The sharp pullback in precious metal takes a breather for the time being

The volatile moves since the latter stages of last week is cooling but it doesn’t mean we’re out of the woods just yet. For now at least, gold and silver is at least seeing the sharp pullback take a bit of a breather. However, it doesn’t mean that all is good again to resume the same kind of parabolic surge higher in the past two months.

So far on the session, we’re once again seeing precious metals catch some bids in European morning trade. It was the same yesterday with a modest bounce after some heavy selling Asia. But of course, that was then met with some added selling in US trading but at least gold and silver did not succumb back to fall near the lows seen in the early stages.

Following the volatile and sharp moves in the past few sessions, where do we go from here?

As mentioned yesterday, the technical side of things will offer the best clues on how sentiment is playing out. In that lieu, the Fib retracement levels are key at this stage.

In the case of gold, dip buyers are slowly breaking the momentum with a push back above the 38.2 Fib retracement level of $4,860. That’s providing some comfort with eyes on the $5,000 mark in halving the sharp drop since last week.

A firm break back above the figure level will be a big psychological boost in rehabilitating the overall mood, even more so if it can get back above the key hourly moving averages. But for now, it’s about taking one step at a time. The 50.0 Fib retracement level near the $5,000 mark will be a big, big challenge. So, watch out for that in terms of solidifying any sentiment on the rebound here.

As for silver, the bounce has been less convincing. Price action has only taken out the 23.6 Fib retracement level and it’s nowhere near to halving the sharp drop since last week. As such, there is still more work to do to really justify a material rebound or any major change in sentiment just yet. That even if price is up roughly 9% today.

Overall, I wouldn’t say it’s a dead cat bounce for precious metals. The fact of the matter is that the fundamental factors driving the price movements since last year are still acting as key tailwinds for both gold and silver. So from a structural perspective, it makes sense for both precious metals to trend higher over time.

The sharp pullback here is one that is largely due to one-sided positioning and the fact that it has gone too far, too fast. Think of it as a case of Icarus flying too close to the sun. While his wings have melted, it doesn’t mean that there’s no room for recovery.

At this point, I would say that we’re overdue a more consolidative phase for gold and silver. However, it will probably be one with a much larger range than we’d be typically accustomed to.

But so long as we continue to get triggers like this in reminding markets of the sell America trade, that will eventually keep chipping away at the consolidative resistance and allow for precious metals to break free again in due time.