Gold Price Prediction – Prices Edge Higher Following Weak US Data

Gold prices moved higher on Thursday following a slew of US economic data which came in worse than expected. GDP shrank by 5%, durable goods orders fell by 17% and jobless claims continued to rise climbing by 2.1-million. Despite a robust jobless claims headline number, this was the lowest total since the coronavirus crisis began. The dollar moved lower but failed to generate tailwinds for gold prices as US yields edged higher. Riskier assets continued to rally which capped any upward momentum in gold prices.

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Technical analysis

Gold prices moved higher but was unable to push through resistance near the 5-day moving average at $1,719,  Target support is still an upward sloping trend line that comes in near $1,693. Below that level is support near the 50-day moving average at $1,675. Short-term momentum has turned negative as the fast stochastic recently generated a crossover sell signal in overbought territory. Medium-term momentum has also turned negative as the MACD (moving average convergence divergence) index recently generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram has also generated a crossover sell signal. The histogram is printing in the red with a declining trajectory which points to lower prices.

US GDP Contracted More than Expected

GDP which is the broadest measure of economic health, fell at an annual rate of 5% in the Q1 a bigger decline than the 4.8% drop first estimated a month ago. It was the biggest quarterly decline since an 8.4% fall in the fourth quarter of 2008.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Futures (GC) Technical Analysis – Potentially Bearish Secondary Lower Top May Be Forming

Gold climbed more than 1% early in the session but has since then given back all of those gains. I guess there wasn’t enough gold bug money out there willing to chase it higher at current price levels. Surprising because the chat room commentators think gold should be trading at $2000 because of all that stimulus money floating around.

The price action suggests the stimulus money is fully-priced in so unless the central banks and governments decide to throw more money into their respective economies, a gold rally is going to have trouble gaining traction. It also suggests that perhaps traders are getting fed up chasing the headlines and may be waiting for a strong pullback into a value area.

Just keep remembering that gold is an investment and not a so-called safe-haven asset. Gold investors want to buy gold low and sell it higher. Professionals are buying dollars when there is fear and they are selling gold and dollars when conditions soften.

That’s the way the market is trading now. The traditional dollar/gold relationship has been shelved for the time being.

If gold prices went up because of the threat of a major global recession then it makes sense that it should weaken a little now that the economies are opening up. But we could get another flare-up in prices if a second wave of coronavirus cases hits.

At 18:04 GMT, August Comex gold is trading $1726.70, down $0.10 or -0.01%.

In other news, the number of Americans filing for unemployment benefits held above 2 million for a 10th straight week, while a separate report showed GDP contracted at a bigger-than-expected 5% annualized rate in the first quarter, the deepest drop in output since the 2007-09 Great Recession.

Daily August Comex Gold

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on May 18.

A trade through $1787.50 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend changes to down on a move through $1683.30, but the really hard selling is likely to start if $1668.40 fails as support.

The minor trend is down. This is controlling the momentum. Taking out $1701.60 should strengthen the downside momentum and bring the new minor top down to $1743.70.

The minor range is $1787.50 to $1701.60. Its retracement zone at $1744.10 to $1754.30 is resistance.

The short-term range is $1789.00 to $1668.40. Its 50% level at $1728.70 is potential support and also the trigger point for an even steeper sell-off.

The main range is $1454.80 to $1789.00. Its retracement zone at $1621.90 to $1582.40 is the primary downside target and potentially major support.

Short-Term Outlook

We’re going to be watching trader reaction and order flow at $1728.70 into the close. This should tell us if the selling is getting stronger or if buyers are coming in to support the market. The reaction to the earlier rally suggests the move was fueled by short-covering rather than new buying.

Furthermore, the formation of a secondary lower top at $1743.70 will be a sign of weakness.

Silver Price Forecast – Silver Markets Continue to Pound Into Resistance

Silver markets are going back and forth overall between the $18 level on the top and the $17 level on the bottom. With that being said, it is worth paying attention to due to the fact that silver has a lot of meaning when it comes to the overall economy. After all, silver is a major industrial metal, and therefore if there is an explosion in the industrial sector, then by all means it looks like the demand for silver will continue to be strengthening.

SILVER Video 29.05.20

However, there is also the precious metals trade, due to the fact that central banks around the world continue to print money as fast as they can. Here that sound in the background? That is the sound of the printing press is going full tilt, and that of course helps the idea of metals. However, silver plays a second fiddle to gold, and therefore you need to look at that as reality.

To the downside, if we break the $17 level it is likely that the 200 day EMA and the 50 day EMA both will come into play and offer support. I think that silver needs to pullback drastically, and as a result we should see some more position building to the upside. However, if we do break above the $18.25 level then it is likely that we go looking towards the $19 level above. If we managed to break above there, then the market is likely to go towards the $20 level after that. Expect volatility regardless.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Update – Reaction to $32.77 Pivot Sets the Tone into the Close; EIA Says Crude Stocks Rose

U.S. West Texas Intermediate crude oil futures are trading marginally lower at the mid-session on Thursday following the release of government report that showed a surprise increase in U.S. crude stocks, which offset hopes for a demand recovery as coronavirus lockdowns ease.

