The gold market has witnessed a recovery over early trading on Monday following a large sell-off last week in response to the cross-market impact of the ongoing COVID-19 outbreak. The reaction in gold has confounded many players over the last week. Despite the heavy sell-off across risk assets last week, gold saw a reversal in the safe haven flows which drove the rally over the last month.
As the global outbreak of COVID-19 worsened, however, the Japanese Yen emerged as the stronger candidate for investors seeking safety of their capital. While the JPY had initially been lower on rising fears of a recession there, these losses were quickly reversed as investors flooded back into the traditional safe have currency amidst cratering prices in the US Dollar, equities and commodities indices – including a rout in gold prices last week also.
The severity of the global impact from COVID-19 has now seen a significant shift in communications from central bankers with both the Fed and BOJ releasing statements signalling the likelihood of easing in the near future. Such action will help keep gold prices supported in the medium term though headlines around COVID-19 offer highly volatile risks on a day-to-day basis.
Silver prices are experiencing a mild recovery today also. However, in the context of last week’s historic sell-off (biggest weekly sell-off since April 2013), sentiment remains heavy and the market is vulnerable to further losses. The path of the US Dollar is also important to watch here as any further depreciations should have some limiting capacity for downside in metals. Dovish comment from Fed’s Powell last week have seen continued selling in the greenback, which looks likely to develop further. Incoming US data this week could also exacerbate downside pressure in USD.
XAUUSD (Bearish below 1606.85)
From a technical viewpoint. Gold has reversed from above the yearly R1 at 1625.25 and has now broken down below the monthly pivot at 1606.85. With longer term VWAP still supporting, the move is viewed as corrective now. Any further move lower will bring the monthly S1 at 1527.49 into view as potential support.
XAGUSD (Bearish below 17.30)
From a technical viewpoint. Silver has broken down below the yearly / monthly pivot cluster at 17.30. This area will now be key resistance. With longer term VWAP now negative, we could see further selling at a retest of the level, eyeing a move down to the monthly S1 at 15.70 next.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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