Metals Breakout on Second Wave Fears

Orbex Weekly Metals Wrap

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Gold

The yellow metal broke out to new 2020 highs this week as swelling concerns around the prospect of a second wave drove safe-haven inflows.

The rally in gold this week comes despite fairly resilient moves in equities markets, which worked to shrug off virus concerns across the week to trade higher.

However, the broader risk environment is now looking a little more vulnerable in response to the headlines we’ve seen this week. As a result, gold is retaining a bid tone into the end of the week. And it looks like it will continue trading higher in the short term, at least.

The governor of California amended his closure of bars and restaurants in seven counties last week to 19 counties across the state. This decision came as the number of new infections, and also the death toll, continue to rise.

The US has been plagued with a slew of higher infection numbers across several states over recent weeks. As a whole, the number of new daily virus cases around the country is far higher than it was when the lockdown was first implemented.

With this in mind, traders are pondering the prospect of a return to lockdown. This is seeing gold prices continue to find demand, even at fresh highs on the year.

While equities markets continue to be supported amidst the wave of central bank easing, upside momentum has fizzled out to a degree. Prices are now sitting below post-lockdown highs, suggesting the potential for a deeper correction lower.

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Gold Continues Higher

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Gold prices continue to trade higher within the rising wedge formation currently framing the rally this year. Price is now sitting comfortably above the 1748.80 level.

While above here, focus is on a test of the 2012 highs around 1795.66 next. To the downside, a break of the rising wedge support and 1748.80 level will turn focus onto the 1679.87 level next.

Silver

Silver prices have not been as well supported as gold this week. Despite an initial rally that saw silver breaking out to fresh, post-lockdown highs, the move quickly reversed. Silver prices have come back under the recent 18.36 level highs.

Prices are very much linked to the outlook for global manufacturing and industrial output, given their frequent industrial usage. And, as fears of a second wave of the virus emerge (and consequently, fears of further lockdowns) the outlook for silver is looking uncertain currently.

While upside in gold prices has been supportive, a renewed bid in the US dollar this week has curtailed the rally in silver for now.

Silver Fails At 18.36

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Silver prices broke briefly above the 18.36 level to trade fresh post-lockdown highs this week before reversing. With strong bearish divergence noted on the RSI, there is a risk of this level turning into a double top.

If the 17.42 level is broken to the downside, we could see a deeper move towards the 16.53 level. While above the 17.42 level, however, focus remains on a further push higher.

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