Metals Reverse From Initial Highs on The Week

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Gold

It’s been another volatile week for gold prices. Price surged higher initially, trading up to levels not seen since early 2013, before reversing to end the week in the red (as of writing).

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The main upside driver for gold prices this week has been in the escalation in the coronavirus outbreak. The virus has now started to rapidly intensify outside of China, where new cases have actually started to slow. In Europe, new cases have been confirmed in a number of countries, notably the UK and Italy, where the death till is rising quickly. The increase in the global spread of the virus has seen a dramatic sell-off in equities prices this week. This in turn has fueled a heavy safe-haven bid for gold.

However, despite the initial rally in gold, prices have peeled away from the 1689.33 highs of the week. One of the key reasons for the retracement is the return of the Japanese yen as a safe haven. JPY had been under heavy selling pressure over recent weeks due to rising fears of a recession there. However, with the fresh increase in coronavirus fears and the US dollar selling off sharply alongside the fall in equities prices, traders have been moving back into JPY as a safe haven. This has diluted the safe-haven demand for gold.

Technical Perspective

gold

Gold prices broke out above the bullish channel this week to trade up to highs of 1689.33 before reversing lower. However, the retest of the broken channel top held as support. While price remains above the 1611.05 level, focus is on a further push higher. However, RSI continues to show bearish divergence

Silver

Breaking correlation with gold, silver prices have been steadily sold over the week. Concerns over the impact on global manufacturing activity and the slide in equities has hit silver sentiment. The DJIA, the main US industrial index, dropped by over 1000 points on Monday, taking silver prices sharply lower with it. Silver often trades in line with industrials due to its frequent industrial use. The cascade in main US indices this week as hit silver hard.

Technical Perspective

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The rally in silver at the start of the week saw price breaking above the contracting triangle pattern, piercing the 18.63 level resistance. However, the break proved short-lived and price has since reversed sharply lower and is trading back down towards the rising triangle support line and structural support at the 17.3408 level.

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