Safe Haven Surge Has Only Just Begun for Silver 1 OZ 999 NY (XAG=X) and Silver Miners
Amid the precious metals rally that was set off by the rapid spread of coronavirus and uncertainty around the ability to contain it, gold prices had ratcheted up to a seven-year high. While silver lagged the gains of gold, a number of trends underlying the metal, including a rising gold/silver ratio, increased sales of gold by large silver miners, and steadily rising inflation, should pave the way for a new leg up very soon.
While other commodities have fallen in the wake of the COVID-19 (colloquially known as coronavirus) outbreak in China, precious metals have extended their strong 2020 performance until the big sell-off last week.
Gold spot prices broke above $1600 per ounce (oz) for the first time since 2013 and strengthened even further to break above $1680/oz last Monday. Commerzbank reported that inflows of gold into exchange-traded funds had risen for 21 consecutive business days through February 20. Not only are investors looking to hedge against the uncertain outcome of the coronavirus, but central bank demand remains healthy as their purchases are equivalent to approximately 20% of new gold production, according to Kitco. Silver, for its part, continued higher as well, reached its highest closing level since last September, climbing to $18.31/oz last Monday.
Large speculators sharply hiked their bullish positioning in gold futures by 22% in the week before the sell-off, according to data from the Commodity Futures Trading Commission. However, precious metals were caught up the volatility storm, causing money managers to trim some of those positions. Despite that trimming, BMO and Commerzbank noted that Gold ETFs tracked by Bloomberg still registered sizable inflows of “a good 9 [metric] tons.”
On a technical basis, more upside looks likely for precious metals. Kitco predicts that gold bulls’ next upside price objective is to produce a close in April futures above solid resistance at $1,700/oz, with support at $1,620.00/oz. A break above the $1700 level would mark the highest price for gold since December 2012.
Though silver has not yet surged as much as gold has, it is likely that silver will make an especially strong move upward soon.
Silver miners have actually outperformed gold miners since last summer, they still trail gold miners over the long term, leaving more upside potential to still be tapped. Additionally, while the gold/silver ratio cratered down to 81 from a multi-decade high of 93 in the late summer on a period of relative outperformance for silver, the ratio has been on the rise again in the past few months, peaking out at just below 90 this month. This, combined with strong miner performance that typically leads the strength in spot prices, suggests that silver is still set to make another leg up to catch up with the strength in gold.
The performance of silver miners is becoming more and more dependent on gold than it had been in the past. The Global X Silver Miners ETF’s (SIL) 17 highest weighted miners averaged just 40.4% of their Q3’19 revenues from silver, according to The Bull.com.au. The majority of their sales came from gold, which carries much stronger cash flows, bolstering traditional silver miners. The more gold the major silver miners produce, the more they trade like gold stocks amplifying that metal’s trends.
Though MRP continues to believe coronavirus will have a material impact on first quarter growth in China and the rest of the globe, as noted in our January viewpoint, we believe that it doesn’t have the disruptive potential to create a sustained downturn or resulting recession. Demand in most markets is only being delayed by supply chain backups, as opposed to destroyed by declining financial health of major economies and their institutions. However, the precious metals do have the potential to be one of the asset classes that continues its run even after the coronavirus begins to subside with the end of flu season in March.
While a surprise 50bps cut to the Fed Funds rate on March 3 will provide support to the market, it will likely drive even stronger inflows into gold and silver assets as well, since it effectively legitimizes the perceived economic threat arising from the virus.
As we have maintained since August, we believe the greenback is set for a sustained bout of weakness after a long rally through 2019. Before coronavirus shock sent traders scrambling for safe havens, including the dollar, that is exactly what was happening as the spread between U.S. real rates and real rates of other major currencies like the euro had been tightening for some time, driving dollar depreciation.
Overall, the bias in prices is: Downwards.
By the way, prices are vulnerable to a correction towards 17.64.
The projected upper bound is: 18.08.
The projected lower bound is: 16.50.
The projected closing price is: 17.29.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 28 white candles and 21 black candles for a net of 7 white candles.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
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 50.7792. This is not an overbought or oversold reading. The last signal was a buy 2 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 44.09. 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 41 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 -64. This is not a topping or bottoming area. The last signal was a buy 1 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 5 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAG= closed up 0.120 at 17.300. Volume was 8,900% above average (trending) and Bollinger Bands were 76% wider than normal.
Open High Low Close Volume___
17.186 17.418 17.120 17.300 30,711
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 17.57 17.82 17.07
Volatility: 45 28 27
Volume: 3,071 614 154
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 1.4% above 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 4 periods.