Gold and Silver Jump on Escalating Geopolitical Tensions
By Manish Jaradi | October 12, 2020
Gold and silver prices have surged due to mounting geopolitical tensions, with both precious metals testing significant resistance levels. Investors are now closely watching the outlook for XAU/USD and XAG/USD to determine potential trading opportunities.
The recent sharp bounce in gold and silver has sparked speculation about a possible reversal in the bearish trend. However, experts suggest waiting for confirmation before concluding a trend reversal.
XAU/USD has reached a three-month high, largely driven by escalating tensions in the Middle East. The softening in hawkish rhetoric from US Federal Reserve officials has also indirectly benefited gold by putting a lid on the global USD. However, if the surge in gold prices is solely driven by geopolitical concerns, it may not indicate a sustained rally in precious metals. The fundamental factors that have been pushing gold lower in recent months, including a robust US economy and rising US yields/real yields, remain intact.
While some US Federal Reserve officials have taken a less hawkish stance in light of the recent surge in long-term yields, it may not translate to a complete policy pivot. Fed Chair Powell’s statements suggested that while financial conditions are tightening, there may not be an immediate need for tightening.
From a technical perspective, gold is currently testing a crucial resistance level at the July high of 1987. A decisive break above this level would confirm that the downward pressure on gold has faded and warrant a reassessment of the bearish outlook. Furthermore, a breach of the May high of 2072 would shift the medium-term outlook to bullish.
Similarly, silver is testing major converged resistance on the 200-day moving average, the late-September high of 23.75, and the upper edge of the Ichimoku cloud on the daily charts. XAG/USD needs to surpass the 23.25-23.75 area for immediate downward pressure to dissipate. In the broader perspective, XAG/USD needs to cross the 25.50-26.25 resistance levels for the outlook to turn constructive.
While the recent jump in gold and silver prices is encouraging, traders and investors are advised to monitor key levels and wait for confirmation before making any decisions. The geopolitical tensions that have driven the surge may not guarantee a sustained rally, and the fundamental factors behind the decline in precious metals may still have an impact.
For traders looking for actionable trading ideas, a top trading opportunities guide for the fourth quarter is available for download. Additionally, market sentiment data can provide valuable insights into the impact of market positioning on asset prices.
Written by Manish Jaradi, Strategist for DailyFX.com