Once again, it is time to break down into bullet points the bullish and bearish elements affecting the gold (GCZ25) and silver (SIZ25) markets. I will also give you my opinion on where prices are headed in the coming weeks and months.
Risk aversion is high today, as evidenced by the faltering global stock markets. Wall Street’s so-called fear gauge, the CBOE Volatility Index ($VIX), this week surpassed 24 (above the key level of 20 that causes concern for traders) and reached its highest level in a month. This is driving safe-haven gold and silver buying mid-week. Traders and investors are also closely monitoring the private credit situation in financial markets. There are some signs that some large borrowers are stretched thin.
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The economies of the United States and China are showing signs of slowing growth, which has led to an easing of monetary policies by the central banks of both countries. This is bullish for precious metals on two fronts. First, lower interest rates and borrowing costs mean better demand for gold and silver from consumers looking to buy jewelry in countries like China and India. Second, lower interest rates in the United States are likely to cause some depreciation of the US dollar in the foreign exchange market. In day trading, gold and silver prices tend to be supported by a lower US Dollar Index.
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Global central banks are still stocking up on gold. China added about 15 tons of gold to its foreign exchange reserves in September as central banks accelerated their bullion purchases after a summer seasonal lull, according to Goldman Sachs. Analysts estimated that global central banks bought 64 tons of gold in September, more than triple the previous month. According to Goldman, the buying spree is likely to continue in November. Central bank purchases have been a key driver of gold’s bull run over the past three years. Despite the key role of sovereign purchases in gold prices, they are a mystery as countries often underreport their purchases, said a Bloomberg report.
Major economies such as the United States, China, India and the European Union are running up large budget deficits and taking on more debt in their bond markets. Traders and investors are increasingly worried that deficits will create a global credit crisis and even contagion. Those concerns are driving increased demand for safe-haven gold and silver.
Long-term technical charts remain bullish overall. The weekly and monthly continuation charts of nearby gold and silver futures show that prices are still in strong long-term uptrends.
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Stock markets in the United States and other countries around the world, while experiencing some turbulence in the past two weeks, remain historically elevated. Many stock and stock index traders are likely now looking to buy some value from a longer-term perspective. Strong stock index rebounds in the coming weeks would be a significantly bearish development for gold and silver, considered safe havens, from a competitive asset class perspective.
The Federal Reserve has leaned harder on its monetary policy in recent weeks. This has cast serious doubt on whether the Federal Reserve will be able to reduce the federal funds rate at its December FOMC meeting. If the Federal Reserve stops cutting its interest rate, other major central banks are likely to follow suit. Higher borrowing costs for consumers and businesses are bearish for gold and silver from a demand perspective. A more hawkish Federal Reserve is also bullish for the US dollar, which would also be negative for gold.
The record-breaking bull runs in gold and silver are already underway. The gold bull run is 10 years old, while the silver bull run is 5.5 years old. Veteran commodity traders know that commodity markets are highly cyclical. They go through periods of boom and bust. Gold and silver are currently in long boom cycles. That means bankruptcy will surely come, and perhaps sooner than most believe.
Short-term daily charts for gold and silver showing bearish clues. Higher daily price volatility at higher price levels is a sign of a culminating bullish move in the market. Gold and silver have experienced extreme daily price volatility in recent weeks. Its short-term bullish price trends on the daily charts have also been negated, suggesting that market highs have been reached.
It can be argued that geopolitical tensions have eased in recent months. The ceasefire between Israel and Hamas largely holds, and tensions in the Middle East have eased following major U.S. airstrikes on Iran’s nuclear facilities. While geopolitics never completely disappears in the markets, it currently appears to be out of the foreground of the market. This is bearish for metals considered safe havens.
Overall, I remain bullish on gold and silver, based on the very bullish long-term technicals that are still in place, and the short-term technicals on both metals are not bearish.
With silver prices back above $50.00, I see the next big upside target for silver to be $60.00. That’s not a stretch and could even arrive before the end of this year. The silver market now has a bearish price reference that, if surpassed, would suggest that a market top has been reached: the October low of $45.51, the basis of December Comex futures.
For gold, the next bullish target is the all-time high of $4,398.00 an ounce, the basis of December Comex futures. Beyond that it’s $5,000.00. My opinion is that the price target of $5,000.00 could be reached next year. A sign that gold bulls do not have the power to continue their record run would be a December Comex futures close below solid chart support at the late October low of $3,901.30.
Tell me what you think. I really enjoy receiving emails from my valued Barchart readers around the world. Email me at jim@jimwyckoff.com.
As of the date of publication, Jim Wyckoff had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
