Gold and Silver Prices Rebound After Big Drop. Are More Gains Ahead?

• Gold prices plunged over 4% in just two days before bouncing back slightly

• Traders are eyeing US inflation data for clues about rising price levels and their ramifications for the Fed

• Silver prices breached a supporting trendline too, exposing the next key level at $22.90

Gold - Daily Chart

Gold prices rebounded modestly during Tuesdays APAC session after falling 4.17% over the last two trading days. Buyers are probably back to the market looking for bargain-hunting opportunities after the big selloff, but questions remain about whether this technical rebound will be sustained.

A surprisingly strong July nonfarm payrolls report spurred fears about tapering stimulus. Bullion traders liquidated their positions quickly amid fears that the Fed may scale back monthly bond purchases sooner than markets had anticipated. The DXY US Dollar index climbed to a two-week high, rendering bullion less appealing to investors who are holding foreign currencies. 10-year Treasury yields surged to above 1.30%, exerting downward pressure on gold and silver because when rates move higher, the opportunity cost of holding the non-interest-bearing metals rises.

Looking ahead, traders are eyeing Wednesdays US headline and core inflation data for clues about rising price levels and their ramifications for Fed policy. The core rate is expected to moderate slightly to 4.3% YoY in July from 4.5% in June, which was the highest since 1992. Higher-than-expected data prints may intensify tapering fears and pull precious metals lower, whereas weaker outcomes may do the reverse.

Technically, gold prices formed a “Double Top” chart pattern and extended lower, breaching several key support lines. Long bearish candlesticks formed over the last two days underscored selling pressure, hinting at further consolidation ahead. That said, this technical rebound may be short-lived given the overall bearish setup.

Silver prices also breached below a supporting trendline and entered a sharp pullback. Prices have tested a key support level at $22.90 and have since rebounded. The overall trend appears to be tilted to the downside however.

Silver Price - Daily