Gold, silver prices soar; inflation on horizon?

Gold and silver prices are trading sharply up in midday U.S. futures trading Monday. Prices shot from modestly higher levels overnight to sharp gains following an early-morning announcement from the Federal Reserve that the U.S. central bank is very aggressively buying more securities, including mortgage-backed, and also will open up a “main street” lending facility. The Fed used the term “unlimited” on amounts it will spend. U.S. stock indexes initially shot higher on the news but quickly sold off again. April gold futures were last up $65.30 an ounce at $1,550.30. May Comex silver prices were last up $0.505 at $12.895 an ounce.

Today as I watched the TV business news channels continue to report dire news on the economy, and stock and financial markets–in particular a national movie theater official who said there is not one single member of his association that is making one single dime at present—I pondered the following as my wife and I have been holed up for two weeks in my rural Midwest home on a dead-end road: When this coronavirus panic has run its course and the severely impacted people worldwide return to a normal way of life, it seems that all of the world that has been pent up for what will likely have been so many weeks will want to get out in the public and do some things, and be some places and enjoy life again! That means a surge in retail demand, especially at entertainment-related businesses. That potential massive surge in consumer demand is likely to be temporary but there are a few stock market forecasters saying the stock indexes will be back at record highs by next year. Importantly, after the U.S. and other major central banks of the world have flooded their economies with massive sums of cash, it seems that pent-up consumer demand could be even stronger. My college economics classes taught me that when you combine higher consumer demand with money that has flooded the banking system it is a sure signal for price inflation—and maybe problematic price inflation at that. Ironically, after so many years of low inflation, it may have taken a crash in the world economies into near depression levels to restart price inflation trends that up until a dozen years ago had been rising at significantly higher annual rates. When I got into the commodity markets industry full-time over 35 years ago, I also learned that price inflation is bullish for raw commodities, and especially for gold. And after over three decades in the business I do know that price history in markets repeats itself. I could be off the mark on this rising inflation theory, but one cannot argue that the elements for such occurring are or will be in place. Let me know your thoughts. I enjoy hearing from my valued Kitco readers all over the world. jwyckoff@kitco.com

Global stock markets were lower in overnight trading. U.S. stock indexes were locked limit down in overnight trading as the U.S. Congress over the weekend failed to agree on a financial aid package for U.S. businesses and citizens, which was being blamed for the even more dour marketplace mood to start the trading week. There are midday reports that the U.S. Congress is close to agreement on a bailout package.

The Covid-19 outbreak continues to spread worldwide, with the U.S. economy shutting down even further as many states, including New York and California, have been locked down by their governors. Focus in the U.S. is on a shortage of medical supplies. Local health officials are now asking for the public to donate any supplies such as masks and gloves that they have at home. U.S. Senator Rand Paul has been diagnosed with Covid-19. Over the weekend much of the American public came to the stark realization the U.S. is not going to remain on lockdown for just a couple weeks, but instead for a period likely at least twice that long and probably even longer. China-U.S. relations are becoming more strained as President Trump now refers to Covid-19 as the “China virus,” which has angered the Chinese people.

The important outside markets today see Nymex crude oil prices weaker and trading around $22.00 a barrel. The U.S. dollar index is weaker after hitting a three-year high overnight. The 10-year U.S. Treasury note yield has dropped to around 0.78% Monday after trading above 1.0% last week.

Technically, April gold futures bulls and bears are back on a level overall near-term technical playing field as a steep price downtrend on the daily bar chart has been negated. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,600.00. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at today’s low of $1,484.60. First resistance is seen at $1,575.00 and then at $1,600.00. First support is seen at $1,525.00 and then at $1,500.00. Wyckoff's Market Rating: 5.0

May silver futures bears have the solid overall near-term technical advantage as a steep price downtrend is in place on the daily bar chart. A bearish pennant pattern may also be forming. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $14.00 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 $13.23 and then at $13.50. Next support is seen at today’s low of $12.29 and then at $12.00. Wyckoff's Market Rating: 2.5.

May N.Y. copper closed down 870 points at 208.40 cents today. Prices closed near mid-range today and closed at a three-year low close. The copper bears have the solid overall near-term technical advantage. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 234.15 cents. The next downside price objective for the bears is closing prices below solid technical support at last week’s low of 197.25 cents. First resistance is seen at today’s high of 214.65 cents and then at 217.50 cents. First support is seen at 205.00 cents and then at today’s low of 202.05 cents. Wyckoff's Market Rating: 1.0.

 

By Jim Wyckoff
For Kitco News

David