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Last week, both gold and silver fell below their chart supports. For gold, it was the short-term low from May, but for silver, it was long-term support from last year. The trends are down, and save for short-term bounces, there is no technical reason to expect a big turnaround anytime soon.
There are two main reasons for this view. One is the trend itself. Gold, as represented by the SPDR Gold Shares exchange-traded fund (ticker: GLD) recently moved below the rising trendline that supported its rally from December (see Chart 1).

Chart 1

Silver fared even worse: The iShares Silver Trust ETF (SLV) lost over 6% last week as it knifed through a supporting trend from 2015 (see Chart 2). It suffered a “flash crash” last Thursday evening of about 5%, but quickly rebounded. Computers, not market conditions, were blamed, but more importantly, it did not change anything on the charts. The low in Friday’s day session was nearly the same as the overnight move, and it all fit neatly within the bearish trend already in place.

Chart 2

With that said, gold and silver are somewhat oversold in the short term, and that suggests a technical bounce is possible soon. However, it will require more than just a bottom-fishing exercise by the bulls to turn this ship around. There is too much overhead resistance—that is, supply—to load up on metals right now.

The second reason for a skeptical view is the metals’ performance as the U.S. dollar moves lower. Since gold, silver, and many other commodities are priced in dollars, a weak dollar should result in higher commodities prices, assuming other factors hold steady. But that hasn’t happened this year.

A chart of gold priced in euros shows the metal’s true weakness (see Chart 3). The current decline moved the market below last year’s major low as well as the trendline from 2015. While gold priced in euros is also oversold in the short term, the technical damage here is significant.

Chart 3

Silver priced in euros is even weaker, and with short-term bounces notwithstanding, it looks as if it will once again reach the lows set in 2014 and 2015 (see Chart 4). In other words, a return to multiyear lows is in the cards.

Chart 4

Asset flows into the gold ETF peaked in early June and have been falling ever since, points out John Kosar, chief market strategist at Asbury Research. At the same time, the market failed for the second time in three months to hold above the key 200-day moving average.

This is important because it tells us that optimistic investors who bought gold in May thinking it was improving have thrown in the towel. Demand is weak for this market, and that makes a rally less likely.

The caveat here is the same as it has been for other markets. Gold’s weakness—and stocks’ strength—has been predicated on an improving economy. Should Congress fail to reach agreements on health care and especially tax reform, conditions could change. Yet we cannot invest on what might happen. Right now, the charts tell us precious metals should remain weak.