.

Outlook: Neutral


Silver is lagging gold and is at the lower end of the consolidation pattern between $22 and $25. The current downside looks limited, but there is nothing that is showing strength. Aside from a sharp rebound off the Fed meeting. The market must build on this move or see the gains lost.

Outlook: Neutral

Figure 1: Gold and Silver Price Action

Daily Moving Averages (DMA)


A golden cross formed on Dec 3 as the 50 DMA crossed above the 200 DMA. While this is technically bullish, it lacks conviction. The chart below also shows the current range bound period. The blue and green lines haven’t been this close for this long since 2014. At the time, gold was consolidating from a big down move before another leg lower. It’s possible the opposite is occurring now (consolidation before an up move), but needs confirmation.

Outlook: Slightly Bullish

Figure 2: Gold 50/200 DMA


Silver has an uglier chart. The 50 DMA is still trapped well below the 200 DMA. The 200 DMA is now following the 50 DMA lower, which is not usually a good sign based on history (2011, 2013, 2014, and 2017).

Outlook: Bearish

Figure 3: Silver 50/200 DMA

Comex Open Interest

The two charts below show the open interest compared to the price in both gold and silver. The overlap is not perfect, but major moves in one generally occurs in tandem with the other as speculators push and pull the price around with paper contracts.


Traders got excited about gold, but then bailed at the first sign of trouble. Now open interest sits at the lower range compared to recent history. This would indicate there are more longs on the sidelines waiting for the right moment to jump in.

Outlook: Bullish, if gold regains momentum traders will be ready to follow

Figure 4: Gold Price vs Open Interest


Silver open interest is much lower than its recent history. Some of this is due to the higher price. The chart below has been modified to show notional open interest (accounts for price). As shown, it’s hovering right around the 4-year average but well below the more recent average. Based on the pattern, it looks more likely the market sees an increase in OI that could push the price higher.

Outlook: Slightly Bullish

Figure 5: Silver Price vs Open Interest

Margin Rates

Most traders use margin to maximize their leverage. When Comex margin requirements are lower, it means the same dollars can get greater exposure. This tends to create more contracts and drive the price higher. Conversely, when requirements are raised, it forces traders to liquidate their positions which keeps a lid on prices. Generally, when margin is low, it can be assumed that any rally will be met with higher margin requirements to slow down a price advance.

This can be seen in the chart below, specifically in 2016 and 2020. As the gold price moved up, margin requirements increased which prompted a sell off. Margin requirements are currently higher than the 10-year average, but have come down quite a bit from recent highs and sit at $7,500. Recent drops in margin have not been enough to push gold higher, but it has come down enough that any big price move up could be met with higher margin requirements, keeping a lid on prices.

Outlook: Neutral

Figure 6: Gold Margin Dollar Rate

The situation in silver is similar to gold, but the negative correlation looks much stronger. Margin requirements spiked again in February of this year which took the wind out of silvers sail during the Q1 silver squeeze. Requirements have come down some, giving ample room for them to be raised again in the face of a big move (see 2011). If margin requirements continue falling though, it should support silver prices.

Outlook: Neutral

Figure 7: Silver Margin Dollar Rate

Gold Miners

The price movement in mining companies tends to precede a move in the metal itself. Stocks are forward looking and the sell off or price spike in the miners indicate the market anticipating the future movement in gold. Below are two charts showing the historical and more recent trends.

Historically, the HUI is extremely undervalued. The HUI would have to increase 4x to reach the highs seen in the 1990s and 2000s. The sector has never really recovered from the gold price sell-off in 2008.