The gold market has seen plenty of action this week thanks to ongoing COVID-19 volatility and other risk factors. The yellow metal started the week on a positive footing, breaking out to fresh highs on the year before reversing to end the week in negative territory.
The initial strength was fuelled by ongoing concerns around US/China relations.
Trump is still threatening to cancel the current trade contract in place and slap fresh tariffs on China over its role in the COVID-19 outbreak. In response, gold rallied on increased safe-haven demand.
However, into the middle of the week, focus shifted. This came as news of a potential COVID-19 vaccine hit the wires.
A drug currently being tested by US firm Moderna is said to have shown encouraging signs of efficacy as a vaccine and will now undergo further testing.
Gold Fails at 2020 Highs
Gold prices pierced above the 1748.80 level this week. They traded to fresh 2020 highs of 1764.64 before reversing to trade back under the level.
For now, the retest of the broken bull flag pattern is holding as support, keeping the bullish bias in play. Should price break back below here, however, focus will turn to the next key structural support at 1679.87.
The silver market has broken from its typical correlation with gold this week.
It is currently on course to end the week firmly in the green. Along with the weakness in USD, silver prices have been supported across the week by a spate of stronger manufacturing readings.
The May flash manufacturing PMIs for the UK, eurozone and the US all came in better than expected. This fulled hopes of the beginning of the recovery as lock-down measures end.
With better manufacturing data, the industrial demand outlook for silver looks in better health. It should continue to support silver prices in the near term.
However, US/China relations pose downside risks as any breakdown in trade negotiations would cast a significant dark cloud over silver demand as we saw during the last two years while the tariff war continued.
Silver Capped at Key Resistance Level
The breakout in silver this week was capped by the 17.42 level resistance. However, while price holds above the 16.53 level, focus remains on further upside and an eventual test of the 2020 highs again around the 19 mark.
To the downside, a break lower will turn focus towards the 15.85 level which marked the top of the bull flag which broke last week.