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David Becker

Gold prices surge as concerns over the spread of the coronavirus continued to buoy the yellow metal. Prices stormed higher rising by nearly 2% but is up more than 4% for the week. Gold implied volatility, which is represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged more than 20% on Friday and is up 33% for the week hovering near the 16% level. The GVZ has a 200-day moving average of 13%. The highest weekly close for the GVZ over the past 12-months is 18.5%, and the highest close of the GVZ implied volatility index over the past 10-years is 37%. There is a significant option open interest that would accelerate the move higher on a close of gold above the 1,650 level.

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Technical Analysis

Gold prices surged more than 4% this week and rallied a robust 2% on Friday. The acceleration in the price action is a function of options position covering by those who are short gold call options. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-week moving average at 1,562.

Weekly momentum is positive as the weekly MACD (moving average convergence divergence) index recently generated a crossover buy signal. The MACD histogram also recently generated a crossover buy signal slicing through the zero-index level. The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices and accelerating positive momentum. The weekly RSI broke out and has accelerated higher which points to positive momentum. The target for the RSI is August 2019 highs at 84.  The only caveat is that the weekly RSI is printing a reading of 77, above the overbought trigger level of 70 which could foreshadow a correction.

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