According to the U.S. Energy Information Administration (EIA), U.S. stockpiles rose by 7.9 million barrels the week-ending May 22. Analysts had been expecting a draw of 2.5 million barrels although analysts at FactSet were predicting a 1.3 million barrel draw.

At 14:40 GMT, July WTI crude oil is trading $32.73, down $0.08 or -0.24%.

The market is actually clawing back earlier losses that pushed prices into an intraday low of $31.14. This move was fueled by a surprise build in Wednesday afternoon’s American Petroleum Institute (API) weekly inventories report.

Also weighing on prices was uncertainty about Russia’s commitment to continuing deep output cuts ahead of a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is trending higher. A trade through the main tops at $34.81 and $351.8 will change the main trend to up.

The minor trend is up. This is controlling the momentum. A trade through $30.72 will change the minor trend to down. This will shift momentum to the downside.

The main range is $54.86 to $17.27. Its retracement zone at $36.07 to $40.50 is the primary upside target and potential resistance zone.

The minor range is $30.72 to $34.81. Its 50% level at $32.77 should act like a pivot. It is providing resistance early Thursday.

The short-term range is $17.27 to $34.81. If the momentum shifts to the downside then its retracement zone at $26.04 to $23.97 will become the primary downside target area.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at $32.73, the direction of the July WTI futures contract the rest of the session on Thursday is likely to be determined by trader reaction to $32.77.

Bearish Scenario

A sustained move under $32.77 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the minor bottom at $30.72. This is a potential trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over $32.77 will signal the presence of buyers. This could lead to a quick test of $32.98, followed by $34.81.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue to Press the Issue

West Texas Intermediate Oil

The West Texas Intermediate Crude Oil market has initially pulled back a bit during the trading session on Thursday, but then turned around to show signs of strength again as continuing optimism floods into the market. That being said, it is quite interesting considering that there is a gap above and it is likely that it will probably get filled given enough time. That does not mean that it will be easy, and I do think that once we get to the top of the gap, closer to the $41 level, there is the 200 day EMA coming into focus there as well, so I think that is about as far as that goes. To the downside, there is plenty of support at the $30 level and of course the 50 day EMA.

Crude Oil Video 29.05.20

Brent

Brent markets have also pulled back slightly but then showed signs of life again as the market continues to see a lot of support based upon the 50 day EMA. Ultimately, this is a market that I think continues to see a lot of noise, but it is choppy to say the least and therefore you have to be overly cautious. The $40 level above starts to begin of a major gap that extends to the $45 level, so it is likely that we could see a bit of interest in trying to fill that as well. To the downside, it is not until we break the $30 level that uncomfortable shorting. Granted, economies are opening but demand is going to be weak.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Forecast – Natural Gas Markets Going Sideways

Natural gas markets continue to be noisy, as we had a relatively tight trading session on Thursday. Ultimately, the market is likely to see more noise, as there are multiple factors out there that can continue to push this market wildly. The 50 day EMA of course attracts a lot of attention, and therefore it will be interesting to see where we resolve this issue. Having said that, I think that is likely that we will see a lot of erratic behavior in the market.

NATGAS Video 29.05.20

To the downside I think that the $1.80 level is likely to offer a certain amount of support, so I am looking for short-term pullbacks in order to buy the contract for short-term trades only. Ultimately, the market is trying to build a larger basing pattern from what I can see, as economy start to open up again. Ultimately though, the question will come down to whether or not the demand finally picks up enough to take out the massive oversupply. We also have bankruptcies coming so that could help as well. We are at extremely low levels so I do anticipate that the market will try to bounce but it is not going to be extremely easy to deal with.

With that in mind, even if we do break down below the $1.80 level, it is likely that we will see the previous gap at the $1.70 level also offering it. If we can break above the $2.00 level, then it is likely that the market will then go looking towards the 200 day EMA just above.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Forecast – Gold Markets Continue to Grind Higher

Gold markets continue to see a lot of volatility, as we approach the $1750 level yet again. After forming a major hammer for the trading session on Wednesday, it makes sense that we bounced a bit from there. The 50 day EMA has also offered support, so therefore it makes sense that buyers would have been attracted to that level as well. Furthermore, it is formed right about the $1700 level. That being said, if we were to turn around a break down below the hammer, then it would be extremely negative. At this point in time, it is likely that the market will offer quite a bit of support underneath there though, so I find that to be very unlikely to happen. If it does, then I would look to “reset” to the upside.

Gold Price Predictions Video 29.05.20

The $1600 level will be massive support again, if we do get down there due to the fact that the 200 day EMA. Ultimately, this is a market that continues to see a lot of buyers on dips and quite frankly it should, due to the fact that the central banks around the world continue to print currency as fast as possible, and of course there are a lot of economic concerns out there when it comes to the global economy, trade, US/China relations, and a whole host of other things. With all of this, it makes sense that gold should be one of the better performing assets.

