Gold Price And Silver Price Under Test

May 1, 2018

Much has been written in many places about the long-term suppression of the price of gold that had probably been going on with no interruption since the time of the London Gold Pool in the 1960s except, perhaps, with a break after the dollar was taken off the gold standard until the dollar lost value between 1982 and 1985. By 1996 after the price broke cleanly above $400 level as a new threat for the dollar, the pressure on gold was increased markedly. That has been the case since then, with sharply increased pressure after gold reached a high in 2011. Now gold seems to be in the tail end of its decline and pressure has been stepped up again just as the price appeared to rally.

It has been widely commented on that the $1350 level has so often been a voodoo that haunts the price of gold. It began during the bull market that ended with the 2011 high for gold, and again came into accurate effect when the post 2011 bear market tried to rally higher in March 2014. In mid-2016 two rallies formed a double top right at that level and then the price sank lower again. 2018 saw a series of PM fixes that reached $1350, but failed to break higher.

During April, two attempts to break higher were repulsed by increased selling and now the price has pulled back to break below rising support. With the psychological $1300 level not far below and the price breaking below support, our resolve now is again being tested. The series of recent attacks on the $1350 resistance imply that buyers are becoming more aggressive, but that the powers that be are committed to hold the line they had drawn in the sane as long as possible. History shows that markets prevail over attempts to steer them where they do not want to go, but the manipulation takes a long time to overcome. In this respect the price of gold must be setting a record.

For a long time while the price of gold played out its monetary role on centre stage, the price of silver slumbered off the radar. The Hunt brothers saw a gap, but just as they were achieving success, the authorities rapped them on their fingers and soon silver was half asleep again. With massive silver stockpiles above ground and since most mines were producing silver as a byproduct to other metals, there was little reason for the silver price to turn active. It was only after the turn of the century, two decades after the Hunts, that silver came to life. The stockpiles had been sold down after the cold war thawed and silver became an essential raw material of the consumer electronics revolution and the price began to reflect the growing demand.

The silver price increased rapidly and being a cousin of gold, began to play a similar role on the global investment market. Because of its importance for manufacturing in what has become a fast growing market, coupled to its increased importance as ‘poor man’s gold’, it attracted much the same manipulation with the price of gold had become familiar. But while gold easily could be shifted from vault to vault when its ownership changed, if such action really was necessary, silver metal was being consumed at a rate not much below – if that – of its rate of production.

As a consequence, its price was more sticky and required more effort to keep low enough not to threaten to erupt. Since their highs in 2011, the price of silver has declined much more than the price of gold – 66% vs 31% - which, like the well know proverbial basketball pushed below the water surface, suggests a far greater potential to deliver a surprise once the hold on it is broken. But, as for gold, at the moment the price is under severe technical pressure again. It requires commitment and keen resolve from the silver bulls to hang in there until that day comes.

Wall Street enjoyed a rather quiet week as international tensions eased, but that is not to say that there are no other factors that are keeping investor sentiment in a neutral stance. The lack of a sustained positive response when North Korea started to toe a more accommodating line would suggest that the equities bull is not yet at a point where it is ready to take on the bear. The longer term technical remains bearish on the indications that the long term top in the SP500 has been set.

The dollar has performed well during recent weeks, at first holding steady and more recently making some gains against major currencies. The next week or two should show whether it is only a flash in the pan or whether the medium bear trend has ended – with the technical odds favouring further weakness.

Euro-Dollar

Euro-dollar, last = $1.2082 (www.investing.com)

The horizontal support along line H ($1.2254) that has kept the euro for weeks in a tight sideways consolidation has finally given way. The euro weakened last week to end just off new support at line D ($1.2091). Line D acted as solid resistance until quite recently and if this is any indication, it can be expected to hold steady while it is being tested at the moment.

A rebound higher has to be confirmed at line H, while a break lower would imply that the dollar has found new strength and could rally further, probably against all of the major currencies.

