The Technical Picture: More Time is Needed Before a Sustainable Rally Begins

SchiffGold Gold Silver Pricing Analysis

The CFTC Increased Margin to Cap the Advance in Silver

Exploring Finance

This article first appeared on SchiffGold.

The price analysis last month discussed the technical damage done and highlighted how support had become resistance. It concluded:

When everything is so lopsidedly bearish, it can be a sign of capitulation. That said, beware of trying to catch a falling knife. Because of the technical drivers in gold and silver, moves tend to extend beyond what seems possible as momentum carries the move forward… The paper market is driving prices and the spec traders don’t see a Fed pivot anywhere, which suggests more time before a turnaround.

The short-term picture is still rather mixed despite incredible physical demand on the Comex. The data below helps provide some context.

Resistance and Support


Since breaking below $1700 gold has been trapped around $1650. In early October, gold got back above $1700 only to get pushed back below. Gold will need to break through this resistance and start setting higher highs to gain back momentum.

Outlook: Neutral to Bearish


Silver saw a strong rally above $21 but then broke down below $20 again. It cannot hold any momentum. Some of this could be due to the CFTC raising margin requirements to cap the price advance (see below).

Outlook: Bearish until $22 is taken out

Figure 1: Gold and Silver Price Action

Daily Moving Averages (DMA)


It’s bearish that the 50 DMA ($1711) is well below the 200 DMA ($1819); however, the market rarely goes in one direction without a pause. The big move down looks over done which could lead to a short-term reversal. Regardless, momentum is down until the 50 DMA gets back above the 200 DMA.

Outlook: Bearish

Figure 2: Gold 50/200 DMA


Silver has also been unable to hold any momentum since 2020. The fall in the 50 DMA below the 200 DMA is the biggest since 2013. However, it wasn’t until more than 2 years later that the market finally started to turn around back then.

Outlook: Bearish

Figure 3: Silver 50/200 DMA

Margin Rates and Open Interest


Open interest is at multi-year lows not seen since April 2019 when the price was $400 lower. The market has been left for dead, which suggests there is cash on the sidelines to ride any positive momentum moves.

Margin rates have also come down to the lowest levels since 2020, but the COTs report suggest this has brought in more shorts than longs.

That said, the CFTC does not typically raise margin rates on the shorts (this could induce a short squeeze). The CFTC uses margin rates to cap any price advance. There is no reason to raise rates to push the price lower, but if a price advance begins, the CFTC will have plenty of room to raise margin rates to contain any big increases.

Outlook: Neutral

Figure 4: Gold Margin Dollar Rate


Silver saw a big run-up in price in early October, but the CFTC immediately raised margin rates which prompted a quick turnaround. The CFTC has plenty of room to raise margin rates higher because it still sits near multi-year lows. Expect any price advance to be accompanied by margin rate increases, blunting or even reversing the move.

Outlook: Neutral

Figure 5: Silver Margin Dollar Rate

Gold Miners (Arca Gold Miners Index)

The gold miners have been very consistently leading the price of gold in both directions for years. This week was a good week in the miners which was capped off by a sizable up move on Friday of 5% driven by a WSJ Report of a potential move by the Fed to be less hawkish. This is a good sign in the short-term, as long as the Fed doesn’t come out next week and increase the hawkish rhetoric.

Outlook: Cautiously Bullish

Figure 6: Arca Gold Miners to Gold Current Trend

Looking over a long time horizon, shows how badly the miners have underperformed gold over the last decade. This shows traders have never confidently bought into any gold momentum, anticipating price advances will be short lived. When this trend reverses, gold could start flying higher being led by a surging mining sector.