Its been a frustrating week for gold bulls. What started out with a promising rally has ended with a disappointing sell-off as a resurgent USD weighs on price. Gold initially traded strongly to the upside at the start of the week.
News that President Trump was considering tariffing the remaining $300 billion of Chinese goods increased safe haven inflows. Gold traders reacted to tumbling equity markets. China responded by applying its own set of 25% tariffs on $60 billion of US goods thus exacerbating this risk-off tone.
Furthermore, news that Iran had attacked four Saudi Arabian oil tankers in the Middle East compounded fears of conflict in the region as US warships head there. At the beginning of the week, the US dollar was trading lightly and risk aversion seeped the markets. Gold prices were firmly higher, breaking out to fresh monthly highs.
However, following the initial collapse on Monday, risk appetite recovered firmly over the week. Equities were trading back up to last week’s levels as US data printed surprised to the upside. Data on US homes was better than expected and continuing unemployment claims falling on the week.
These data sets added a boost to USD which has surged higher into the end of the week. This sent gold firmly lower despite lingering risk factors in the Middle East and with the US/China trade war.
Looking ahead to the final US session of the week today we have the University of Michigan confidence reading for May. The reading is expected to come in stronger than the prior month. If we see an inline or better than expected reading that should keep USD well bid over the rest of the day with little else in the way of market-moving data today.
The rally in gold this week saw price breaking out above the upper trend line of the recent bearish channel. However, the advance was capped upon a test of the 1298.68 resistance level. This turned price lower, moving back inside the bearish channel. While price remains above the 1280.58 level, focus remains on further upside. The next level to watch to the topside is 1308.19 .
Silver prices have tracked the moves in their golden counterpart this week. We saw price breaking down to levels not seen since December 2018. A firmer US dollar has proved an immovable obstacle for silver upside this year with price cascading lower as the dollar has strengthened.
Indeed, silver has not enjoyed the same safe haven linked upside as gold has recently given its typical industrial usage which often sees it weighed upon when equities are tanking.
Silver prices have now broken down below the low of the largest bullish pin bar of the two printed over the prior month. If we see a weekly close below the 14.5640 level, this will negate the pin bar and keep focus firmly on further downside. 14.3321 is the next key support region to watch while any retracement higher should find sellers into 14.9161.