SD Outlook: Gold & silver will be put to the test all week long, and we might just find out if the bottom is in or not. Here’s why…
I have said that I think the bottom is in for the spot prices of gold & silver. The reasons are fundamental in nature, and slightly different for either metal.
For silver – The price of crude oil is putting a floor under the white metal.
For gold – Gold is priced for political, geo-political and economic perfection.
Now, if the price of crude plummets into the $50s, which I don’t think it will as my call has been $80 oil to close out 2018, then yes, the spot price could go lower from here as the floor would be lowered. As for gold, well, it’s hard to get more perfect than perfect, so I’m not seeing fundamental reasons for gold to drop much lower than where it is now. Granted, the cartel could try to paint the chart with technical work that would get the HFT algos doing the heavy lifting to whack the price, but the cartel runs the risk of dropping the price too much.
As price drops to ridiculous levels, buyers come in with a fervor.
Additionally, even if the spot price does go lower, we are already seeing evidence of “premium creep”, meaning the increase in the premium over spot charged for actual coins, bars and rounds offsets further decreases in the spot price of the metal.
Regardless, gold and silver will be put to the test this week, so go ahead and pick the idiom of your liking:
- Gold & silver will be put through the wringer
- Gold & silver will be put through the paces
- Gold & silver will run the gauntlet
There are lots of ways to describe it, but this is a very important week for the metals, and we really need to see them maintain here.
Notice the crap ton of Fed Head speeches early on this week:
That’s an average of three per day through Wednesday.
The speeches continue through Friday:
But the speeches to close the week aren’t where I wanted to draw your attention. I want to draw your attention to Friday morning at 8:30 a.m. EST.
We get trade data, which could add fuel to the trade war fire, which somehow the market thinks the US is winning, but more importantly, at the same time, we get the September BLS Jobs Report, formally known as the “Employment Situation”. That is when the government
lies to us tells us how many jobs were created in the month of September, as well as the unemployment rate, labor-force participation rate, etc. My point is to remain on guard on Friday morning because we all know that the cartel loves to smash on Jobs Report Friday, and we do have the boomingest most bestest economy ever, right?
It’s what the Fed and the government say anyway.
I don’t buy it.
But I digress.
If all of those Fed Heads yapping all week long and the Jobs and Trade Reports weren’t problematic enough, this week is “Golden Week” in China. That means China’s markets are closed:
All week long.
And that includes the Shanghai Gold Exchange:
The SGE was founded in 2002, but didn’t officially launch until mid-2016, so this will be the third year the exchange is closed during Golden Week.
When the SGE closed for Golden Week in 2016, the cartel had their fun with the metals.
Look at silver’s smash:
Silver really took it on the chin in 2016.
In 2017, however, silver remained basically “unch” during Golden Week:
This year, however, silver is at a much lower price during Golden Week, so I still think downside is limited here.
Gold got hit like silver in 2016:
That was a drop of about $65.
In 2017, gold was hit slightly:
But like silver, gold is starting the week at a much lower price.
What is in store for gold this year?
Well, both metals are starting from a much lower prices than in the last two years, and based on my fundamental reasons, and the fact the prices are already so low, I think downside is limited this week, even if when the cat is away the mouse will play.
During the week, it will be interesting to monitor the foreign currency markets to see what happens to USDCNY.
Here’s a snapshot of the last six months:
In line with the “China controls the gold price” theory, if USDCNY goes up, the yuan weakens, and gold will fall. If USDCNY falls, the yuan strengthens and gold will rise.
What effect, if any, will golden week have on USDCNY?
We are about to find out.
Regardless, we saw pressure on gold & silver overnight and into this morning.
It looks like the cartel is setting up to reject silver at its 50-day:
Again, for stackers looking to add to their positions, it is not just keeping tabs of the silver price, it is also keeping tabs on premiums charged over spot.
Gold has a little work to do if it wants to get back up to its 50-day:
That blue line has been strictly enforced as the “thou shalt not pass” line since late April.
And silver’s out-performance of gold on Friday explains the nice little move lower in the gold to silver ratio:
Granted, with the ratio still above 80, many would say the ratio is still favoring silver. I think so.
Palladium looks to be continuing its pullback:
Which isn’t a bad thing, especially for the overbought RSI.
Platinum has been beat-down so much this year that it makes sense that platinum is looking to open slightly higher:
Like silver, platinum has a lot of hard work ahead of it.
Copper looks set to open the week lower:
That is one ugly looking chart, but if copper can stay above its 50-day moving average here and paint a higher-low en route to another higher-high, the chart would start shaping-up rather nicely.
Crude oil is set to open the week above $73:
Crude oil is setting up for a run at the $75.27 high put in on July 3rd.
We see the Farce is set to open below 12:
The total complacency in the markets as shown by the VIX above is one of the reasons why the various US stock market indices keep hitting new highs, and it is also one of the reasons that gold is priced for absolute perfection right now.
Speaking of the major indices, the Nasdaq looks like it could put in a new all-time high:
Could very well be there this week.
The dollar is banging around its 50-day:
Remember I called for a relief rally in the dollar index post-FOMC, and that is what we got. It will be interesting to see if the rally starts to fade or not this week.
The yield on the 10-Year Note is still right around that psychologically important level of 3.0%:
As with the dollar, it will be interesting to see what happens to yield this week.
Gold & silver will be put to the test, all week long. I think the downside is limited here. We have been struggling all year long, and prices are already much lower than the prior two years during Golden Week. We have yet to see a rally coming out of summer, and we have just entered the most dangerous month of the year for the stock market.
All said, gold & silver will be put to the test, but I think they are in a good position here, and before the week is done gold & silver may just surprise to the upside.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.