Gold continues to test the upside as silver surges to 12-year high

Gold surged to a new high on Monday after breaking the $2,700 barrier at the end of trading last week. The precious metal has been remained supported in recent weeks as uncertainty surrounding the escalation in tensions in the Middle East has kept investors interested in safe havens. The lead up to the US presidential elections and expectations of softer monetary policy have also played a part.

XAU/USD daily chart

Past performance is not a reliable indicator of future results.

XAU/USD is up 5% in the past ten days even as the US dollar has regained its footing after months of downside pressure. The precious metal has faced some resistance in its bullish drive as higher US yields weigh on its appeal as a non-yielding asset. However, the continued upside shows that safe-haven demand is high, supporting gold throughout.

Fundamentally, the outlook looks promising for gold in the short to medium term. The variables at play are likely to remain supportive in the absence of any drastic changes to the outlook. Geopolitical tensions in the Middle East are unlikely to de-escalate anytime soon; if anything, they are likely to worsen, which is supportive for gold as a safe-haven asset. Meanwhile, while investors may be less concerned now than they were a few weeks ago due to recent positive data from the US, uncertainty about the US economic outlook persists, which also supports gold prices. Additionally, lower rates from the Federal Reserve would lead to lower yields on US bonds, another positive driver for gold prices in the coming months.

One event that could derail the positive outlook in the precious metal is the US presidential elections. While the uncertainty leading up to the event is a positive catalyst, a Trump victory could see a resurgence in inflationary pressures if his tariff plans are implemented, which could lead the Federal Reserve to delay rate cuts. This would likely have a negative effect on gold prices from the start, as the anticipation of this outcome could trigger a correction lower, despite ongoing safe-haven demand.

Silver (XAG/USD) at its highest level in 12 years

In the shadow of gold, Silver has also been outperforming in recent weeks. Last Friday saw XAU/USD rise over 6% in its best trading session since May and it looks like the precious metal is gearing up for the next leg higher. Price is up 1.4% so far this morning.

Silver (XAG/USD) daily chart

Past performance is not a reliable indicator of future results.

Silver has the same short-term drivers as gold (lower rates, geopolitical uncertainty, US elections risk) but it also has industrial usage as a key factor driving growth. The chart is starting to show some signs of exhaustion in the bullish rally with the RSI having just pushed into the overbought area, but we may see investors testing the limits a little further before reversal kicks in. The $35 mark is a nice round psychological level, one that has not been touched since September 2012, so we may see further buying interest attracted heading towards this level.


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