The arrival of the Russian-Ukraine war sent commodities higher, especially energy. However, metals found their peak soon after that and continue to fall. Is the bottom near or we’ll see another selloff?
Everything depreciated
2022 is one of the worst years in the financial history, as all types of assets suffered heavy losses. Major American and European indices declined, with Nasdaq -30%, S&P 500 -20%, and DAX -18% from their all-time highs (ATH).
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Cryptocurrencies were hurt the most as Bitcoin, along with Ethereum, are -70% from their ATH. On the other hand, energies are one of the few assets that actually rose. Now, what about metals?
Gold outlook
Gold is approximately -10% so far this year and -21% from its peak at $2,072 in March. Many investors expected a U-turn on gold to happen, but it keeps moving lower. Gold is forming several divergences as it is moving down, but there is still no sign of a reversal.
The support $1,615 was tested two times, and it is possible gold will move below this level soon. If the level is broken, another selloff could occur, drawing the yellow commodity to $1,458 in the next few months.
Gold weekly chart, source: tradingview.com
As gold created several lower highs and lower lows, it is signalling new low could be created soon. If the price of $1,600 is crossed, gold traders could be looking at another support of $150 lower. However, the market is pretty oversold, and divergences point out that a move upward could come any time.
That is why there are two main probable scenarios for the next few weeks. Gold will break the support and move down to the already-mentioned support, or it will be a false breakout. In that case, a significant short squeeze could occur, moving gold back into an uptrend. If gold moves above the trend line, it will be a final confirmation signal to enter a long position.
Gold daily chart, source: tradingview.com
Silver outlook
Silver is -18% in 2022, but -29% from its top in early March. The second most favourite metal has been sitting on a crucial level for several weeks, confusing many traders. There is a noticeable gap below this support which could be filled soon.
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However, another leg up is likely if the trend line is broken. So unless the trend line is broken, it is similar to gold. There is still space to fall lower by 15% in total. The downward move to the COVID-19 low from early 2020 is unlikely.
Silver weekly chart, source: tradingview.com
The daily chart clearly shows how silver struggles to decide its next direction. That is why investors should be cautious and wait for a confirmation signal. This could either be a downward move to approximately $16 or a trend line breakout. Either way, both metals look bullish in the mid-term.
Silver daily chart, source: tradingview.com
Bottom line
Rising interest rates and inflation are hurting all asset classes, risky or not risky, but it is only a matter of time before the bottom is formed. Both gold and silver are significantly oversold because they are seen as safe-haven investments and actually did the opposite. So it might be time to buy the dip soon. Very soon.
That was faster than I anticipated!