Outlook for Gold and Silver in 2020

Outlook for Gold and Silver in 2020

$XAU, $GLD, $USD, $XAG, $SLV

Now it is the time of year to predict where gold prices will go in Y 2020.

The forecasts’ are worth paying attention to because the experts use a number of factors, ranging from central bank policy to geopolitics to cycle analysis, to make their calls.

There is something for everyone here, fundamental and technical traders alike. This is a must keep report so keep it handy throughout the year as a Key reference guide. So archive it.

Gold prices experienced a 13% rally during the 1st 11-months of Y 2019, driven by concerns surrounding the US/Chinese trade dispute, and falling global yields. This comes despite a 1.7% rally in the Buck. Gold reached a high of 1,556 in the 1st 11-months of 2019, but stalled in September as the Fed started to ease US short-term interest rates and economic growth started to stabilize.

The combination of solid US jobs growth and the demand for riskier assets helped stabilize the US 10-year yield which capped the upward momentum in gold prices.

Recently movements in gold prices and the US 10-year yield have been inversely correlated.

Gold 2020 Outlook: Looking forward, its hard to make a case for higher sustainable gold prices. It appears that the Fed is on hold, as reflected by recent speeches from Fed Chairman Powell and commentary from the latest FOMC meeting mins. The Fed has made it clear that the hurdle rate for additional rate cuts is larger than it has been earlier in the Fall.

With the Fed likely on hold, any positive US economic data will continue to lift the 10-yer yield which should put downward pressure on gold prices. Additionally, if global growth begins to stabilize and Europe and Asia begin to experience economic expansion, global yields will begin to rise, weighing on gold prices.

The wild card continues to be the US-China trade negotiations. As of late November 2019, it appears that the US and China are moving closer to a Phase 1 deal. While this might spill over into Y 2020, the deal would reflect a further easing of tensions and the removal of trade tariffs between the 2 largest economic powers globally.

If trade tensions continue to subside and the US 10-yr yield rebounds to its Y 2018 average level of 2.65%, gold prices will likely head lower back toward 1,300.

If you want to know where gold prices are headed in Y 2020, it may be constructive to look at the yield on US Treasuries.

As of 29 November, the nominal 10-yr yield was trading at 1.78%, which is below the current annual rate of US inflation, according to the Department of Labor’s October report.

What this means is that the real yield on the 10-yr T-Note is 0%.

When this has happened in the past, it was historically prudent to replace bonds with gold.

During the last major gold upcycle, the precious Yellow metal went from the mid-200s up to 1,900 oz. You can easily get a 5X increase or more in its price, which is why I believe 10,000 gold could happen the longer supply trails behind US money supply.

And then there’s global debt. After climbing above $250-T in 1-H of Y 2019, the amount of debt that’s owed by governments, the financial sector and non-financial sector is now forecast to touch a record $255-T by year’s end, according to the Institute of International Finance (IIF).

Says IIF economists, this sum is the equivalent of 320% of total global economic activity, the highest level ever.

To put it another way, for every $1 that’s produced today, an additional $3.20 in debt is created and thrown atop the pile. This is not sustainable.

It is also one of the most important factors driving the gold price North over the long term because, again, high debt levels limit central banks’ monetary options to lower-for-longer.

Gold is set to finish about 13% higher for the year with its strength primarily driven by rate cuts by major central banks, a deteriorating global economic outlook and elevated geopolitical tensions.

The uncertainty over the US-China trade deal has been the major catalyst behind the price action. The length of the trade dispute and its impact on the US economy caused the Fed to alter its tightening plans. A year ago, the Fed was raising rates. This December, it’s expected to keep rates on hold after 3 consecutive rate cuts in July, September and October.

Although gold is in a position to finish higher for the year, how it got there is interesting.

Gold traded lower until May as optimism over a trade deal drove investors into higher-yielding assets. At the same time, the Fed was Hawkish although policymakers were divided over whether to continue to raise or hold rates steady.

Gold put in its low for the year in May after the Us and China called off trade talks. Risk aversion increased globally as fears of world recession resurfaced amid disappointing macro data in major economies. Equity markets sank worldwide and Treasury yields dipped to multi-year lows as investor sentiment soured over growing global growth worries.

Gold may have bottomed in May, but its most impressive price move took place during August and September. This was shortly after the Fed made its 1st of 3 rate cuts on 30 July.

Fear of a recession also helped spike gold prices higher as Treasury yields inverted. However, the move proved to be speculative in nature as the Fed continued to insist the economy was not headed toward recession and its rate cuts were just a “mid-cycle” policy adjustment. It was at this time that the Fed started to talk about limiting its easing to 1 or 2 more rate cuts.

Gold hit its high for the year after the Fed started to talk about easing up on its rate cuts, and the US and China decided to move back to the negotiation table. It is likely to trade sideways to lower over the near-term as long as the trade talks continue and the Fed holds rates steady.

The rally in February COMEX gold from 1292.30 in May to 1571.70 in September was driven by speculators betting on at least 3 rates cuts by the Fed. Once the Fed delivered and the trade talks resumed, gold investors had no reason to hold onto their long positions and prices retraced nearly 50% of the 4 month rally.

