Gold and silver have endured a volatile week, recovering from a weak start to turn positive. Unless something changes later today, the precious metals are on course to end higher for the second consecutive week.
The major global indices, including the S&P 500, Europe STOXX 600, have also recovered from a sizeable fall and are higher for the second week, while the dollar index is down for... yes, the second straight week, at the time of writing.
Noticed a trend? Well, financial markets have become very sensitive to US stimulus talks, and precious metals have been unable to decouple themselves from other assets. In fact, gold and silver have been trending positively with equities for a while now and that relationship seems to have become stronger since markets bottomed out in March.
So, whatever your short-term view on gold and silver is, make sure that view is aligned with correlating markets, like equities.
Sentiment has been dominated in recent days by events on Capitol Hill. Everything has become about the economic relief package, and trading has been all about risk-on or risk-off economic data, rising virus cases and everything else is being ignored.
It looks like the Trump administration has shifted tack and is now again leaning toward a large-scale fiscal aid bill. On Tuesday, Trump sent the markets sharply lower after announcing, via a tweet, that negotiations with the Democrats were to be put on hold until after the elections, only to then float the idea of individual aid measures for certain parts of the economy hit by the pandemic. However, Nancy Pelosi wasn’t up for that, and with Trump desperate to win voter support, he seems to have agreed that a more comprehensive stimulus package might be needed after all.
However, large differences remain between the two parties and everything could still fall apart. This is why it is imperative that traders remain very nimble and take things from one level to the next and move on to the next best opportunity.
With that in mind, silver has now approached a key level around $24.50 and traders should be prepared to play different scenarios depending on how price action evolves here. Indeed, this is especially the case as the metal still remains inside a larger consolidation pattern and below long-term resistance circa $26.00-$28.00. So, the recovery we have seen since the end of September has to be treated with some caution.
The bulls would argue that silver’s refusal to go down, despite Tuesday’s big red candle, is strongly suggesting that prices should now break higher because the bears might be trapped. So far it looks that way and the precious metal has almost taken out Tuesday’s high around $24.50, above which trapped sellers’ stop orders would surely be resting.
So, what I would like to find out next is:
- Can silver break $24.50 resistance?
- If so, can it then hold above $24.50?
If silver breaks and holds above $24.50, this could clear the way initially towards $25.00, followed by next potential resistance levels around $25.50 and $26.00. These were levels where silver had previously found some support, if you look at an intraday chart. Thus, expect to see some trouble around those levels, should it get there. The 61.8% Fibonacci retracement against this year’s high comes in at $26.73. This could be an additional, slightly longer-term bullish, target.
Conversely, if silver fails to hold above $24.50, say, after a brief break, then this could turn into a false break reversal, leading to a sharp move in the opposite direction.
An alternative bearish scenario would be if silver doesn’t take out $24.50 resistance and instead falls back sharply to take out the pivotal level of $23.60—the August low.
Under these scenarios, price action would indicate that September’s move down may have been more than just profit-taking. It could trigger a sharp drop, sending silver towards long-term support around $20.00.
Is this the start of more selloffs? Trump cancels stimulus talks, gold price, stocks plunge
Markets tank, Trump cancels stimulus talks; more volatility ahead says traderAs President Donald Trump calls off further stimulus negotiations with the Democrats until after the elections, stock markets are falling on the announcement. More volatility in the markets can be expected in the month before the election, said Bill Baruch president of Blue Line Futures.The S&P 500 held onto gains in the early part of the trading session on Tuesday then fell more than 1% on Trump’s announcement.
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As President Donald Trump calls off further stimulus negotiations with the Democrats until after the elections, stock markets are falling on the announcement. More volatility in the markets can be expected in the month before the election, said Bill Baruch president of Blue Line Futures.
The S&P 500 held onto gains in the early part of the trading session on Tuesday then fell more than 1% on Trump’s announcement.