DJIA

DJIA, last = 24163.15 (money.cnn.com)

Channel MABCD is a well-defined bull channel, with the DJIA now in channel AB (24 780), also holding above the lower boundary of new bear channel YZ (23 378). It is also holding below bull channel JK (24 875) in which it had rallied steeply to set the all-time high. A break above line A or below line Y should signal a new direction, but that range is opening up and giving Wall Street more room to remain volatile.

The sideways volatility is therefore expected to continue while Wall Street tests the resolve of the forces that are working hard to at least keep the stock market steady if it should not prove possible to re-ignite the bull market.

Gold PM fix - Dollars

As discussed in the introduction, the strong horizontal resistance along $1350 has again proven itself to be impenetrable – at least for now, until the next attempt to extend the bull trend. The break below channel KL ($1332) is a bearish signal and gold could slip even lower, perhaps to test the $1300 level.

The open interest on Comex has come down quite much and with Comex options and futures for the time being not at issue, the only reason why the price of gold is kept under pressure has to be the non-farm payroll number on Friday. Perhaps, if that is over and done with, next week could see the gold price recover. Perhaps we could even see a new attempt on the resistance at $1300!

Gold price – London PM fix, last = $1313,20 (www.kitco.com )

Euro-gold PM fix

Euro gold price – PM fix in Euro, last = €1093.1 (www.kitco.com)

The stronger dollar that had the euro breaking lower out of its tight sideways range of recent weeks helped the euro price of gold to compensate for the weaker dollar price of the metal. This assistance was not sufficient to keep the euro price within the steeper bull channel KL (€1094), but at least the support of the shallower bull channel ST (€1079) is still holding.

The dollar price of gold is likely to be under pressure at least until Friday, when the non-farm payroll number is to be announced, so not much action can be expected for the euro price of gold until sometime next week. A recovery back into steeper channel KL then would be a bonus.

Silver Daily London Fix

The silver price according to the London silver fix has been worming itself into the narrowing space between lines C ($16.94) and L ($16.53). A minor break above line C 10 days ago failed to hold and the price slumped as usually happens at the time when options and futures expiration takes place on Comex.

The slump has taken the price of silver just as far below line L as the break above line C 10 days ago and it remains to be seen whether the price, as it did at that time, will be able to an disregard the break and now recover back into the space between lines C and L – with the potential to resume the rising trend. Line T, the next level of support should the break below line L extend, is at $15.73, which is a good deal lower than the ruling price and also below the psychological $16 level.

Silver daily London fix, last = $16.38 (www.kitco.com)

U.S. 10-year Treasury Note

U.S. 10-year Treasury note, last = 2.953% (www.investing.com )

It is near certain that the second break above the 3% level by the yield of the 10-year Treasury during this bear trend – a level previously last seen in 2014 – must have rattled the bond market. The first break higher, in mid-February at the end of the steep and sustained bear trend, was limited and very brief, followed by a steep recovery that almost hinted at a new bull market.

The feeling of relief that the bear had been kept at bay, at that time, ended with the reversal off line D (2.743%) that then kept the yield in the steep bear channel KL (2.90%) to break clear above line C (2.959%) and the 3% level. Given how much markets are being steered into desirable directions – for as long as possible and necessary - it is not surprising that the yield was brought back below the 3% mark, to end a fraction below line C. It now remains to be seen whether there will be a rebound higher off line C or, as happened on the previous occasion of a break above 3%, a new rally can be engineered.

West Texas Intermediate crude. Daily close

WTI crude – Daily close, last = $68.53 (www.investing.com )

The price of crude has been creeping higher steadily for a week or two. It has reached the resistance of line W ($69.05) earlier last week and then settled quite close to the resistance – either to marshal resources for a break higher, which may well offend the Administration, or reverse direction so that oil producers can do their little bit towards getting the economy into gear.

A break above line W will be a bullish signal, but this has to be confirmed with subsequent breaks higher at lines Q ($72.66) and B ($73.32). There is nevertheless room for the price to drift sideways before support will be tested.  

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Pure gold is so soft that a strong man can squeeze it and shape it.