(Kitco News) - Gold and silver prices are higher in early U.S. trading Monday, after dropping to four-week lows overnight and in the aftermath of Friday’s record-setting session that has the entire global marketplace edgy to start the trading week and the month. April gold was last up $67.50 at $4,813.50. March silver prices were up $5.384 at $84.09.
All commodity futures traders on Friday could not help but keep their eyes glued to record-setting price downdrafts and extreme volatility in gold and silver futures markets. The same could be the case today. Silver’s 26% plunge on Friday was the biggest on record, while gold dropped 9% in its worst day in more than a decade. Overnight, March silver dropped to a low of $71.20 an ounce, after last Thursday hitting a record high of $121.785. April gold futures overnight hit a low of $4,423.20 an ounce after last Thursday hitting a record high of $4,626.80. Both metals had posted solid rebounds from the overnight lows, as of this writing.
The CME Group over the weekend again raised margin requirements for the two metals futures contracts. Traders in stock and financial markets are also spooked by the mammoth plunges and extreme volatility in gold and silver prices, with global stock markets lower overnight. Part of the pressure on the metals was due to President Trump on Friday nominating Kevin Warsh to lead the Federal Reserve, which sent the U.S. dollar index higher. Warsh has been known to be more hawkish on U.S. monetary policy.
Some blamed the bloodbath in gold and silver markets on Chinese speculators loading up on leveraged long-side bets using futures and options—and possibly not understanding the potential implications of the huge leverage involved. Bloomberg reported Chinese metals traders have racked up losses totaling at least 1 billion yuan after one of their counterparties fled the country leaving deals unfinished. Xu Maohua, a metals dealer also known as “The Hat,” went into hiding. He was reportedly central to a network that helped the state-owned SDIC Commodities subsidiary boost sales via irregular deals that skirted Chinese government rules.
Partial U.S. government shutdown. The federal government went into a partial shutdown over the weekend while waiting for the U.S. House of Representatives to approve a funding deal President Trump worked out with Democrats. “The funding lapse is likely to be short, with the House returning from a break on Monday and the Republican president fully supporting the spending package. The shutdown affects agencies including the Treasury, Defense, Homeland Security, Transportation, Health and Human Services and Labor Departments, but some parts of the government are already fully funded through the end of the federal fiscal year,” Bloomberg reported.
Iran ratchets down its rhetoric against U.S.; oil prices drop. Iran said it hopes diplomatic efforts to avert a war with the U.S. will bear fruit within days, according to the Islamic Republic's foreign ministry and as reported by Bloomberg. Multiple countries in the Middle East have acted as intermediaries to exchange messages with the U.S., and Iran's priority in talks is sanctions relief. Oil prices fell sharply in early trading today, partly because of the heightened diplomatic maneuvers, with Brent crude dropping around 4.5% to $66.20 a barrel. Nymex crude oil futures were trading around $62.00 a barrel early today, down around $3.00. Crude oil prices are still up so far this year because of the still-high chances of a conflict in the oil-rich Middle East. Earlier in the weekend, Iran's Supreme Leader Ayatollah Ali Khamenei warned of a "regional war" as tensions continued to mount over potential U.S. strikes on Tehran. Iran's army chief has renewed warnings that Tehran could strike Israel if attacked by the U.S. Iran's Foreign Minister said Tehran is ready to "embrace a fair and equitable nuclear deal" that would ensure "no nuclear weapons" and guarantee the lifting of sanctions.
The key outside markets today see crude oil prices sharply down and trading around $62.00 a barrel. The U.S. dollar index is slightly up and the U.S. 10-year Treasury note yield is presently 4.22%.
Note: The gold market operates through two primary pricing mechanisms. The first is the spot market, which quotes prices for on-the-spot purchase and immediate delivery. The second is the futures market, which sets prices for delivery at a future date. Due to year-end positioning market liquidity, the December gold futures contract is currently the most actively traded on the CME.
Technically, price action in April gold futures last week formed a big and bearish “key reversal” down on the daily bar chart, which is one chart clue that a market top is in place. Bulls’ next upside price objective is to produce a close above solid resistance at $5,000.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $4,250.00. First resistance is seen at $4,900.00 and then at $5,000.00. First support is seen at $4,700.00 and then at $4,600.00. Wyckoff's Market Rating: 6.0.
March silver futures bulls are fading. The next upside price objective is closing prices above solid technical resistance at $100.00. The next downside price objective for the bears is closing prices below solid support at $70.00. First resistance is seen at the overnight high of $88.00 and then at $90.00. Next support is seen at $80.00 and then at $75.00. Wyckoff's Market Rating: 5.5.
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