For a look at all of today’s economic events, check out our economic calendar.

Oil Gains Ground Despite The Increase In Oil Inventories

Oil Video 28.05.20.

Oil Inventories Increase By 8.7 Million Barrels

API Crude Oil Stock Change report showed that oil inventories increased by 8.7 million barrels.

The market was surprised by the sudden increase since the U.S. oil production has been trending down since the beginning of the coronavirus crisis while demand is expected to increase as the economy reopens.

Now, the market will wait for the confirmation of this data in the EIA Weekly Petroleum Status report. If the EIA report confirms that inventories have increased materially, oil may be positioned for more downside.

The continued increase of U.S. – China tensions is also playing against oil. At the same time, oil prices are supported by traders’ hope that the reopening of the world economy will lead to a major increase of oil demand at a time when production is cut thanks to OPEC+ deal and cuts from non-OPEC+ producers.

Oil stays at low levels so the market may shrug off some modest increase in inventories as current pricing reflects challenging market conditions, but oil may find it hard to withstand the pressure of a major increase in inventories in case EIA report confirms the API data.

Does Russia Really Want To Continue Current Cuts Beyond June?

Yesterday, we discussed a report which stated that Russia was evaluating the possibility of extending current production cuts for two more months.

According to the OPEC+ deal, production cuts will decrease from 9.7 million barrels per day (bpd) in May – June to 7.7 million bpd from July to the end of the year.

Bloomberg reported that Russia wanted to increase its oil production in July, in stark contrast with the above-mentioned report. As usual, both reports cited unnamed sources.

While the world economy is reopening, the oil market clearly requires additional support. At the same time, Russia and Saudi Arabia may be reluctant to lend a helping hand to the U.S. shale while both countries have the resources to tolerate $30 – 40 oil for some time.

In a recent phone call, Russia’s Vladimir Putin and Saudi Arabia’s Mohammed bin Salman agreed to coordinate actions in the oil market. It remains to be seen whether such coordination will include the extension of current oil production cuts.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Thursday, May 28 – Gold Higher Again

The gold futures contract gained 1.24% on Wednesday, as the market retraced most of its Tuesday’s decline. It bounced off a $1,700 support level again. Gold has been trading within a downward correction after reaching new monthly high of $1,775.80 on Monday a week ago. But yesterday’s price action was quite bullish and today it goes higher. But gold extends an over month-long consolidation, as we can see on the daily chart:

Gold is 0.7% higher today, as it is extending a short-term uptrend. Financial markets remain in risk-on mode, as stocks reach new medium-term highs. What about the other precious metals?: Silver gained 0.92% on Wednesday and today it is 0.4% higher, platinum gained 0.55% and today is trading 0.5% lower. Palladium lost 0.54% yesterday and today it is 0.6% lower again.

The recent economic data releases have been confirming negative coronavirus impact on global economies. Today’s U.S. GDP number release came out at -5.0% and Durable Goods Orders fell by 17.2%. The Unemployment Claims remained steady at over 2 million. We will also await the Pending Home Sales number release at 10:00 a.m.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days. Tomorrow we will get another series of the U.S. economic data releases and a speech from the Fed Chair Powell at 11:00 a.m.:

Thursday, May 28

  • 8:30 a.m. U.S. – Preliminary GDP q/q, Unemployment Claims , Durable Goods Orders m/m, Core Durable Goods Orders m/m, Preliminary GDP Price Index q/q
  • 10:00 a.m. U.S. – Pending Home Sales m/m
  • 11:00 a.m. U.S. – FOMC Member Williams Speech

Friday, May 29

  • 5:00 a.m. Eurozone – CPI Flash Estimate y/y, Core CPI Flash Estimate y/y
  • 8:30 a.m. Canada – GDP m/m, RMPI m/m, IPPI m/m
  • 8:30 a.m. U.S. – Personal Spending m/m, Personal Income m/m, Core PCE Price Index m/m, Goods Trade Balance, Preliminary Wholesale Inventories m/m
  • 9:45 a.m. U.S. – Chicago PMI
  • 10:00 a.m. U.S. – Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations
  • 11:00 a.m. U.S. – Fed Chair Powell Speech

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Silver Price Daily Forecast – Silver Gets Back Above Support At $17.00

Silver Video 28.05.20.

Silver Looks Ready To Test The Nearest Resistance

Yesterday, silver tried to settle below $17.00 but this attempt was unsuccessful, and silver returned back above this support level.

Gold managed to recover after the sell-off and is trading above the key $1700 level. Gold price upside is very important for the whole precious metal segment as it attracts new investments into the sector.

The U.S. Dollar Index is trying to settle below the support level at 99 following the release of various economic reports. In general, the economic picture remains grim, but the better-than-expected U.S. Continuing Jobless Claims report provides hopes that active hiring has already started in some sectors of the economy.

