Metals Meltdown Continues
Weekly Metals Wrap
It’s been another very volatile week for gold. Prices extended last week’s declines to trade lows of 1451.
The sell-off this week has continued amidst the ongoing sell-off across a broad range of instruments. And equities and commodities are leading the fall lower.
The week has seen a further slew of central bank policy announcements. The Fed, the BOJ, the RBNZ, the BOE & the RBA each announced further rate cuts.
The Fed has now moved its policy rate down to 0% for the first time in history. The coordinated action from central banks this week has, however, been unable to boost sentiment in market. This is due to the worsening crisis of coronavirus which has fuelled a surge in uncertainty.
Gold would typically be rallying against a drop in USD and equities. But the sell-off we are currently has been attributed to a need to fund margin calls in equity positions as markets continue to tumble.
With the US announcing 30-day travel restrictions and major cities such as Los Angeles and New York on lockdown, sentiment remains very bleak both in and away from the market.
For now, however, it seems that gold will continue to fall in tandem with other assets as a broad move into cash takes place.
Gold prices are posting a strong reversal candle on the monthly timeframe here which is worth monitoring. Having broken above the top of the bullish channel, gold prices have since sold off heavily. They are now trading back within the channel.
From here, a retest of the 1381.74 level looks likely. This will be a decisive level for gold. If this level holds, further upside is likely, while a break below will open up a test of the rising channel low.
Silver prices have been equally hard hit this week, tracking the moves seen in gold. Silver has now fallen through major support levels as the metals complex continues to shed value.
A loss of both industrial demand in China and expectations of demand, linked to falls in equities, is weighing on silver prices here. This looks set to keep price subdued in the short term.
The sell-off in silver prices this week has seen price breaking down through the 13.72 level. It has, therefore, tested the bottom of the long term bearish channel which has framed price action over the last six years.
From here, unless price can recover and trade back above the 13.72 level, we are likely to see a continued move lower. The 8.47 level is the next downside zone to watch for support.