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Commodities Brief: Precious metals finally setting up for next leg down?

FXstreet.com (Barcelona) - The precious metals markets were lower today, with gold closing down 1.24% to finish at 1429 and silver closing down 0.67% to finish at 23.62. Oil was also unable to hold a firm bid during the day, closing down 0.91% to finish at 94.88. Economic data out of the US session was limited to Retail Sales, which came in better than expected at 0.1% actual vs. -0.3% expected. Expect volatility to pick up in the upcoming European session, with the German Zew set to be released at 9:00GMT.

From a technical perspective, the oil chart remains extremely range bound with both short term moving averages and momentum indicators remaining in neutral set up. However, the precious metals charts are different story and appear to be displaying a clearer picture.

First thing to take notice of is that gold closed below the bottom of its recent trading range (had been consolidating between 1440 and 1480 since April 25th) which is a bearish development heading into the coming Asia session. First support will now come in at 1418 (low from May 9th), followed by 1407 (high price resistance, now support from April 16th). Initial resistance sits at 1440 (previous support, now resistance on daily chart). Silver also is displaying some interesting technical developments, closing below the short term uptrend support line which has been intact since April 16th. This could help lead to further selling, with initial support now sitting at 23.15 (low price from May 9th), followed by 22.40 (support on daily chart). Initial resistance remains at 23.80 (broken uptrend line noted earlier).

Looking at the weekly charts of the precious metals, it’s important to notice both the short term (9 and 20 dma’s) and longer term moving averages (50 and 100 dma’s) have remained in bearish set up since the counter trend rally in the precious metals began back in mid April. Furthermore, the ADX (7) is sloping sharply upward and in the mid to upper 60’s on both the gold and silver weekly charts (indicating a market which remains in a strong trend). Both of these developments could continue to influence a “sell the rally” instead of a “buy the dip” mentality.

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