Gold/silver ratio is trying to get below 100 and looks set to continue the recent downside trend. Before the coronavirus crisis, gold/silver ratio was below 90, and a return to such levels will lead to material silver price upside.

So far, silver has shown that it has material support at current levels. The gold price upside and the general market upside help silver as it depends both on industrial demand and investment demand.

Technical Analysis

silver may 28 2020

Silver has significant support just below $17.00. It has already made four attempts to settle below this level, but each attempt was unsuccessful, and silver quickly returned back above $17.00.

RSI has left the overbought territory, suggesting that upside momentum can increase further. If this happens, silver will soon test the nearest resistance level at $17.50.

In case silver manages to get above the resistance at $17.50, it will gain additional upside momentum and head towards the next resistance level at $18.15. In this scenario, silver will break out of consolidation, so the upside move may be quick.

On the support side, the nearest support level for silver is located near $17.00. If silver manages to settle below this level, it will likely gain significant downside momentum and quickly head towards the test of the next support at $16.50.

This is the support at pre-crisis levels. In addition, the 20 EMA has finally increased to $16.50, so I’d expect a lot of interest close to this support level.

For a look at all of today’s economic events, check out our economic calendar.

 

Price of Gold Fundamental Daily Forecast – Traders Chasing Hong Kong Headlines

Gold prices are moving higher on Thursday after a seven-day setback as tensions between the United States and China over a proposed Hong Kong security law escalated, while fresh monetary and fiscal stimulus measures from India, Japan and the Euro Zone to mitigate the coronavirus fallout also lent support.

At 12:31 GMT, August Comex gold is trading $1737.90, up $11.10 or +0.64%.

Unlike earlier in the week, gold buyers aren’t shying away from the long-side despite higher equity prices. As far as I know, there is still optimism in the air over the reopening of global economies and progress being made toward a vaccine to stop coronavirus. These are the two factors traders blamed for gold’s decline this week.

Did something change? Even the reaction to fresh stimulus measures from Europe and Japan is a bit of a surprise since these ideas have been out there for over the week. Furthermore, we can’t be sure yet if we’re looking at short-covering or new buying. After all, recent data showed many professionals trimming long gold positions in recent weeks and some actually shorting the precious metal.

The point I’m trying to make is that gold is expected to trade at heightened volatility levels over the short-term, but there is enough stimulus out there to provide a cushion for long-term investors.

We continue to have a longer-term upside bias, but we do realize that over the short-run, due to the ever-changing headlines, gold is going to have experience unexpected price swings.

If you’re a gold trader then you’re going to like the volatility. If you’re an investor than you’ll have to ride out the price swings, however, with a two-sided trade, there’s a better chance of a pullback into a major value zone.

The Headlines

Gold traders appear to be reacting to two narratives today:  Hong Kong and fresh stimulus.

As far as Hong Kong is concerned, most of the headlines appear to be coming from the United States. China has been merely responding to U.S. comments although we’re not sure if they have been official comments.

U.S. Secretary of State Mike Pompeo said Hong Kong no longer qualifies for its special status under the U.S. law, dealing a blow to its status as a financial hub. Additionally, U.S. President Donald Trump has a long list of possible responses to China’s to impose a national security law on Hong Kong, including visa and economic sanctions, said David Stilwell, assistant Secretary of State for East Asia.

China has basically said it may respond with sanctions of its own when provoked to do so.

As far as fresh stimulus is concerned, the European Union unveiled a 750 billion Euro ($826.13 billion) plan on Wednesday. Japan approved a fresh $1.1 trillion stimulus package also and India may need to pump about $20 billion into its struggling economy.

In U.S. economic news, Preliminary GDP fell 5.0% versus 4.8%. Core Durable Goods plunged 7.4%, better than the -14.8% forecast. Durable Goods Orders fell 17.2%, also better than the -19% estimate.

Weekly Unemployment Claims were a dismal 2.213 million. This was worse than the 2.100 million forecast. The previous week was also revised lower to 2.446 million.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Mixed After Encouraging Continuing Jobless Claims Report

U.S. Continuing Jobless Claims Report Is Better Than Expected

S&P 500 futures are swinging between gains and losses as traders digest a flurry of economic reports.

U.S. Initial Jobless Claims report showed that 2.1 million Americans filed for unemployment benefits in a week, in line with analyst estimates.

Continuing Jobless Claims were much lower than expected at 21 million. This means that many people who have previously filed for unemployment benefits have found new jobs.

First-quarter GDP Growth Rate  was -5% compared to analyst consensus of -4.8%. Obviously, second-quarter numbers will look much worse as the economy was hit by virus containment measures.

Durable Goods Orders declined by 17.2% month-over-month in April compared to analyst consensus which called for a decline of 19%.

China Approves Hong Kong Security Law

U.S. – China relations are once again in focus as China’s parliament has approved a new security law for the city.

U.S. has already stated that Hong Kong no longer qualified for special treatment under the U.S. law after this move. This creates significant uncertainty for the city’s future as an international financial center.

