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Gold, Silver: A look at history to gauge how far prices will fall

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(Kitco News) - As the global coronavirus pandemic early this week goes from bad to worse from a world markets and economic perspective, gold and silver markets have sold off sharply because traders “can” sell them. Traders of U.S. stock index futures can’t sell as of this writing because they are untradable and locked down the daily trading limits. The safe-haven status of gold and silver markets is temporarily thrown out the window as margin calls in stocks and stock index futures are prompting many, many traders to throw up their hands and liquidate the trading positions they can, in order to stay solvent.

The present panic in the global marketplace rivals and arguably now exceeds the panics seen in historical market shocks of the past few decades—namely the stock market crash of 1987, the September 11, 2001 terror attacks on the U.S. and the 2008 global financial crisis.

For gold and silver, an examination of the longer-term price charts can provide some perspective on how for prices may fall in this present unstable markets environment.

See on the monthly continuation chart for nearby Comex gold futures that prices in March have scored a rare and technically bearish “outside month” down—whereby the trading range of the month of March exceeds the trading range of February both on the upside and downside. The next longer-term technical support area for nearby gold futures is the $1,375 area. Below that the $1,250.00 area comes in as longer-term chart support. And then there is solid longer-term chart support at the 2015 low of $1,046.00, basis nearby futures.

For silver, the picture may be a bit clearer. Futures prices Monday hit an 11-year low and blew past what were solid longer-term technical support levels. The next downside price objective for nearby Comex silver futures is the 2008 low of $8.40. That low occurred during the 2008 financial crisis.

Importantly for precious metals traders: Keep an eye on crude oil prices. Nymex crude oil as of this writing is trading below $29.00 a barrel. This strongly hints of raw commodity price deflation setting in—a very bearish omen for the entire raw commodity sector. Do not look for the precious metals markets to sustain any solid price recoveries until crude oil prices push back above $35.00 a barrel. The outlier in this scenario may be gold. Keen markets turmoil still could invite safe-haven demand for the yellow metal that could at least stabilize that market.

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.