Gold Silver Desk

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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January 17, 2020

Look at who just said gold may surge to a record $2,000…

Trade Deal Fails To Ignite

January 17 (KWN) Ole Hansen, Head of Commodity Strategy at Saxo Bank:  While global Stocks, led by the U.S. technology sector, continued their ascent, the first two weeks of trading have been more challenging for several commodities. While metals, both industrial and precious, have recorded early January gains both energy and agriculture have struggled. Following a strong December, the Bloomberg Commodity Index which tracks the performance of 22 major commodities has now recorded two straight weeks of losses and is currently down by 1.6% so far this January. 

During the past two weeks, the market has reacted to major events such as the temporary flare up in Middle East tensions and the signing of the U.S.-China trade deal. The U.S. killing of a top Iranian general created a short-term worry and Brent crude oil spiked above $70/b before returning to the mid-60’s as tensions eased. Gold meanwhile surged past $1600/oz before quickly returning to the current level around $1550/oz. Both a reminder that a real disruption and with that a real threat to peace is needed for gains in both to be sustained.

This past week however, it was the signing of the phase 1 trade deal between the U.S. and China that attracted most of the attention. The very lukewarm response across commodities, that stands to benefit from the expected and dramatic pick up in Chinese buying, spoke volumes about the unease in the market about whether this deal is workable or not. In order for the Chinese to buy more U.S. produced oil, gas, soybeans and other commodities, other suppliers will have to suffer. 

This comment in the China Daily highlighted the risk and also the reason why the market has responded with a lot of caution. In an article entitled “US faces pressure to increase exports” they wrote: “Most (Chinese) import companies are private, and many are foreign-funded. The Chinese government cannot give orders to these companies. In addition, consumers will not buy products out of political considerations. The US is clear about all of these facts.”. In addition, Reuters reported Vice Premier Liu He saying that China’s other suppliers of agricultural commodities will not be impacted since the buying will be based on market principles. 

These comments only leave one route for US producers. They have to be price competitive, something that poses a challenge. An example being soybeans with rising production in Brazil – China buys 80% of Brazil’s soybean export – and a BRL near a record low making Brazilian beans more competitive. The front month soybeans futures contract in Chicago reached an 18-month high on December 31 but has since fallen back with selling accelerating following the signing of the deal.

Crude oil stabilized following the U.S. – Iran de-escalation slump with Brent crude oil settling into a range around $65/b. While the agriculture sector hesitated about the impact of the U.S.-China trade deal, crude oil managed to find a small bid. This, given hopes that the more conciliatory approach between the world’s two biggest economies, would help stabilize and potentially revive growth and demand for procyclical commodities such as oil. 

Countering the optimism was another big jump in U.S. stockpiles of oil related products. While being mostly explained by seasonal behaviors it nevertheless raised some concerns about demand. The three major forecasters of EIA, IEA and OPEC all released their monthly oil market reports. They all highlighted OPEC’s current dilemma with rising non-OPEC production forcing the OPEC+ group to keep production tight.  While OPEC raised non-OPEC production in 2020 to 2.35 million barrels/day, the IEA kept it unchanged at 2.1. Global demand growth is expected by both to be around 1.2 million barrels which will continue to leave the market oversupplied, especially during the first half of 2020. 

Brent crude oil found support after surrendering half the October to earlier January gains. The short-term outlook points to rangebound trading between $63/b and $68/b, barring any renewed threat to supplies from the Middle East and especially Libya. On January 23, Saxo Bank will release its Q1 Outlook entitled “The Great Climate Shift” and in it I will highlight some of the reasons why we see Brent crude oil potentially finish 2020 at $75/b.

Look For Much Higher Oil Prices In 2020

Platinum broke above $1000/oz to reach the highest level since September 2016. The rally was supported by palladium which has already added 14% to the 55% it gained in 2019. Palladium’s rally towards $2400/oz has been driven by supply deficits and surging demand on tightening emissions regulations. However, a widening premium to platinum of more than 1350 dollars has started to attract speculative buying of platinum on the assumption that car makers may begin to substitute the two metals.

Gold has settled into a relatively tight range around $1550/oz following the failed January 8 spike above $1600/oz. Just like last year the yellow metal has so far managed to find support relatively soon following a push to a fresh high. It highlights the continued focus on gold as a portfolio insurance against a change in the current direction of stocks and bonds. We have reached a situation where rising stock prices drive rising gold prices as investors, while maintaining exposure to stocks, become increasingly concerned about the risk of a correction.

Bridgewater Says Gold May Surge To Record $2,000

Supporting the bullish sentiment was comment from Bridgewater, the world’s largest hedge fund, that gold could surge to a record high above $2000/oz. The reasons being the same we have highlighted during the past few months. Real yields look set to fall further as Central Banks keep rates low despite rising inflation pressures. Adding to this political uncertainty, the risk of renewed U.S. – China trade worries, the potential for a weaker dollar and elevated stock market valuations. 

