It’s been a frustrating week for gold traders. After price broke out to the highest levels since 2013, moving above the 1432.21 multi-year high, the market has since reversed and traded back below the level.
The driver behind the upside move earlier in the week was the fresh escalation in tensions between the US and Iran. Following the downing of a US spy plane by Iran last week, the US imposed fresh sanctions on Iran on Monday.
These sanctions took the place of an aborted airstrike. President Trump mainly aimed them at Iran’s supreme leader, as well as a range of senior military figures. While the canceling of a US airstrike last week was met with short term relief, the sanctions have kept the threat of future military action alive.
On Tuesday, tensions flared further as Iranian president Rouhani verbally attacked Trump, suggesting the US President has a “mental disorder”, labeling his sanctions “ridiculous and outrageous”. For now, there have been no further acts of aggression by Iran, though the threat of a sudden outbreak of conflict is keeping gold safe-haven flows supported.
Weakness in US data over the week has also kept USD pressured with durable goods, trade balance and GDP all coming in below expectations. The data further endorses the view that the Fed is likely to ease over the coming months, which should keep gold prices supported in the medium term.
XAUUSD continues to trade within the large bullish channel and is currently challenging the 2013 1432.21 base which has been in play over the last six years. Momentum indicators are supporting the move currently with no signs of divergence. If price remains supported above 1366.09, further upside is likely. Only a break below the 1366.09 will change the near term bullish bias.
Silver prices have had a slightly tougher time than their golden counterpart this week. While gold has conceded some of the gains made earlier in the week, silver prices have reversed fully to end the week in the red. Despite the pullback this week, the prospect of a lower USD as Fed easing expectations grow, as well as higher gold prices, should keep silver supported over the medium term.
The recent rally in silver prices has stalled just ahead of testing the 15.6329 resistance level. Momentum has stalled this week with price printing an inside week, presenting the risk of a further reversal lower next week. Above the 15.6329 level, the next challenge will be the long-term bearish trend line, a break of which could signal the start of a much broader recovery higher. To the downside, 14.9161 remains the key support level to watch as a medium-term pivot. While above here, focus remains on further upside. Below here, and focus will shift to the 2018 lows around 14.3321.