A thermonuclear North Korea has traders buying precious metals this morning, but be cautious of overbought RSI’s.
Gold gapped higher this morning as North Korea’s hydrogen bomb test yesterday, and heightened rhetoric from the U.S. saw traders rushing for safe havens. Having closed in New York at 1324.00, gold has rushed to a high of 1339.00 before subsiding to a still impressive 1334.00 in early trading. Friday’s price action was constructive anyway following a less than impressive Non-Farm Payrolls figure and a weaker dollar following the number. The only story in town this week though will be the ramping up in tensions on the Korean Peninsula with North Korea’s possible achievement of thermonuclear capability and aggressive rhetoric from the U.S. both a worrying escalation that comes in a very Central Bank rate announcement week.
Gold’s technical picture is impressive having retraced and held its 1296.00 breakout level. This is now strong support and a key longer term pivot level. Gold flirts with its next key resistance at 1337.00 having peeked above it this morning. A close above is significant technically, opening up further gains to the 1375.00 highs last seen in July 2016.
We would caution though that the daily RSI is now in a solid overbought territory. This implies that although the technical picture remains strong, some consolidation may now be necessary for further meaningful gains to be made.
Silver closed just below its key resistance at 17.7600 on Friday and North Korea has ensured it has burst through that level this morning, touching 17.9000 in early trading.
Like Gold, the technical picture remains constructive as we trade at 17.8325 mid-Asia session. The charts are now clear of resistance until the April high around 18.6570, with support at 17.3900 and comfortably above its 100 and 200-day averages and trend line support on the chart below.
That said, Silver’s RSI is also approaching very overbought territory, implying that some consolidation may be required around these levels to catch its breath again.
Geopolitical headlines will override technicals potentially and traders should be aware that Gold and Silver may move suddenly and unpredictably on them as the week progresses.