The yellow metal has reversed sharply from new highs this week, initially benefiting from the deeper collapse in risk appetite. This has seen equities and commodities prices cratering lower.
However, as the global response to the coronavirus crisis intensifies, and with cross-market assets plunging, gold was unable to escape the pervading sense of doom gripping traders this week. On Thursday, we saw gold experiencing its largest one-day drop since April 15th, 2013.
The central bank reaction function has kicked swiftly into place with many in the G10 bloc cutting rates. However, with the ECB opting to expand its asset purchases program along with reducing rates on credit funding to banks, there was an air of disappointment. This also reflected in the gold price reaction on Thursday.
For now, the situation remains incredibly volatile. As the UK and US both highlight plans for severe lock-downs, along with major cultural events around the world being canceled due to the virus, it is likely that we continue to see wild swings across the metals complex.
The reversal in gold prices this week has seen the market collapsing from above the 1689.33 level to touch the 1555.38 level. This level has, so far, found demand, keeping gold prices underpinned for now. While price holds above here, some consolidation and correction are likely. However, the outlook remains difficult and a further drop cannot be ruled out.
Matching the moves seen in gold this week, silver prices were heavily lower. Fears over the extent of the slowdown in China, which accounts for a large portion of silver’s industrial demand, are keeping the near term outlook tilted heavily lower.
As equities prices continue to plunge, the drop in industrial indexes is also weighing heavily on silver due to that same loss of demand globally. Traders will now have to wait and see if recent central bank action starts to provide any relief. Looking ahead, though, the weekend provides heavy gap risk once again for the Sunday open.
Silver prices have now dropped firmly below the 16.5288 level support and have traded as low as just below the 15.5528 level. However, as of writing, price has reclaimed the level and is now sitting back up above.
While we hold here, consolidation is likely as the market digests the last plunge lower. A further break, however, will put the focus on a test of the rising trend line next.