October has historically seen volatility in equities markets. In the last two elections, in 2016 and 2012, both years saw stocks drop in October.
“I think we will see continued volatility into the election and we’ve already begun to see it. We had the melt-up through August and a very, very foreseeable top through September happened,” Baruch told Kitco News.
Baruch noted that a stimulus package would likely come only after the election.
“Coming out of the election, I think we’re going to see fiscal policy. The Federal Reserve, Chair Jerome Powell, has said that we need fiscal policy. They’re going to get something done and I think after the election they’re more free to do something,” he said.
Should a stimulus package be announced, that would be bullish for equities, Baruch added.
Yields are expected to rise, Baruch noted.
“Inflation is starting to show up. Look at the PCE numbers last week, 1.6%, we’re getting close to 2%. Now, the Fed isn’t going to hike rates coming out of 2%...but the conversation is going to start and when are they going to hike rates and we can start to see the timeline move back from 2023,” he said.
By David Lin
Form Kitco News
Sources: St. Louis Federal Reserve [FRED], ICE Benchmark Administration [IBA], CBOE
Chart note: As you can see, gold tracks volatility. This past March the volatility index reached its highest level since the 2008 financial crisis. The circumstances causing that volatility also played out in the gold market with the London price pushing towards the record levels last achieved in 2011. This chart – along with several others of interest to precious metals’ owners – is a constantly updating feature at USAGOLD’s Gold Trends and Indicators page.
Gold pushed over the $1900 mark in overnight trading on reports that talks had resumed on the stimulus package and in response to the US dollar’s third straight day of declines. The yellow metal is priced this morning at $1921 – up $25 on the day. Silver is up a solid 60¢ at $24.52.
Australia’s ANZ Bank is out with an updated forecast for gold. It says that the yellow metal could benefit in the short run from a reduced global safe-haven flow into the dollar, according to a synopsis of the report published at FXStreet. “Ample money supply, lower interest rates and macro uncertainty should support gold investment,” it says. “Physical demand is recovering, so we see the gold price reaching $2,300/oz early next year.” ANZ’s update echoes a forecast recently released by CitiBank and mentioned in this report yesterday that targets a $2200 price over the next three months and $2400 over the next six to twelve months.
Too, uncertainties surrounding the upcoming election continue to play in the gold market. A Bloomberg report yesterday (Gold watchers say don’t rule out election turmoil yet) quotes Invesco’s Christina Hooper as saying “Despite some polls indicating Biden’s lead is widening, I would not assume the risk of a contested election has dropped, although I know that’s what many are concluding. A lot can happen between now and the election, and I do believe gold can benefit from it.” Citibank and ANZ, we would gather from the timelines indicated, see those uncertainties as stretching into the post-election scenario.
His posts during Asian hours on Wednesday -- calling for support for airlines and the Paycheck Protection Program -- helped erase losses in US stock futures and Japanese shares. Most Asian currencies crept lower amid uncertainty over the next round of US stimulus. In total, Trump tweeted or retweeted just under 40 times in the space of two hours.
That’s boosting market volatility, which has already picked up this month after Trump tested positive for coronavirus as investors grappled with the existing uncertainty surrounding the US election and a stimulus deal. A measure of implied volatility on one-month Treasury options jumped nearly 18 percentage points on October 6, its biggest daily increase since March 12, when the market was rocked by surging coronavirus cases.
"Assuming that Trump doesn’t flip-flop on his stance on the fiscal stimulus package, we think remnant hopes of reviving the risk-on, reflation trade may be put to rest for now," said Terence Wu, a currency strategist in Singapore at Overseas-Chinese Banking Corp, warning investors should stay nimble on shifting political winds.
While the sensitivity of the US Treasury market to Trump’s tweets peaked in May in the midst of the Covid-19 pandemic, his Twitter activity still significantly influences expectations of volatility in the market, an analysis by JPMorgan Chase & Co analysts who created the Volfefe Index, showed last month.