The gold market has seen renewed buying this week due to the broader risk off tone seen across markets at the start of the week in response to increased tensions between the US and China. Following a series of controversial claims from the US last week, with Trump and Mike Pompeo accusing China of starting the COVID-19 virus in a lab in Wuhan markets are sensing an elevated risk of trade negotiations faltering again. Furthermore, Trump has warned that he is considering financial penalties against China for its handling of the virus outbreak.
In terms of the COVID-19 backdrop itself, the trend of countries reporting fewer infections and fewer deaths is continuing at an encouraging rate with lock-downs beginning to ease. The main test, however, will be whether the easing of restrictions leads to a fresh outbreak of the virus which could strike a devastating blow to the global economy.
US labour reports at the top of the week will be watched by metals traders. If the expected weakness is confirmed this will likely limit upside in the Dollar, which is currently rallying, and should help support gold prices further.
Silver prices have been anchored to the downside over recent sessions, despite the rally in gold, as downside in equities and the rally in USD have seen silver prices losing momentum. Recent manufacturing data sets have been a dampener for silver, weighing on the industrial demand outlook. However, as countries begin easing lock–downs now there are hopes for improved demand in the coming months which should help support silver.
Gold (Bullish above 1703.10)
From a technical viewpoint. Gold prices have broken down out of the rising wedge pattern. However, for now, the 1703.10 is holding as support keeping the near-term bias bullish with focus on a test of the 1747.15 level 2020 highs next. To the downside, any break lower will should find support into the cluster of technical levels at 1671.36 (monthly pivot, weekly S1, structural lows).
Silver (Bullish above 14.8612)
From a technical viewpoint. The recovery rally in silver has been capped by a test of VWAP for now. The current decline is tracking a bearish channel but could prove to be a bull-flag while price remains supported by the 14.8612 yearly S1, keeping focus on an eventual break higher. The key test will be the channel top where we also have VWAP sitting.
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