Expectations of at least 3 rate cuts and a Summer of trade war uncertainty fueled a four month rally in gold in Y 2019. With the Fed expected to hold rates steady and the US and China still negotiating, gold may be underpinned over the near-term, but there is no urgency to buy it.

We do not see gold strengthening over the near term as long as the trade talks continue and the Fed holds rates steady.

Furthermore, gold remains the least preferred safe-haven as investors prefer to place their money in Treasury bonds and Japanese Yen. The best chance for a major rally in gold will come from growing recessionary concerns. And that is not on the cards right now.

According to our work, gold broke out of a critical 6-yr base in June 2019 and established a new Bull Market. The correction that began in September is nearly complete, and gold should resume the uptrend in Y 2020.

For Y 2020, we expect gold to continue to advance the larger pattern and challenge Key resistance between 1750 – 1800.

Our current forecast calls for a pattern breakout above 2000 by Y 2021 or Y 2022. However, that timeframe could be expedited depending on the results of the 2020 Preidential election.

Longer-term, we believe gold will continue to progress throughout the 2020’s, potentially reaching 7500 – 10,000 or higher as the debt super cycle implodes globally.

Near-term, the potential for 1 more drop in early December remains. A breakdown below 1445 would support a bottom around the time of the 11 December Fed decision. Futures would have to close above 1485 to promote a 6-month low on 12 November at 1446.20.

The 1st 2-weeks of December are critical.

The ISM manufacturing numbers, November NFPs, the 11 December Fed decision, and the 15 December tariff deadline are all significant triggers that could push gold in either direction;expect increased volatility.

The longer-term monthly continuation bar chart for nearby COMEX gold futures shows prices have been trending higher since the Y 2015 low and this year marked a 6-year high. See the longer-term technical support and resistance lines on the chart.

From a longer-term trend perspective, price history dating back over 40 yrs shows the gold market experienced a price uptrend from Ys 1976 to 1980. A downtrend occurred from Ys 1980 to 1985, with an upside correction within the downtrend in Y 1982. From Ys 1985 until 1987, a price uptrend occurred.

From Ys 1987 until 1993 a gentle price downtrend occurred. Prices traded sideways from Y 1993 until Y 1996 and were in a downtrend from Ys 1996 until 1999. Prices then traded sideways until Y 2001, and then embarked upon a powerful 10-yr uptrend that produced an all-time high of 1,908.60 in Y 2011. And then from Ys 2011 until 2015 prices trended solidly lower.

Since Y 2015 gold prices have been trending up. The monthly gold chart at present is overall technically Bullish. That suggests the outlook for gold in the coming new year is for more of the same, trending sideways to higher in the coming months.

It will take a move in nearby gold futures prices above longer-term technical resistance at the Y 2019 high of 1,556.20, basis nearby futures, to provide the bulls with fresh longer-term technical strength to suggest a challenge of significantly higher resistance levels that include the all-time high of 1,908.60 marked in Y 2011.

It would take a move in nearby gold futures prices below longer-term chart support at the 1,375.00 level to produce serious longer-term technical damage to then suggest a years-long price downtrend.

Meantime, the monthly continuation chart for nearby COMEX Silver futures shows that prices are in the middle of a wide trading range, bound by longer-term chart resistance at the Y 2016 high of 20.825 and by the Y 2015 low of 13.666.

Silver’s long-term technical posture favors neither the bulls nor the bears. The monthly chart also suggests that in Y 2019 silver prices will trade in choppy fashion with the range defined by the support and resistance lines seen on the chart. This longer-term chart does slightly hint that silver prices could drift a bit lower in the coming months, possibly even challenging the Y 2015 low.

Y 2019 was the year of fear. A global economic downturn, blamed on US-China trade tensions, ruled the financial world.

Uncertainty resulted in spot gold rallying some 300 after bottoming in May at 1,266.19 oz, to reach a multi-year high at 1,556.97 in September.

Now trading at around 1,460 oz, the long-term picture shows that the bright Yellow metal retreated after nearing the 61.8% Fibo retracement of its 1,920.70/1,046.37 decline between Ys 2011 and 2015, trading now below the 50% Fibo retracement of the same slump.

The market believes that the US and China will reach a trade agreement, and despite a bit naive, it also believes that such a deal could be the end of the economic slowdown. In such a scenario, safe-haven assets should continue to lose momentum. Whatever happens, gold trend will be set solely by the market’s sentiment.

There is 1 more factor that skews the risk toward the Southside: the US Fed stance. In a world dominated by uncertainty, Mr. Powell holds on to a “Hawkish” stance on monetary policy.

Given the mentioned Fibonacci marks, a critical support, and a line in the sand comes at 1,379.70, where spot gold has the 38.2% Fibo retracement of the yearly decline. Once below it, the precious Yellow metal has room to slide toward 1,250.00 in 1-H of the New Year.

If panic unwinds, the mark to watch will be the mentioned 61.8% Fibo retracement at 1,584.50, as once above this last, spot would have to room to extend its rally up to the 1,790.00 price zone, where it has multiple monthly highs between Ys 2011 and 2012.

Stay tuned…

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