It’s been a volatile week for gold. After breaking out to its highest levels since April 2013, the yellow metal has since reversed sharply. As of writing, it is ending the week back below the 2019 high.
The initial upside in gold was driven by a wave of risk-off trading in reaction to news of escalating tensions between the US and Iran. Following the state funeral of Iranian general Soleimani, who was killed by a US airstrike last week, Iran retaliated for the attack by launching ballistic missiles at two US army bases in Iraq.
As news of the rocket attack broke, equities collapsed. Traders feared the move might push the US and Iran into war. However, Trump downplayed the significance of the attack.
He addressed the nation saying that according to intelligence, Iran was stepping down and as such, the US would not be entering a military conflict with it.
As quickly as gold had rallied, the reversal saw prices cascading lower. Equities traders cheered the news and drove index prices higher. However, given the hostile nature of relations between the two countries, further attacks cannot be ruled out. Therefore, upside risks remain for gold.
The rally in gold this week saw price trading up to test the 1608.54 resistance level which saw strong selling. Price has since declined back below the 1554.69 2019 high, putting focus on a move back down to test next support at the 1522.75 level. Bulls will need to see price stay above this level to keep focus on further upside. However, the weekly candle here suggests the risk of a deeper correction lower in the coming sessions.
Silver prices tracked the moves in gold this week, trading higher initially as safe-haven demand for gold drove buying. However, the subsequent reversal in gold has taken silver prices lower on the week.
As with gold, however, the residual risk of further conflict between the US and Iran poses upside risks for silver in the near term. Should the situation remain, focus will then shift back onto the progress of US/China trade talks. The two sides are due to sign off on the phase one trade deal
Silver prices traded up to test the 18.6397 level resistance this week though, as with gold, strong selling kicked in at the level, taking price lower. For now, price is still above the 17.3408 level, keeping focus on further upside in the near term. Should we move back below this level, however, focus will be on a test of the 16.52 level next.