The yellow metal has ended the week in the green as risk-off flows relating to the ongoing coronavirus outbreak were seen fuelling safe-haven demand for metals. Gold prices gapped higher at the open this week as news of the intensification of the viruses spread over the week saw equities prices sharply lower. Over the week, news of an increase in the number and geographical distribution of confirmed cases, as well as the number of deaths, has seen safe-haven flows continue as equities remain on the back foot.
While an upside in gold was initially limited this week by strength in the US dollar, the FOMC meeting this week saw USD gains reverse. The Fed’s statement was little changed from last time around, with the central bank noting that while it deems the current monetary policy approach as appropriate, it will continue to monitor data and developments. Powell specifically mentioned the Chinese flu issue as a serious threat to the domestic and global economy and in light of this, the meeting was deemed to be more on the dovish side, leading USD lower.
Gold prices found support above the broken 2019 highs around the 1554.69 level and are continuing to push higher. The recent rejection from the 1608.54 level has failed to follow through, at least for the time being.
While price holds above the 1554.69 level, a further push higher within the bullish channel looks likely and an eventual break above the 1608.54 level. The only real downside risk at the moment is any breakthrough in containing the Chinese flu outbreak. Such an announcement could fuel a sharp reversal in gold. To the downside, any break of the 2019 highs would bring the 1522.75 level back into focus. 1571 is the weekly open.
Silver prices have been lower over the week, breaking correlation with gold. The drop in equities prices as well as the expectations of reduced industrial demand in the wake of the coronavirus outbreak, has weighed on silver here. Looking ahead, the downside threat from coronavirus should keep silver weighed to the downside. However, further weakness in USD should help offset some of this downside.
Silver prices continue to range between the 17.3408–18.6397 level, caught between the two bearish trend lines. The downside action in silver this week found strong support into the 17.3408 level as the consolidation continues. While price is still holding above the 17.3408 level, a further test of the 18.6397 level is still viable. To the downside, a break of 17.3408 would pave the way for a test of the 16.52 level next.