Make Kitco Your Homepage

Gold prices weaker; bruised marketplace wonders what's next

Kitco News

Editor's Note: Get caught up in minutes with our speedy summary of today's must-read news stories and expert opinions that moved the precious metals and financial markets. Sign up here!

(Kitco News) - Gold prices are trading modestly down in early U.S. trading Thursday, amid a severely battered global marketplace that still sees would-be buyers in most markets scared and standing on the sidelines. Stability in markets remains elusive in this unprecedented economic crisis. One veteran trader commented, “Give us bad news and we can deal with that, but give us extreme uncertainty and you get panic and market dislocations” that are very hard to deal with.” April gold futures were last down $7.80 an ounce at $1,470.20. May Comex silver prices were last up $0.198 at $11.97 an ounce.

Global stock markets were mixed in overnight trading, with Asian shares mostly down and European shares mostly up. U.S. stock index futures are presently pointed toward weaker openings when the New York day session begins. The coronavirus pandemic continues its stranglehold on the global marketplace. China did report overnight that there were no new reported cases of the illness in that country Thursday, although many wonder about the outbreak statistics’ veracity coming from the Chinese government.

Look for another volatile day in many markets. Speaking of volatility, the VIX index (called the volatility index) this week hit record highs above 80.0. For perspective, the European Union debt and financial crisis of a few years ago saw the VIX climb to 30.0, which at that time had the marketplace alarmed.

Following is an edited email dispatch from a market analyst, received this morning: “With fears over the spread of coronavirus intensifying, it’s reasonable and justified to see risk assets being sold aggressively. After all, the consequences on the global economy and corporate earnings may be enormous, depending on the duration of the pandemic. But what’s interesting in the current market turmoil is that even the safest assets in financial markets, U.S. government bonds, are being sold-off. In a bear market, traditionally investors have flocked to U.S. Treasury bonds, which historically have been inversely correlated to stock markets. In fact, we did see tremendous inflows into Treasuries at the beginning of the coronavirus outbreak. From mid-February to early March, yields on the 10-year Treasury bond declined by 80% to reach a record low of 0.32%. However, over the last several days this pattern has changed, with the sell-off in US Treasuries intensifying, especially on Tuesday and Wednesday with yields reaching 1.25%. This kind of market behavior is scary. It shows that investors are selling whatever they can to raise cash, and this also explains why the U.S. dollar is soaring to new highs. Investors are clearly being forced to build their cash reserves in order to survive a prolonged period of the current pandemic.”

In overnight news, the European Central Bank stepped in and said it would buy 750 billion Euros in securities to liquify the European financial system. The ECB labeled the effort the “Pandemic Emergency Purchase Program.”

After the markets closed Wednesday the Federal Reserve added still more short-term liquidity to the U.S. financial system. The U.S. government is set to unveil a financial assistance package to American citizens and businesses.

The U.S. dollar index is higher again in early U.S. trading and hit another three-year high. The world marketplace has seen confirmation that the greenback is still king when times get really tough. Nearly everyone who can wants to hold U.S. dollars as a safe-haven store of value. The big grab for greenbacks is perpetuating dislocations in the financial markets but there is a positive element from this week’s reaffirmation of supreme global confidence in the U.S. currency: The U.S. is about to possibly double its already record-large federal deficit due to expected company bailouts and financial assistance packages. At first blush, it appears the world’s investors will be very willing to purchase that big influx of U.S. government debt issuance.

The U.S. Treasury bond futures market has rebounded Thursday morning, from Wednesday’s major sell off. The benchmark U.S. 10-year Treasury note yield was trading around 1.2%--well up from levels well below 1.0% seen last week.

Nymex crude oil futures prices are solidly up after hitting an 18-year low of $20.06 a barrel on Wednesday. Crude prices are currently trading around $22.85 a barrel. One bright spot for the U.S. consumer is that unleaded gasoline futures wholesale price from the refinery is now trading at 68 cents a gallon—suggesting much lower gasoline prices at the pump heading into spring and summer.

U.S. economic data due for release Wednesday includes the weekly jobless claims report, which in the coming weeks will become a major data point—likely showing massive increases from normal numbers. Other reports Thursday include the Philadelphia Fed business survey and leading economic indicators.

Live 24 hours gold chart [Kitco Inc.]

Technically, the gold bears have the firm overall near-term technical advantage amid the recent price pressure. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at $1,550.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at this week’s low of $1,450.90. First resistance is seen at $1,500.00 and then at $1,525.00. First support is seen at the overnight low of $1,460.10 and then at $1,450.90. Wyckoff's Market Rating: 2.5

Live 24 hours silver chart [ Kitco Inc. ]

May silver futures bears have the solid overall near-term technical advantage amid the big price downdraft. Silver bulls' next upside price objective is closing prices above solid technical resistance at $13.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $11.00. First resistance is seen at $12.50 and then at $13.00. Next support is seen at this week’s low of $11.64 and then at $11.50. Wyckoff's Market Rating: 1.0.

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.