Gold Silver Desk

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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Decmber 2, 019

As we kickoff the month of December, gold may be set to shine once again but this should certainly trigger a monster rally in the gold market.

Gold Set To Shine Again?

December 2 (KWN) – Top Citi analyst Tom Fitzpatrick:  “On Friday Gold posted a bullish outside day with a setup very similar to when a bullish outside day was posted on the last trading day in May after a 3 month consolidation. This led to a double bottom and a triangle breakout in subsequent days. Ultimately a strong 3 month rally ensued…

Levels to watch this time, in that respect, are $1,479 and then $1,496. A break of this range, if seen, would suggest the potential for a similar development again (see chart below).

Breakout Above Key Levels At $1,479 And $1,496 Should Trigger A Monster Rally In The Gold Market

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November 14, 2019

With bonds and gold rallying and stocks pulling back, GaveKal just warned the US dollar is set to weaken, plus there’s no trade deal and the rest is all bullish*t.

Not A Good Start For The US

November 13 (KWN) – James Turk:  “Not a good start for the US governments new fiscal year. Its 1st month recorded a $134b deficit but debt in Oct actually jumped $289b to over $23trillion. A $1trillion deficit this year looks certain; question is how long before 12-month debt growth reaches $2 trillion?”

“There’s No Trade Deal”

Fred Hickey:  “There’s no trade deal. “Beijing balks at committing to specific purchases, resists U.S. requests for tech-transfer curbs, enforcement mechanism.” Stock market should be down big. But isn’t. Proof stocks at record highs for only ONE reason- Fed’s money printing.

There’s absolutely no connection today between the real economy (which is sinking) and the Fed”s-money-printing inflated stock market. As we saw in 2000 & 2007, eventually the two will reconnect and the result will not be pretty.”

“The Rest Is All BullSh*t”

Sven Henrich:  “The Fed manages the economy by managing the S&P 500. The rest is all bullshit. (See below).

Plus GaveKal says US dollar to weaken…

For the last five years, the world has lived with a consistently strong US dollar. Now, a wind of change is blowing through the world’s currency markets, warns Gavekal’s US economist Will Denyer, and the US dollar could be set for a period of weakness.

For much of the last five years, the US Federal Reserve was the tightest central bank out there, which helped to support the US dollar. But this year the hawk has turned into a dove, as the Fed has cut interest rates and begun to expand its balance sheet once again.

This U-turn not only means that the Fed is printing money again, but that it is now printing more money each month than other big central banks, notably the European Central Bank. This liquidity splurge suggests the US dollar may weaken relative to other currencies.

Meanwhile, risks such as an escalating trade war or disorderly Brexit which have caused investors to seek safety in US markets now appear to be receding, meaning less support for the US currency.

$1,650-$1,700 Gold

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