Month: February 2020

Jim Wyckoff – Friday February 21, 2020 07:55

Precious Metals News

Gold and silver prices are solidly up in early U.S. futures trading Friday. Gold notched another seven-year high, while silver hit a six-week high, on safe-haven demand as the negative effects of the coronavirus outbreak on the global economy remain highly uncertain but appear to be increasing. April gold futures hit a new contract high overnight and were last up $17.10 an ounce at $1,637.60. March Comex silver prices were last up $0.161 at $18.48 an ounce.

Asian and European shares were mostly down overnight. U.S. stock indexes are pointed toward weaker openings when the New York day session begins. Risk-off trading attitudes are keen as the trading week winds down, as the coronavirus continues to spread in Asia, and its impact on the global economy is perceived to be getting much more serious.

Reports overnight said China’s auto sales fell over 90% in February as coronavirus restrictions prevented buyers from visiting car dealerships. Over 21 million autos were sold in China in 2019, making China the world’s largest auto market. The Hubei province is still in lock-down and officials there have pushed back the date for businesses to reopen to 10 March. That date could be further delayed if covid-19 is not contained by then.

China recorded over 800 new cases Thursday (up from around 400 Wednesday), with the total number of afflicted now at over 75,000 and over 2,200 dead. South Korea has reported over 200 confirmed covid-19 cases. The capital has banned all rallies in major downtown areas.

Options may be cash settled or physically delivered. ETF options, like SPY, expire into a position in the ETF. Index options, like the comparable Mini-SPX, are cash settled. This key difference is particularly important when we talk about “gap risk.”

From a marketplace perspective the covid-10, or coronavirus, situation is still very fluid regarding the economic impact on major world economies. Traders and investors are vacillating daily on whether the outbreak’s rate of spread is accelerating or declining. This uncertainty will continue to support buying interest in safe-haven assets like gold, U.S. Treasuries and the U.S. dollar, and the movement of money out of riskier assets like stocks. Gold prices hit another seven-year high of around $1,640 overnight.

Manufacturing indexes from the major world economies are starting to show the negative effects of the covid-19 outbreak. U.S. companies are also mentioning the illness as impacting their bottom lines when earnings reports are released.

The key outside markets today see crude oil prices lower and trading around $53.00 a barrel. Meantime, the U.S. dollar index is weaker on a corrective pullback after hitting a multi-month high Thursday.  

U.S. economic data due for release Friday includes the US flash manufacturing PMI, the services PMI, and existing home sales.

Technically, the gold bulls have the strong overall near-term technical advantage to suggest still more upside in the near term. A three-month-old price uptrend is in place on the daily chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at $1,650.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at this week’s low of $1,581.80. First resistance is seen at the overnight high of $1,639.40 and then at $1,650.00. First support is seen at the overnight low of $1,621.60 and then at $1,619.60. Wyckoff’s Market Rating: 8.5

March silver futures bulls have the overall near-term technical advantage with this week’s strong gains. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at the January high of $18.895 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at this week’s low of $17.67. First resistance is seen at today’s high of $18.57 and then at $18.75. Next support is seen at the overnight low of $18.335 and then at Wednesday’s low of $18.135. Wyckoff’s Market Rating: 6.5.

By Jim Wyckoff

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Jim Wyckoff Monday February 24, 2020 10:41

The silver market has not seen the strong gains recently that has “big brother” gold. It’s likely that traders and investors look at silver as both an industrial metal and a safe-haven store of value. The industrial metal view of silver suggests the coronavirus pandemic, and the potential slowdown in the world’s economy because of it, could constrain the silver market bulls in the coming months.

See on the monthly continuation chart for nearby silver futures that prices have been trapped in a sideways trading range for over four years, as seen by the support and resistance lines on the chart.

A move in silver prices above the aforementioned trading range, meaning a push above longer-term technical resistance at the $20.75 area, would be a longer-term bullish development that would then suggest silver prices have much more room to run on the upside.

If gold prices continue to trend higher in the coming months, which the charts do suggest, then it’s also a good bet that silver prices will appreciate, too.

