Metals Explode on Global Central Bank Action

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Gold

It’s been a bumper week for gold prices. The yellow metal has rallied strongly to nearly reverse all of last week’s losses.

Price is now well on its way to testing the current year-to-date highs of 1639.39. The rally has been driven firmly by the wave of fresh central bank stimulus announced this week. The RBA, the Fed and the BOC each announced rate cuts in response to the economic threat posed by the coronavirus.

Along with the boost from easier central bank policy, specifically by the Fed which has weighed on USD, gold has also been boosted by the fall in equities prices.

Indexes around the globe have been under pressure again this week. The uncertainty attached to the virus continues to build. Despite the coordinated central bank action, as yet traders, remain in risk-off mode. Many market participants suggest that the markets will also require fiscal assistance from governments to help lift sentiment.

Looking ahead to next week, gold prices are likely to remain well bid. However, as we see more central banks joining the fray (the ECB is expected to ease next week), there is room for equities to start to stabilize. And this should cap the upside in metals.

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Technical Perspective

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Gold prices continue to fight to hold above the broken bull channel top, keeping the focus on further upside in the near term. For now, the 1689.39 level remains the yearly high, though this level looks vulnerable to a test in the coming days if price continues to push here. To the downside, the main support is 1624.97.

Silver

Silver prices have benefited well from the rise in gold prices this week. The silver market is fighting hard to recover the losses posted over the prior week, but remains around halfway back for now.

The ongoing loss of factory activity in China is a big obstacle for silver, which derives a lot of industrial demand from China.

Earlier in the week, manufacturing data showed that factory activity in China had hit its lowest level on record over February. For now, however, a weaker USD and higher gold prices are helping support silver though the near-term outlook remains mixed.

Technical Perspective

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Silver price broke down through the rising support line of the large triangle pattern last week but managed to find support at the 16.4630 level to bounce this week.

For now, however, price remains below the 17.4444 level. If price breaks back above this level, silver will have made a false break of the triangle pattern in each direction, highlighting the confusion in the market currently.

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