Precious metals shining brightly

Gold and silver have extended their gains made on the back of the weaker-than-expected US employment report on Friday. The dollar-denominated commodities have obviously found support from a slightly weaker dollar as investors lowered their expectations about the timing of the next rate increase. With the key US ISM services PMI due to be released shortly, the near-term outlook for the dollar, and in turn precious metals, could change course once again.

The ISM Services PMI is normally released on the same week as the monthly jobs report, and many market participants use the employment component of it as a gauge for the official change in non-farm employment. However, with the jobs report already out of the way, the PMI is unlikely to garner too much attention this time around, provided we don’t see a significant deviation from the expected and July’s readings of 55.5.

From a technical point of view, both precious metals formed bullish-looking price patterns on their weekly charts last week. Gold created a hammer and silver a bullish engulfing candlestick formation off their key long-term support levels at $1300/5 and $18.50 respectively. As can be seen on the charts, these levels were previously resistance and the fact that they have held as support upon re-test bodes well for the bulls.

Therefore the path of least resistance is now once again to the upside for both metals. However, this does not necessarily mean that the bears are dead and buried now; they may well show their presence at higher levels or if the metals break back below their key support levels once again. Indeed, the long-term bearish trend line on gold is yet to break down. Nevertheless, the metals have started this week on the front foot and gold is now above short-term resistance at $1330 and silver is above the $19.25/45 area.