Currently, there are two main unknown catalysts – the potential U.S. sanctions on China and China’s response in case such sanctions are implemented.

U.S. – China tensions have steadily increased over the last few weeks but the stock market was able to ingore them. It remains to be seen whether any U.S. sanctions on China could hurt the current upside trend in the U.S. stock market.

Oil Inventories Increase Again

Oil is set for a volatile trading session as the API Crude Oil Stock Change report showed that oil inventories increased by 8.7 million barrels per day.

The oil market will be waiting for confirmation of this data in the EIA Weekly Petroleum Status report which is scheduled to be released today after the market open.

The recent oil rally was a material contributor to the upside of S&P 500 so additional downside on the oil price front could hurt the momentum of the U.S. stock market.

For a look at all of today’s economic events, check out our economic calendar.

All Eyes on the HUI Breakout Invalidation!

The key technical development of this week in the precious metals market is HUI’s invalidation of the breakout above the 2016 highs. It will be particularly interesting to see where it closes the week, as an invalidation in weekly closing terms will be a crystal-clear bearish confirmation.

Gold miners reversed before the end of yesterday’s session, but they didn’t manage to take HUI back above the highest weekly close of 2016 – the 278.61 level. The HUI closed at 271.06.

On the daily chart, we see that a short-term breakdown is currently being confirmed.

The GDX ETF moved below the rising support line based on the previous April and May lows and it closed there for two consecutive trading days. If the GDX closes below the rising dashed line once again today, the breakdown will be confirmed.

And based on gold’s 4-hour gold chart, it could be the case that the very short-term upswing that started yesterday, is already over.

Gold approached its short-term declining resistance line, and it’s currently testing it. This line already held less than a week ago, so it favors lower prices at this time.

Of course, by the time you read this analysis, gold might already be after a breakout. In this case, we wouldn’t be surprised to see gold futures at about $1,740 or even $1,760 before the next decline takes place. Again, that is IF the breakout takes place, but the entire point of creating resistance lines for gold is to detect gold’s tops – places that are likely NOT to be broken. Or that are going to be broken, but then an invalidation will follow, leading to further declines.

The GLD ETF bounced from the rising support line yesterday, and it then moved to the above-mentioned resistance line – that’s a relatively normal course of action. Based on HUI’s invalidation of the breakout above the 2016 high, it seems that the top is already in for gold and gold stocks, and the price action yesterday and today in gold doesn’t invalidate it.

And what can one forecast for silver?

The white metal is still showing strength on a very short-term basis, which further confirms the toppy nature of the most recent price moves. Silver tends to outperform at the very end of a given upswing, so we could even see more of that phenomenon – especially if the stock market moves even higher from here.

Silver is known (at least it should be known) for its fakeouts. Silver often breaks above certain resistance levels, only to invalidate these breakouts shortly thereafter. If silver’s “breakout” is not accompanied by an analogous move in gold or miners, the odds are that it’s a fakeout. The odds increase further if this action was preceded by a rally.

Therefore, if silver moves higher from here, and even breaks to new May highs, it might not be a bullish development at all. It could be a fakeout that only takes the white metal to about $18.50 or so – the declining resistance line based on the previous highs – and then starts the next huge downleg. Please keep in mind that silver already launched one huge slide from almost $19 this year, so another big move lower from these levels could definitely take place.

All in all, it seems that we’re going to see one more sizable move lower in the precious metals market before they move much higher, and the odds are that the downswing has already begun or it’s going to start shortly.

Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold’s move lower is almost certainly completely over. That’s the detail, we think you might enjoy, want, and need right now.

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For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits: Analysis. Care. Profits.

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Is the Worst Behind Us and Gold Has to Plunge Now?

A lot happened over the last few days. Let’s start with the analysis of fresh economic data. First, the initial jobless claims came in at 2.4 million in the week from May 9 to May 16, as the chart below shows. While the number of Americans who applied for the unemployment benefit have declined for seven straight weeks following the peak of 6.9 million in late March, it is still a mammoth figure, much higher than before the pandemic (when about 200,000 people used to apply for the unemployment benefit each week).

It means that the devastation in the US labor market has been unprecedented. As the chart below shows, almost 39 million of people claimed benefits since the beginning of the epidemic, which implies that the unemployment rate is comparable now to the rate seen during the Great Depression, or even higher! Importantly, the trend of total claims since March 21, 2020, is still rising strongly, which means that the recovery is so far weak, despite the partial reopening of the economy.

Second, the Chicago Fed’s national activity index, which measures whether the economy expands above or below the average growth, declined from a negative 4.97 in March to a negative 16.74 in April. The number is the worst in the data series history which begins in 1967, easily surpassing the disaster of the Great Recession, as the chart below shows.

However, situation has improved somewhat in May, at least according to regional manufacturing surveys. For example, the Philadelphia Fed Manufacturing Index rose from -56.6 in April to -43.1 this month. The reading is still terrible, but less so than one month ago. Similarly, the New York Empire State Index rebounded from -78.2 in April to -48.5 in May.