We maintain a bullish outlook for gold but sense a potential prolonged period of consolidation which could result in some profit taking driving gold lower towards support, currently located at $1535/oz followed by $1520/oz. Longer term bulls are unlikely to worry unless the price breaks below the late 2019 consolidation low below $1450/oz.

Bridgewater Says Gold May Surge To Record $2,000

Summary:

Commodities with the exception of metals struggled to get excited about the phase 1 U.S. China trade deal. Questions regarding China’s ability to buy the stipulated quantities of agriculture products added some downside pressure to grains. The energy sector was weighed down by ample supply as geopolitical risks continued to fade.

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Anna Golubova – Monday December 16, 2019

Editor’s Note: 2020 is expected to be another year of significant uncertainty and turmoil. But the question is what asset will emerge the victor when the dust settles from the global trade war, Brexit, recession threats, negative bond yields. It’s a showdown of global proportions, so don’t miss all our exclusive coverage on how these factors could impact your 2020 investment decisions.

Silver is looking to play catch-up to gold and potentially outperform the yellow metal next year, according to analysts, who are eying the U.S.-China trade progress and silver’s improving demand as key drivers.

Both silver and gold had a stellar year despite dropping off its 2019 highs reached this fall. During the last 12 months, spot gold rose around 19% and silver advanced 16.9%, according to Kitco’s aggregated charts.

Spot silver prices reached their 2019 peak at the beginning of September, trading above $19.60. At the time of writing, spot silver was at $16.99 and March Comex silver was at $17.07 an ounce.

The biggest drivers for silver next year will be the U.S.-China trade situation and global growth prospects, Standard Chartered precious metals analyst Suki Cooper told Kitco News on Tuesday.

“For silver, trade negotiations are one of the key risks. Given the impact, it has on industrial demand growth, economic growth, and outlook for the tech sector,” Cooper said. “We do expect the Federal Reserve to remain on hold in 2020, but there will likely be continued concerns around the U.S.-China trade negotiations… Given that there is still negative-yielding debt on a global basis, this is likely to create a positive backdrop for safe-haven assets.”

The outcome of Brexit will also play a key role, especially from the perspective of its impact on European growth, Cooper pointed out.

“For gold and silver, it is going to be the macro-environment that is a key driver,” she said. “We think the trade tensions will be the underlying theme for the complex as a whole, whether that’s going to impact industrial demand or auto sector growth. Or whether that triggers safe-haven interest in gold and silver.”

Price projections for 2020

One of the more popular calls for silver next year is for prices to trade around $18 an ounce, with most gains set for year-end.

Silver could close next year around $17.50 an ounce, RJO Futures senior market strategist Phillip Streible.

The Dutch bank ABN AMRO projects silver to reach $18 an ounce by year-end after averaging $16.60 throughout 2020.

“We think that an aggressive sell-off in silver prices in the coming months will be an opportunity to position for higher prices later in 2020,” ABN AMRO senior FX and precious metals strategist Georgette Boele said. “Silver prices will probably be more supported if global growth and global trade start to stabilize and improve somewhat.”

Strategists at TD Securities see silver’s potential peaking at around $20 an ounce next year. “Silver [could] jump to $20/oz by the end of 2020 in response to its firming fundamentals and spillover investment demand from the yellow metal,” the bank’s strategists told Kitco News.

“A lot of the drags on growth, such as print episodes of deleveraging in China, tightening in the U.S, all been flashed out. Going forward, we should see some improvement,” TD Securities strategist Daniel Ghali added.

Standard Chartered is projecting for silver to average at $17.50 in 2020 and reaching a peak of $18 in Q2. Metals Focus said it sees silver averaging around $19.40 in 2020, with the potential to touch a high of over $22.

Silver could be looking at a fairly wide range next year, with support at $13 an ounce and resistance at just below $21, according to Kitco’s very own senior technical analyst Jim Wyckoff.

“The monthly continuation chart for nearby Comex silver futures reveals prices are in the middle of a wide trading range, bound by longer-term chart resistance at the 2016 high of $20.825 and by the 2015 low of $13.666,” Wyckoff said.

Silver’s technical picture going forward looks neutral, neither favoring the bulls or the bears, added Wyckoff. “The monthly chart suggests that in 2020 silver prices will continue to trade in choppy fashion within the range defined by the support and resistance lines seen on the chart,” he said.

Silver could outperform gold in 2020

One of the significant concerns with silver this year has been its underperformance in comparison to gold, especially when prices hit multi-year highs in August and September.

“Whereas the gold price was trading at a 6½-year high in September and was only 20% short of its all-time high, the silver price achieved a three-year high of just under $20 at the same time. This still left silver 30% below its spring 2013 level, however – not to mention a long way off the all-time high of around $50 that it had reached in 2011,” Commerzbank said in its outlook.