By Jim Wyckoff

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Allen Sykora – Monday February 24, 2020 10:09

Gold futures are sharply higher early Monday not only because investors are seeking safe havens as the coronavirus keeps spreading around the world, but also because they are starting to factor in the potential for central-bank rate cuts to offset any economic damage from the outbreak, analysts said.

And while gold appears to be on the verge of going parabolic – rising roughly $100 in the last week – analysts say it would be risky for speculators to pick a market top and sell, trying to benefit from any correction that might be coming.

“Concerns about the Covid-19 virus, which is now spreading rapidly in countries such as Italy and South Korea, are driving up risk aversion among market participants and allowing gold to soar higher and higher,” said Daniel Briesemann, analyst with Commerzbank.

As of 10:03 a.m. EST, Comex April gold was $25.60 higher to $1,674.50 an ounce and traded as high as $1,691.70.

The Dow Jones Industrial Average is almost 800 points lower after the open on Wall Street. Commodities that are thought of as so-called risk assets, like copper and crude oil, are also weaker.

“Right now, because of the spread of the coronavirus into different cities, people are starting to panic,” said Phil Flynn, senior market analyst at Price Futures Group. “They are going into a full-court press into gold…as concerns are growing that people see the virus potentially damaging economies and economic growth around the globe.

“There are concerns that countries will have lower interest rates, thereby devaluing their currencies. That is making gold an attractive, safe haven.”

Phillip Streible, chief market strategist with Blue Line Futures, said traders and investors “believe global central banks are going to come in and take appropriate measures, like monetary policy stimulus, in order to support not only falling equities but declining global [economic] growth.”

In particular, the spread of the virus and drastic prevention measures taken in a Western nation such as Italy have captured the market’s attention, he added. Four people have died from the virus in Italy. Nearly a dozen towns close to Milan, with a combined population of almost 50,000, have been effectively put in quarantine, according to news reports.

The yield on U.S. Treasury 10-year notes, which moves inversely to the price, fell to the lowest level since 2016 as investors also sought safety in the bond market, according to reports. Additionally, the curve inversion between three-month and 10-year yields deepened, often viewed as a signal of a potential recession.

“The ring of containment of Covid-19 has grown from China,” said Marc Chandler, managing director with Bannockburn Global Forex, LLC. “The new frontline is Japan, South Korea, Italy, and Iran. A lockdown of around 50,000 people near Milan and Austria blocking trains from Italy is scaring investors.”

The virus has killed more than 2,400 people and infected more than 75,000 in China and has been spreading to other countries, with sharp rises reported in South Korea, Italy and Iran. The World Health Organization reported more than 1,400 cases in 28 countries outside of China. Eight people have died from the virus in South Korea.

Gold has risen so steeply that some might consider the move parabolic, and when any commodity goes parabolic, prices often correct sharply. However, Flynn said he personally would not consider trying to pick a top and establishing a short position right now.

“We know that when we see these parabolic moves, at some point, we’re going to see the market pullback,” Flynn said. “But you don’t want to stand in front of it right now…. With the momentum in this market, nobody should try to be a hero and pick a top at this point. I think it’s extremely dangerous, the way the headlines have been rolling in.”

Streible commented that if somebody was going to bet on a downward correction, he favors doing so by buying inexpensive put options in deferred months rather than outright shorting the market. Otherwise, a trader with a short position in the futures market would be “burned” if gold goes up yet another $50, he commented.

“It [gold] looks like it’s got some serious wind behind its sails right now,” Streible said. “I wouldn’t be surprised if we went up to $1,750.”

Even with the pullback in equities, the U.S. stock market is not that far from its recent record highs, Streible added. As a result, he continued, “people need to aggressively diversify out of U.S. equities and risk assets and strongly consider adding more defensive plays like gold and silver in their portfolios.”

Flynn put the next upside chart level for April gold at $1,700, then the $1,730 area.

Gold is not only soaring in U.S. dollar terms, but a Commerzbank research note pointed out that the metal has hit record highs in several currencies, including the euro, Japanese yen, Indian rupee, Australian dollar and British pound.

By Allen Sykora

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