The latest PMI data from the IHS Markit also show some improvement. The flash manufacturing purchasing managers index rose from 36.1 in April to 39.8 in May, while the flash services purchasing managers index increased from 26.7 to 36.9. It means that the worst is probably behind us.

Implications for Gold

What does the recent bunch of data imply for the US economy and the gold market? Well, it seems that the rate of economic collapse has peaked in April. This is probably why the stock market rallied this week, with S&P 500 reaching the psychologically important level of 3,000. People become more optimistic with the number of infections of the coronavirus under control and relaxed containment measures. And a further planned easing will help the economy further, but demand could remain weak with some restrictions and social distancing remaining in place. In other words, the US economy should rebound later this year, but is not out of the woods yet – so the pace of recovery may be slower than the most optimistic investors hope for.

In other words, the stock market may be priced for an economic recovery that the data so far does not support. The initial crash was an overreaction, so now investors look for sparkles of hope everywhere. For sure, there are many reasons for being optimistic, but the war with coronavirus is not over. So, there might be some correction in price as investors could go into risky assets, but gold still seem to be a rational addition to the portfolio. Given that second-order effects (think about the consequences of high debt, geopolitical repercussions, or the possibility of corporate bankruptcies, etc.) have not been probably fully priced in yet, and that it’s very difficult to predict them, the significant portion of the safe-haven demand for gold should remain in place.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Equities Push Higher Despite Rising US-China Tensions

Technical vs. Fundamental

Looking at the S&P 500 index chart, bulls seem to be in strong control. The index is not only up 38% from its March 23 lows but has also cleared significant psychological hurdles.

1 – The index closed above 3,000 for the first time since March 5.

2 – It has crossed above the 100 and 200-day moving averages, a signal for further upside.

3 – It is comfortably sitting above the 61.8% Fibonacci retracement (from the February all-time high to the March low).

For many traders basing their analysis on technicals only, these are all considered signs for a prolonged bull market.

More interestingly, Wednesday’s 1.5% rally was not driven by momentum and growth stocks but value ones. Financials, Industrials, Telecoms and Consumer Non-Cyclicals were the drivers of yesterday’s rally, while the Tech sector was the laggard. This could also revive hopes that value investing may return, after being out of favour for almost a decade.

It has become clear that investors are not positioning their trades based on the expected next two or three quarters earning’s results, they are looking well beyond that.

However, even when analysing two year forward P/E multiples, the index is still sitting at a valuation near 23x, which is by any means significantly expensive. Of course, earnings estimates will be revised several times over the next quarters and will vary substantially based on upcoming developments. What seems to be priced in at this stage is the economy will recover much faster than previously estimated, the pandemic will soon end and life return back to normal.

Hopefully markets are correct in their assessment, but when looking at current facts, the chances of disappointment are high – bankruptcy cases and store closings are piling up on a global scale and at an unprecedented speed, the unemployment rate will take several years to return to pre-Covid pandemic levels and consumers will lower their spending levels for several months before becoming confident enough to open their wallets. Add to this the risk of a second coronavirus wave and US-China cold war and we find that equity markets are becoming extremely overstretched.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Natural Gas Price Fundamental Daily Forecast – Traders Looking for EIA to Report Triple-Digit Build

Natural gas futures are trading lower on Thursday ahead of the regular session opening at 12:00 GMT and the release of the government’s weekly storage report at 14:30 GMT. On Wednesday, the market firmed for a second session shortly after the opening, but gains were quickly erased and prices plunged into the close as traders expressed concerns over weaker export demand and another large weekly storage injection.

At 07:27 GMT, July natural gas is trading $1.857, down $0.029 or -1.54%.

US Energy Information Administration Weekly Storage Report Estimates

Natural Gas Intelligence (NGI) is reporting that ahead of the release of the government data, a Bloomberg survey of three analysts produced a range of estimates from 99 Bcf to 126 Bcf, with a median of 103 Bcf. Reuters polled 16 analysts, who had the same range of estimates but arrived at a median of 106 Bcf. NGI projected a 110 Bcf build, which is on par with last year’s 110 Bcf injection but well above the five-year average build of 93 Bcf.

Working gas in storage was 2,503 Bcf as of Friday, May 15, 2020, according to EIA estimates. This represents a net increase of 81 Bcf from the previous week. Stocks were 779 Bcf higher than last year at this time and 407 Bcf above the five-year average of 2,096. At 2,503 Bcf, total working gas is within the five-year historical range.

NGI Sees Bearish Problems with Liquefied Natural Gas

“Ongoing concerns related to U.S. liquefied natural gas (LNG) exports also remain a massive headwind for pricing. Although NGI data shows that the feed gas volumes for Wednesday were higher day/day, deliveries were still well off late-March highs at around 6.5 Bcf/d, and the outlook for summer remained rather bleak,” NGI said.

