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Gold, Silver Hit 4.5-Mo. Highs; Why More Upside Likely

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(Kitco News) - Gold and silver prices both hit 4.5-month highs and ended the U.S. day session moderately higher Thursday. An eroding U.S. dollar and a rallying crude oil market are bullish outside elements boosting the metals. February Comex gold was last up $7.40 an ounce at $1,363.80. March Comex silver was last up $0.136 at $17.625 an ounce.

The U.S. Dollar Index was solidly lower and hit another 3.5-year low today. Meantime, Nymex crude oil prices were firmer and traded above $66.00 a barrel, and hit a more-than-three-year high. 

I’ve covered commodity markets on a full-time basis for 33 years. I’ve seen a few cyclical ups and downs in the raw commodity sector during that time. Price actions in many markets to start 2018 strongly suggest the raw commodity sector is now starting a cyclical upturn. It appears much better times are ahead for raw commodity market bulls, including the precious metals. Following are some of my observations on why we have ended a bust cycle in raw commodities and are entering a boom cycle.

The Goldman Sachs Commodity Index is a basket of raw commodity futures markets’ prices rolled into one composite index price. The GSCI has been trending higher since early 2016 and just hit a more-than-three-year high. The solid price uptrend on the weekly chart for the GSCI suggest more gains in the index in the coming weeks and months, and even longer.

The U.S. dollar index (USDX) is a basket of six major world currencies stacked up against the greenback. The weekly chart for the index shows prices are in an accelerating downtrend. Most raw commodity markets are priced in U.S. dollars on world markets. When the dollar depreciates it makes those commodities cheaper to purchase in non-U.S. currency.  Importantly, in my years of following all the markets, trends in the currency markets tend to be stronger and longer-lasting than trends in other markets. As the U.S. dollar index continues to decline, such will continue to be a bullish element for the raw commodity sector.

Crude Oil is arguably the leader of the raw commodity sector and has recently pushed above what were strong technical resistance levels as prices now appear poised to challenge $70.00 a barrel. Keep in mind that rising U.S. shale production in the coming months could be the element that caps gains in crude oil. But right now the trend is up and there are no early chart clues to suggest a market top is close at hand.

U.S. Treasury Bond prices have been trending lower from their 2017 high. A drop below strong chart support just below the market at present seems likely and would produce serious longer-term chart damage. The bear market in bonds and notes (rising yields, rising interest rates and rising inflation) is a positive development for hard assets like raw commodities. Hard assets have generally been a hedge against problematic inflation.

Live 24 hours gold chart [Kitco Inc.]

Technically, February gold futures prices closed near the session high and closed at a 1.5-year high close today. The gold bulls have the solid overall near-term technical advantage, amid a six-week-old uptrend in place on the daily bar chart. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,400.00. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at $1,340.00. First resistance is seen at the September high of $1,365.80 and then at $1,370.00. First support is seen at today’s low of $1,352.60 and then at $1,345.00. Wyckoff's Market Rating: 7.5

Live 24 hours silver chart [ Kitco Inc. ]

March silver futures prices closed nearer the session high and hit a 4.5-month high today. The silver bulls have the overall near-term technical advantage. Silver bulls' next upside price breakout objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at this week’s low of $16.735. First resistance is seen at today’s high of $17.705 and then at $17.85. Next support is seen at today’s low of $17.45 and then at $17.32. Wyckoff's Market Rating: 6.5.

March N.Y. copper closed down 120 points at 321.65 cents today. Prices closed near the session low on a minor downside correction from Wednesday’s huge gains. The copper bulls have the overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the December high of 332.20 cents. The next downside price objective for the bears is closing prices below solid technical support at this week’s low of 310.80 cents. First resistance is seen at today’s high of 325.80 cents and then at 327.50 cents. First support is seen at 320.00 cents and then at 317.50 cents. Wyckoff's Market Rating: 7.0.

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.