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Gold, silver rally on safe-haven buying; more upside likely

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(Kitco News) - Gold and silver prices are solidly higher in midday U.S. trading Monday, on safe-haven demand following a shocking 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. However, this matter is far from over, and it’s likely both metals will see more buying interest in the near term as this major geopolitical event plays out. December gold futures were last up $10.90 an ounce at 1,510.50. December Comex silver prices were last up $0.396 at $17.965 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. today said Iran launched the drone strikes. President Trump said the U.S. is “locked and loaded” to respond to the situation. After holding off on military action when Iran downed a U.S. drone, it’s not likely Trump will hold off on military action this time.

Asian and European stock markets were mixed to mostly down overnight. U.S. stock indexes are toward lower at midday. Other safe-haven assets, including the U.S. dollar, U.S. Treasuries and the Japanese yen were all in rally mode Monday.

Nymex crude oil prices are sharply higher and trading up around $7.50 a barrel near $62.25. 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 down from that level. President Trump has authorized the release of oil from the U.S. strategic petroleum reserve, if needed, 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. That’s a mixed bag for the metals markets, as China is a major metals importer and slowing economic growth in the country is likely to reduced metals demand. However, economic stimulus coming from China’s government could work to boost demand for metals down the road.

Live 24 hours gold chart [Kitco Inc.]

Technically, December gold futures prices were near mid-range at midday. The bulls have the solid overall near-term technical advantage and are keeping in place a 3.5-month-old uptrend on the daily bar chart. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at the September high of $1,566.20. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at $1,485.00. First resistance is seen at today’s high of $1,519.70 and then at $1,525.00. First support is seen at today’s low of $1,503.40 and then at $1,500.00. Wyckoff's Market Rating: 7.0

Live 24 hours silver chart [ Kitco Inc. ]

December silver futures prices closed were nearer the session high at midday. The silver bulls have the overall near-term technical advantage. A 3.5-month-old uptrend is still in place on the daily bar chart, but the bulls need to show more power soon to keep it alive. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $19.00 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 $18.265 and then at last week’s high of $18.555. Next support is seen at today’s low of $17.69 and then at last week’s low of $17.47. Wyckoff's Market Rating: 6.5.

December N.Y. copper closed down 585 points at 264.10 cents today. Prices closed nearer the session low, hit a seven-week high and scored a bearish “outside day” down on the daily bar chart today. The copper bears still have the overall near-term technical advantage. However, recent gains suggest this market has put in a bottom. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 275.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the September low of 248.20 cents. First resistance is seen at 268.00 cents and then at today’s high of 270.65 cents. First support is seen at 262.00 cents and then at last week’s low of 259.00 cents. Wyckoff's Market Rating: 3.5.

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