“More than 30 U.S. LNG cargoes have been canceled for June, and international prices are signaling that oversupply conditions will linger for a while, even when accounting for any increased demand in the wake of COVID-19,” NGI added.

Short-Term Weather Outlook

Weather models continued to warm, with the overnight data being “a touch hotter” for the June 5-7 period across the southern United States due to upper high pressure strengthening, according to NatGasWeather.

However, models still favor the upper ridge weakening June 8-11, and this is where the national pattern needs to be hotter, the firm said. “Again, the data isn’t quite as bearish as Friday’s data and needs close watching, as it wouldn’t take much hotter trends to look increasingly bullish.”

Daily Forecast

A bearish EIA storage report is likely to drive prices into the two main bottoms at $1.822 and $1.802. The selling pressure may even be strong enough to reach the upper $1.70’s area.

However, you have to be careful about shorting aggressively at new lows because speculative buyers may show up. They’re likely to be betting on the return of hotter temperatures.

For a look at all of today’s economic events, check out our economic calendar.

Oil Finally a Needed Pullback towards 27-30 Zone

Dear Traders,

Oil is making a needed pullback towards lower levels. At this point we can see a drop signalled by CAMMACD.Core

The price on Oil was accumulating at resistance close to 35.00. We can see a clear “slingshot” signal from CAMMACD.Core where the price made a start of the move lower at 33.20. The 4h close below W L3 implies further continuation down towards 27-30 zone. I wouldn’t even exclude a visit to M H3 25.21, but only if the price makes a 4h close below 27.63- W L5 camarilla pivot.

The Analysis has been done with the CAMMACD.Core and Sit Systems

For a look at all of today’s economic events, check out our economic calendar.

 

Oil Price Fundamental Daily Forecast – Weaker after API Reports Large Unexpected Inventories Build; EIA on Tap

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday, shortly before the NYMEX regular session opening at 12:00 GMT and ahead of the U.S. Energy Information Administration (EIA) weekly inventories report at 15:00 GMT.

Prices are down for a second session on Thursday as a U.S. private industry report showed a steep and surprising build-up in crude stockpiles, putting a lid on hopes of a smooth demand recovery as the global economy begins to ease its way out of coronavirus-related lockdowns.

At 06:46 GMT, July WTI crude oil is trading $31.95, down $0.86 or -2.62% and August Brent crude oil is at $34.91, down $0.54 or -1.52%.

Russia’s Commitment is Questioned

On the demand front, traders are becoming a little worried about Russia’s commitment to deeper than agreed upon oil production cuts ahead of a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

“As is often the case during a run-up to an OPEC+ meeting, the focus is squarely on Russia’s commitment and understandably so as historically they have been the laggard within the OPEC+, said Stephen Innes, chief global markets strategist at AxiCorp.

Two days ago Russian Energy Minister Alexander Novak met with domestic major oil companies to discuss the implementation of global oil production curbs and the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.

American Petroleum Institute Weekly Inventories Report

The API reported late Wednesday a large crude oil inventory build, of 8.731 million barrels for the week-ending May 22. Analysts were looking for an inventory draw of 2.50 million barrels.

The API also reported a build of 1.120 million barrels of gasoline for the week-ending May 22, compared to last week’s 651,000-barrel draw. This week’s draw compares to analyst expectations for a 33,000-barrel draw for the week.

Distillate inventories were up by 6.907 million barrels for the week, compared to last week’s 5.1 million-barrel build, while Cushing inventories saw a draw of 3.370 million barrels.

Daily Forecast

After nearly a one-month rally, crude oil traders are booking profits. Prices just got too high given the uncertain outlook for supply and demand beyond June. Although we don’t expect the markets to come anywhere close to their late April lows, we would not be surprised by a normal 50% to 61.8% correction of the rally.

Worries about whether Russia will go along with an OPEC+ extension of the output cuts is understandable since there is always apprehension ahead of and OPEC+ meeting.

The wildcard over the near-term will be U.S. inventories. Given the steep drop in the number of operating wells, traders are expecting today’s EIA report to show a 2.5 million-barrel decline. Prices could stabilize if the report hits or exceeds the mark. However, expect a steep break if the numbers are bearish.

For a look at all of today’s economic events, check out our economic calendar.

Storm Brewing Over The Hang Seng Index

Hong Kong has now taken centre-stage in a long-running conflict between the US and China. The recent announcement that the US State Department no longer viewed Hong Kong as autonomous is threatening to widen the rift between the world’s two largest economies. Such extraneous pressures come at a time when the domestic economy is reeling from local protests as well as the Covid-19 outbreak.

Mainland investors rush in

Given the HSI’s year-to-date decline of 17 percent, Hong Kong stocks have proven tempting for mainland China buyers, who have been net buyers in every session bar six so far in 2020. With over US$35 billion flowing across the border, China-based investors now own nearly three percent of the total market value of Hong Kong stocks that are eligible for cross-border trading. Additionally, the constituents of the Hang Seng index could see new entrants in August, with Alibaba’s expected inclusion into the benchmark index potentially attracting some US$650 million of passive fund inflows for the stock.