As we countdown to the new year, many analysts are now more optimistic on silver in comparison to gold. Silver could outperform gold next year, said TD Securities commodity strategist Daniel Ghali, noting that the gold-silver ratio could improve in favor of silver.

“Over the last few years, investment for silver and gold disconnected quite a bit. Over the last few months, however, there have been signs that the correlation of investment activity for both metals has turned positive again,” Ghali told Kitco News. “We are optimistic on the prospect for gold, but we think it will pay off more for those who are to purchase silver. We think the industrial demand side of the equation will improve later in the year.”

RJO Futures’ Streible is also more optimistic on silver due to its demand component. “The ratio between gold and silver will continue to crack lower, favoring silver and taking away from gold. Silver will take from some of the other metals like platinum and palladium and the trade deal will help boost the technology demand for silver,” Streible highlighted.

On the other hand, Standard Chartered’s Cooper said silver might fail to outperform gold next year, noting a lack of tactical positioning in the metal.

“Until we see firming in underlying supply and demand dynamics and investor interest, it is likely we are going to see silver playing catch-up with gold but perhaps not outperforming it just yet,” she said.

Risks to silver’s outlook next year include industrial demand and potential liquidation of ETF holdings, Cooper added.

“We expect silver to remain elevated, but we do not see a sharp move higher. For silver prices to move sharply higher, we would need to see solid growth in terms of industrial demand as well as continued interest on the investor side,” she said. “In terms of the upside, there is still room for investors to position in silver. The biggest upside risks are for the Fed to start cutting rates in 2021.”

Rare buy call

A very rare silver buy call came from the CPM Group ahead of the new year. The group issued an intermediate-term silver buy recommendation for investors in December, stating that “the silver market is at a critical vertex at present.”

Silver prices are more likely to rise than fall in the next few years, but uber bulls might still be disappointed, explained CPM.

“Silver market fundamentals are precariously similar to the critically poor conditions that existed in 1989. Our expectations are that the market may avoid the long period of net investor silver selling and low prices that followed from that year,” said CPM Group’s vice president in charge of research Rohit Savant.

CPM defined its intermediate timeline as between two and three years. The last time CPM issued a recommendation on silver was back in May 2011 when prices reached $48.19 and CPM advised to sell.

“CPM has waited until now for a variety of reasons known to our clients. For one, the market has not supported strongly higher prices over the past few years. As a result, prices have not moved sharply off their 2015-2016 lows,” CPM managing partner Jeffrey Christian clarified.

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December 13, 2019, Neils Christensen

(News) – Market anxiety has alleviated slightly as trade tensions between the U.S. and China have eased and the political outlook in Britain has stabilized, but one market analyst said that gold will remain on investors ’ radar as uncertainty is not going away in 2020.

A phase one trade deal, no new tariffs on Chinese imports, and a solid majority victory for Boris Johnson ’s Conservative Party in the U.K. has reduced some fears in the marketplace, but will still impact investor sentiment in 2020, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said in an interview with Kitco News.

“Basically this phase one deal will bring trade negations back to neutral territory,” he said. “The real issues are far from resolved and that will continue to add uncertainty to financial markets and that will be good for gold.

“Trade tensions have eased but they are far from gone,” he added.

Looking at the U.K., Milling-Stanley said that although Johnson now has a majority to push through Brexit, investors still don ’t know the impact of leaving the European Union will have on the economy.

Milling-Stanley added that there is still plenty of support for gold in 2020 and he sees the yellow metal embarking on a long-term sustainable rally in a new era of uncertainty. For next year, Milling-Stanley said that he sees gold prices trading in a range, between $1,450 and $1,600 an ounce.

“We have entered an environment of sustainable moderate growth in the gold price for the foreseeable future,” he said. “Geopolitical volatility will continue to be part of the background of general uncertainty that has been very favorable to gold for several years now.”

Milling-Stanley ’s comments come as gold prices hold relatively steady into the end of the year. February gold futures last traded at $1,479.10, up 15% since the start of the year.

“If gold finished the year at current prices we would say that it has had a fabulous year with tremendous gains,” he said.

In a domino-style effect, Milling-Stanley said that market uncertainty will lead to episodic volatility throughout the year, which will force the Federal Reserve to maintain low interest rates, keeping real interest rates close to negative territory, which will make gold an attractive safe-haven asset.

Although the Fed has signaled that it is on hold for 2020, Milling-Stanley said that he is not convinced they will be able to maintain a neutral stance in the face of global economic weakness.

However, he added that even if the Fed does raise interest rates next year on improving economic conditions, the impact on gold would be limited.

“We have entered in a new era of low interest rates; that is the broad trend gold investors should focus on and that will remain in place despite the odd 25 basis point move from the Fed,” he said. “I don ’t think inflation is going to go lower so the interest rate environment in real terms is going to be even more favorable for gold.”

Milling-Stanley added that he is also bullish on gold as economists are expecting to see a recovery in emerging markets, which should lead to increased jewelry demand in critical gold markets.

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