Metals Reverse As Equities Soar

weekly metals wrap

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Gold

It’s been another volatile session for gold prices this week. Following a gap higher at the start of the week, gold prices underwent a sharp reversal into the middle of the week which saw price trading lower to end the week in the red, as of writing.

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The initial strength in gold prices this week was as a result of increased safe-haven inflows in response to the worsening spread of the coronavirus. The virus has now claimed the lives of nearly 600 people. This includes two outside of China where the spread has increased to over 26 countries globally.

Rising investor uncertainty had been favoring a flight to safety among investors, supporting gold. However, mid-week we saw a shift in response to reports from Sky News. They reported that Chinese researchers were close to finding a vaccine for the infection. These reports fuelled a sharp relief rally in risk assets, weighing on gold. While the WHO has downplayed hopes of finding a cure so early on, it seems that the market remains hopeful given the continued rally in equities which is keeping gold weighed on Friday.

Technical Perspective

Despite the sell-off this week, gold prices are still holding above the 1554.69 level for now. While above here, a further push higher within the bullish channel is still on course, eyeing an eventual break above the 1608.54 level. The only real downside risk at the moment is any breakthrough in containing the Chinese flu outbreak. Such an announcement could fuel a sharp reversal in gold.  To the downside, any break of the 2019 highs would bring the 1522.75 level back into focus. 1571 is the weekly open.

Silver

Silver prices have been lower this week also. Along with the optimism around a potential cure for coronavirus. The market has also responded positively to news that Donald Trump has not been found guilty by the Senate during his impeachment trial. Consequently, Trump will retain his role as president and will now press ahead with his re-election campaign, which he is currently favored to win.  The US dollar has also been stronger in the wake of Trump’s acquittal, further weighing on metals, keeping silver prices anchored into the end of the week.

Technical Perspective

Silver prices continue to range between the 17.3408–18.6397 level, caught between the two bearish trend lines. The downside action in silver this week was limited, with price staying within the range of the prior week. While price is still holding above the 17.3408 level, a further test of the 18.6397 level is still viable. To the downside, a break of 17.3408 would pave the way for a test of the 16.52 level next.

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