How to Break the Bear?

Still, such supportive inflows may not be enough to break the downward trend that it’s been so clearly entrenched in over the past couple of years. The HSI is firmly in a bear-market, as it now stands 29.4 percent lower from its record high in January 2018. Despite recovering some seven percent since 23 March 2020, when it registered its lowest point since 2016, the Hang Seng index has still lags behind the MSCI Asia Pacific Index’s 23 percent gain during the same period (March 23 – May 27, 2020).

With Hong Kong at the epicentre of escalating US-China tensions, the chances of the HSI having enough lift to break out of this multi-year downward trend appears slim, at least over the near-term. Until investor sentiment can be restored with the dispelling of such uncertainties, the Hang Seng index is expected to have a tough time seeing a meaningful recovery.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Gold-Silver Ratio And Correlation

From Investopedia:

Correlation is a statistic that measures the degree to which two variables move in relation to each other. Correlation measures association, but doesn’t show if x causes y or vice versa, or if the association is caused by a third–perhaps unseen–factor.”

For example, there is a possible correlation between localized, bad weather and crop failures. But how do you predict the timing and extent, or the effects, to a degree that can be profitable?

And there certainly is a correlation between the price of labor and materials vs. the finished cost of building a new home. But there is no correlation between the price of labor and materials vs. the number of new housing starts.

We can find patterns and rhythm that might appear to be correlation (or inverse correlation) by plotting the price differential of any two items but it still does not imply correlation.

So, are gold and silver correlated?

ARE GOLD AND SILVER CORRELATED?

Being literally specific according to the above (“correlation measures association…”) then, the question becomes “Is there association between gold and silver?”

The answer is yes, strictly speaking. But, only as it pertains to their use as money.

The association is blurred by the fact that silver’s primary role is industrial, and its role as money is secondary to its use in industry; whereas gold’s primary role is in its use as money, and its industrial use is secondary.

“The basic value of either gold or silver stems from its primary fundamental. This means that gold is valued for its role as real money and silver’s primary value stems from its use in industry. And the primary fundamental for each metal will always be the same, even though there can be changes in the relative relationship of primary and secondary uses.” (See Gold And Silver – Fundamentals Be Damned)

Below is a chart of gold prices for the past one hundred years. The prices are adjusted for the effects of inflation…

http://www.macrotrends.net/

As a result, we can see that gold’s value has increased considerably over the past one hundred years. Nearly all of that increase has come in the past fifty years.

Gold’s increase in price and value are inversely correlated to the decline in value of the US dollar over the same time frame.

This makes perfect sense because gold is real money and the original measure of value for all goods and services; whereas, the US dollar is a substitute for gold (i.e., real money).

There is an established association between gold and the US dollar. Gold’s higher price over time reflects the ongoing loss in value (purchasing power) of the US dollar. The more the US dollar loses value, the higher the price of gold will go.

Now let’s look at a similar chart for silver prices, also adjusted for inflation…

http://www.macrotrends.net/

Here we can see that silver has declined in value over the past one hundred years and is cheaper now than it was a century ago.

The inflation-adjusted price of silver and its real value has stayed below its price point of one hundred years ago for eighty-four out of the past one hundred years.

The two times which silver prices moved generally in tandem with gold came when gold was responding – and catching up – to ongoing and accumulated losses in purchasing power of the US dollar.

After briefly exhibiting extreme volatility on the upside, silver prices quickly dropped back to their historically evident trading range below $20 per ounce, inflation-adjusted.

Any association/correlation between silver and gold is limited in nature because each metal has a fundamental role which is considerably different from the other. Gold price history is indicative of its association and inverse correlation with the US dollar. Silver prices reflect the white metal’s primary use as an industrial commodity.

GOLD-SILVER RATIO FAVORS GOLD

Let’s look at one more chart. This one is the ratio of gold prices to silver prices, the gold-to-silver ratio…

In this chart we see more evidence of what we saw in both charts above. In both price and value terms, gold continues to increase relative to silver.

Referring to the same point of focus as in both charts above, the gold-to-silver ratio is nearly three times higher than it was one hundred years ago. It has continued to move higher, favoring gold, over the past fifty years.

As we said before, we can calculate a ratio of prices for any two different items; but, those ratios will not imply correlation UNLESS there is measurable association.

As far as gold and silver are concerned, any association is strictly limited. It is not that the ratio cannot move lower, in favor of silver. It can. And, it probably will at some point. But it will likely be very short-lived.

The ratio cannot and does not tell us when such a situation might occur. Ironically, after looking at these charts again, it might be more reasonable to entertain a prediction that IF  the ratio dropped to a significant degree in favor of silver, one might load up on gold and sell silver, with the expectation of quick resumption of the currently established clear trend of an ever higher ratio, favoring gold.

For a look at all of today’s economic events, check out our economic calendar.

(also see Gold-Silver Ratio: Debunking The Myth)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!