Silver 1 OZ 999 NY (XAG=X) will likely climb higher on coronavirus fears
As coronavirus panic intensifies around the globe — the list of countries touched by the virus has climbed to nearly 60, more than 86,000 people have been infected and over 2,900 have died — what is next for the markets?
The gold price was almost unchanged last week after a roller-coaster ride during the fastest-ever correction on Wall Street that left the Dow Jones down 12 per cent.
Gold ended the week at $1,586 (Dh5,825) an ounce, exactly the same amount as it started the previous Friday. But last Monday the yellow metal surged to $1,665, its biggest leap in price in more than a decade, before returning safely back to earth, mainly in late trading on Friday.
US treasury bonds worked much better as a hedge against the collapsing stock market: 10-year treasury yields fell 25 points to below 1.2 per cent for the first time ever, stoking up bond prices that move in the opposite direction to yields.
That said, holding gold last week was one of the very few safe havens in a nasty storm. This saw the Dow Jones make a historic record points loss for a single day on Thursday.
Other gold-related investments did not fare as well. Silver was off over 10 per cent. Shares in gold and silver producers were dragged down along with the rest of the stock market. Bitcoin and the dollar fell.
Bullion holders must be wondering whether their luck can last, or is it time to sell?
Probably not. Friday’s Wall Street sell-off looked like the end of this correction with shares first plunging deeply at the open with losses of over 1,000 points, but then attracting late bargain hunters to close a more modest 357 points down.
How will investors viewing their battered portfolios this weekend take the news? To some extent, this will hinge on how the US coronavirus scare pans out.
The first US death was confirmed in the state of Washington at the weekend — a man in his fifties who had underlying health conditions but who hadn’t travelled to any affected areas. There are now 24 cases of infected people in the US, excluding 47 others with the virus who had been repatriated from Wuhan or from the Diamond Princess cruise ship.
The main problem for US stock markets is not the virus-induced panic but massive overvaluation and a possible socialist candidate for president. The parabolic recent price moves in stocks like Apple can only ever end badly, and these stocks do have a lot more room to come down.
Yet the US Federal Reserve is bound to respond with interest rate reductions and extraordinary monetary policy. Before last week one rate cut was expected later this year. That has now trebled to three cuts, with the first in March almost certain.
Quantitative easing and other monetary tricks will also be back on the agenda. Public spending to counter an economic downturn — with actual production down — might well prove inflationary. For example, Hong Kong gave all its residents $1,200 to spend last week.
Nevertheless, this should all help share prices to stabilise — and this is a US presidential election year. Such policies will definitely be a great support for precious metals, albeit prices will likely be very volatile.
Think how gold prices trebled and silver prices moved up five-fold from the sell-off in 2008 to the highs of 2011. That happened in the wake of the last global economic bailout by the Fed and China. Will it really be any different this time?
If you want to diversify into gold the easiest way to do it is to buy a suitable gold-backed exchange traded fund like GLD, BAR or SGOL. This is a lot simpler than lugging gold bars around, solves the security problem and offers instant liquidity.
Be more careful about rushing to invest in the shares of gold producers as like last week they get dumped as the stock market falls. Gold share ETFs like GDX and GXDJ also closed sharply lower.
Wait for the stock market sell-off to show clear signs of reaching a bottom. This could take three to six months. But gold prices will likely carry on upwards regardless. My prediction for the highest gold price is on US presidential election day.
As for silver ETFs, there is the iShares Silver Trust (SLV). Last week’s losses in silver left the ratio of gold to silver at a near record 95 by comparison to the long-term average of 55.
That sets silver up for massive outperformance against gold in the near future. When it comes this will likely be right out of the blue, so stocking up on silver now and riding with its notorious volatility should pay off handsomely.
Gold and silver are still on a path that leads to much higher prices.
Overall, the bias in prices is: Downwards.
By the way, prices are vulnerable to a correction towards 17.72.
The projected upper bound is: 17.44.
The projected lower bound is: 15.87.
The projected closing price is: 16.65.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 21 black candles for a net of 7 white candles.
Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 10.4156. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 31.86. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 37 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -184.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 1 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAG= closed down -1.036 at 16.662. Volume was -0% below average (neutral) and Bollinger Bands were 49% wider than normal.
Open High Low Close Volume___
17.699 17.857 16.350 16.662 0
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 18.00 17.86 17.02
Volatility: 44 28 26
Volume: 0 0 0
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAG= is currently 2.1% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect very strong flows of volume into XAG= (bullish). Our trend forecasting oscillators are currently bearish on XAG= and have had this outlook for the last 0 periods.