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Gold, silver prices rally following geopolitical shock

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(Kitco News) - Gold and silver prices are higher in early U.S. trading Monday, on safe-haven demand following a weekend terrorist drone strike that crippled Saudi Arabia’s oil industry. Some metals market watchers are scratching their heads wondering why prices have not rallied more sharply on the news. December gold futures were last up $11.80 an ounce at 1,511.10. December Comex silver prices were last up $0.336 at $17.905 an ounce.

Risk aversion is very keen in the marketplace to start the trading week, following the weekend terrorist drone attacks on Saudi Arabian oil installations that have quickly taken nearly 6 million barrels a day of oil production off the market. That amounts to about 5% of world crude oil production. It’s the biggest hit to world crude oil production in modern history. The U.S. has blamed Iranian-backed terrorists and Iran, itself. President Trump said the U.S. is “locked and loaded” to respond to the situation.

Asian and European stock markets were mixed to mostly down overnight. U.S. stock indexes are pointed toward lower openings when the New York day session begins. Safe-haven assets like gold, silver, the U.S. dollar, U.S. Treasuries and the Japanese yen are all in rally mode Monday.

Nymex crude oil prices are sharply higher and trading up around $4.50 a barrel near $59.50. October Nymex crude oil futures hit a high of $63.34 overnight. Brent crude oil jumped to a high of $71.95 a barrel, up nearly 20%, at one point in early trading Monday, but prices have backed well down from that level. President Trump has authorized the release of oil from the U.S. strategic petroleum reserve, which totals more than 600 million barrels. This is the biggest geopolitical flashpoint to impact the world marketplace in quite some time.

Sharply higher oil prices may throw a monkey wrench into central banks’ monetary policies, which had heretofore been leaning very easy. Sharply higher oil prices immediately raise the specter of rising inflation, which could hamstring central banks’ monetary policy easing in efforts to jumpstart global economic growth. The Federal Reserve’s FOMC meets this week and is expected to slightly lower U.S. interest rates.

If this type of major attack on the world’s leading oil exporter had occurred just 10 years ago, the world marketplace would be in much, much more turmoil. The past 10 years have seen domestic U.S. oil production jump dramatically—to the point that the U.S. is no longer held hostage by OPEC nations and Middle East turbulence. This could be part of the reason why gold prices did not see a bigger upside reaction to the weekend attack on Saudi oil installations.

There was also violence in Hong Kong over the weekend as the civil unrest there has escalated. However, the drone strikes in Saudi Arabia have overshadowed this news.

There was also weak industrial output data coming out of China Monday, continuing a string of downbeat economic numbers coming out of the world’s second-largest economy.

U.S. economic data due for release Monday is light and includes the Empire State manufacturing survey.

Live 24 hours gold chart [Kitco Inc.]

Technically, the gold bulls have the solid overall near-term technical advantage and are keeping alive a three-month-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in October futures above solid resistance at the September high of $1,566.20. Bears' next near-term downside price breakout objective is pushing December futures prices below solid technical support at $1,485.00. First resistance is seen at the overnight high of $1,519.70 and then at 1,525.00. First support is seen at the overnight low of $1,506.30 and then at $1,500.00. Wyckoff's Market Rating: 7.0

Live 24 hours silver chart [ Kitco Inc. ]

December silver futures bulls still have the overall near-term technical advantage. However, a three-month-old uptrend on the daily bar chart is in jeopardy. Silver bulls' next upside price breakout objective is closing prices above solid technical resistance at last week’s high of $18.555 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $17.00. First resistance is seen at the overnight high of $18.065 and then at Friday’s high of $18.265. Next support is seen at the overnight low of $17.69 and then at last week’s low of $17.47. Wyckoff's Market Rating: 6.5.

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.