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Gold markets: ready to hit all-time highs?

Commentaries & Views

Gold prices continue to show incredibly impressive market trends, as the yellow metal has gained by more than 17% since March 19th, 2020, and investors are now wondering about how much higher market valuations can travel. When assessing potential price trends in gold and silver, I think it is generally important to monitor the market’s ETF activity because they give us real inflow data that can be used to identify emerging price trends.  Inflow data coming from exchange-traded funds with exposure to precious metals suggest these recent bullish trends can continue, as the SPDR Gold Trust (NYSEARCA: GLD) has shown inflows of $5.9 billion in just the last month. During the same period, the iShares Silver Trust (NYSEARCA: SLV) also benefited from impressive inflows of more than $300 million.

Overall, these are truly astonishing inflow figures that go well beyond the historical averages of each of these funds and this activity suggests that the market’s highest-volume precious metals ETFs might be ready to lead the broader market higher. If these bullish price forecasts turn out to be true, the most likely suggestion would be that this the market’s emerging trend momentum could send gold and silver prices to levels that exceed the prior all-time highs from 2011.

Priced in terms of the U.S. dollar, market valuations in both gold and silver have recently shown the potential to break out once important resistance supply levels are removed from the market. Specifically, many investors have been watching the $1,660 price level as a central pivot point and as an indicator of potential bullish or bearish trend direction going forward. On a broader scale, macroeconomic developments continue to favor both gold and silver assets (relative to the U.S. dollar), as central banks around the world are likely to maintain accommodative monetary policies in the wake of the COVID-19 pandemic and in dealing with the economic ramifications of these unprecedented events.

From a fundamental perspective, negative revisions to annualized GDP forecasts are likely to continue to be noticeable for at least the next few quarters. Of course, all of this could put pressure on global currency values and regional equities markets. While it is true that stocks in some regions have performed better than others within this rise of global uncertainties. For example, the German DAX has managed to avoid some of the losses that ultimately became visible in the French CAC 40 stock index.

Furthermore, stock market losses in China were large but they were much more subdued when compared to the utter collapse that was visible in the S&P 500 from the end of February to the end of March. During this period, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY) fell by more than 34% as sentiment began to turn and risk aversion became the market’s dominant theme. However, we have now entered into the new earnings season and several notable disappointments have already been reported by important blue-chip companies. 

If earnings season continues to disappoint investors while failing to live up to the previous expectations of equities analysts, precious metals assets could resume prior rallies based on safe haven protection advantages. Of these two selections, silver markets appear to have the greatest potential for upside with key areas of resistance to be found at $15.85. On the downside, negative retracements from here could put recent demand levels back into focus, where support has moved up to the $14.60 region. Under both scenarios (bullish and bearish), we can see that the Ichimoku Cloud structure has flattened while Stochastic indicator readings are rolling higher. This price divergence should be notable for medium-term traders, as it suggests that sluggish price momentum in recent trading sessions might be ready to make a decisive price move.

On the silver weekly charts, it has become increasingly likely that most of the market’s prior short positions have likely been abandoned after bearish market trends failed to produce an important three black crows candlestick pattern on the above price history. Based on the massive inflow readings that are currently visible in the high-volume GLD and SLV ETFs, the upward direction is looking much more likely at this stage.

At current market valuations, the price of gold is trading just 6.5% below its all-time highs (which were established in August 2011). In these charts, we can see that the price of silver has not yet performed in ways that are quite as impressive. However, it stands to reason that a new record high in the price of gold may prove to be a catalyst that turns sentiment and makes it clear that safe haven assets still have the potential to outperform global equities markets during the remainder of 2020.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.