Precious Metals Give Up Overnight Gains

January 14th, 2016 by

After posting solid gains on Wednesday, the precious metals fell back on Thursday. Gold was up slightly overnight in Asia before quickly giving up these gains when trading opened in New York.

Spot gold sat about $9 per ounce lower at 10:30 am ET, hovering around $1,085/oz. Silver and platinum prices sank a bit further, with platinum slipping back to $840/oz and silver tumbling to $13.90/oz. Most of this action was made up by a modest abatement of risk aversion among traders and investors, as well as simple profit-taking after big moves for silver the previous session.

Market Trends Impacting the Metals

bull bearU.S. stocks got a boost on Thursday when first-time jobless claims painted a steady picture of the labor market. Weekly jobless claims rose by just 7,000 to 284,000 new claims filed. Meanwhile, international exchanges were the reverse of Thursday: Shanghai closed nearly 2% in the green while indices across Europe sank into negative territory.

Source: pgm-blog.com

Source: pgm-blog.com

The running theme in 2016 thus far has been volatility. This spate of big swings on the markets have made it near-impossible to predict the general direction trading will follow based on early action. For instance, the precious metals were actually in the red on Wednesday morning while stock futures in the U.S. were up significantly. By the afternoon, however, the exact opposite transpired: equities were posting steep losses while the precious metals all rallied.

Since the new year, stocks have been showing an unusually strong correlation to crude oil prices, which have continued to carve out new lows. Both crude benchmarks briefly slipped below $30/bbl during trading on Wednesday. The reason stocks have been tracking with tumbling oil prices is inextricably tied to the worries over lackluster global growth.

Source: Forbes

Source: Forbes

Weaker levels of economic activity and manufacturing output are affecting every link in the energy resources supply chain. For instance, it’s not just crude oil that’s in a supply glut; gasoline (petroleum) stockpiles have also approached full capacity, meaning that the glut is making its way through the entire supply chain and petroleum refineries must slow down operations.

If stocks continue to crumble right along with oil prices, it’s worth noting that according to MarketWatch (a subsidiary of Forbes), even piling into supposedly “risk-free” bonds won’t shield investors from a collapse of the stock market.

Following the Fed

With markets being dragged lower by growth concerns, the other side of the equation is how the Federal Reserve will adjust its dubious monetary policy strategy. If the central bank is forced to become more dovish and—like many forecasters have predicted—must subsequently backtrack on their proposed 2016 rate hike schedule, it would be very supportive of gold.

federal-reserveThe Fed has been pointing toward four more quarter-point (25 bp) rate hikes over the course of 2016, but some experts believe a rate cut is even more likely if the economy falters. St. Louis Fed President James Bullard is speaking this morning in Memphis, Tennessee, and may provide some more fodder on the target of four rate hikes.

Aside from the Fed, quarterly earnings for Q4 2015 are beginning to come out, which always has the potential to move the markets.

Technical Outlook for Gold

Charting-Gold-MarketGold appears to be finding support at $1,083/oz and $1,079/oz, while resistance has been seen at the $1,087/oz and $1,094/oz levels. The 20-day moving average for the yellow metal has been right at $1,094/oz, and gold has been bouncing lower each time it hits this level lately. Gold prices must retest the 20-DMA if they are going to break higher.

The tight spread between support and resistance levels would imply that gold has been trading in a narrow range of late, but this doesn’t square with the actual volatility we’ve been seeing. More than anything else, this is an indication of great uncertainty, though the technical levels are still a useful heuristic for understanding long-term price trends.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.