Spot gold extended to the downside in overseas trading, reaching a 19-month low at 1160.27 before corrective pressures emerged. News that the U.S. and China would engage in a new round of trade talks sparked some profit taking in the dollar, which buoyed the yellow metal.
Larry Kudlow, President Trump’s Director of the National Economic Council announced this morning that a “second-level” Chinese delegation would visit the White House next week in an effort to restart trade talks. The news has revived risk appetite somewhat, boosting stocks and commodity prices and knocking the dollar off of more than one-year highs.
These talks are already being dismissed in some circles as low-level and insignificant. However, I would suggest that low-level talks are certainly better than ‘no-level’ talks. They could conceivably lead to higher-level talks.
Gold was able to climb back into positive territory on the day, but upticks above 1180.00 have been a struggle thus far. While recent price action smells of the final capitulation in gold, it may not be over yet. With most of the significant intervening support levels knocked out, a full retracement to the 1122.61 low from 15-Dec-16 must be considered.
The intraday high at 1182.01 marks initial minor resistance. Yesterday’s high at 1193.95 is the first resistance of any import, but this level seems out of reach today. The 9- and 20-day moving averages, which have been fairly reliable selling and risk levels throughout much of this multi-month decline, are well protected at 1199.74 and 1212.26 respectively.
Silver notched a 2½-year low at 14.33 overseas, but has since rebounded to set new intraday highs. Silver is presently trading more than 3% off the low. These gains have relieved the short-term oversold condition somewhat and may still have a ways to run, but it seems like the first tier of resistance at 14.95/15.05 should remain protected at least for today.
Today’s follow-on losses further eroded the technical picture, lending additional credence to the bearish scenario that suggests potential is back to 13.64 low from 2015. The fact that silver moved within a dollar of that critical level today speaks volumes.
The monthly chart provides additional context. That initial rally into the summer of 2016 stalled well shy of even the first Fibonacci objective at 22.17. Since then, the silver market has been a dog, locked in a narrowing range until the recent downside breakout.
Demand for silver was down about 5% in 2017, in part due to a significant drop in investment demand to a 10-year low. Production fell as well, but only y 2.7%. The two in conjunction are a recipe for lower prices.
Bright spots on the demand side were jewelry and the industrial sectors. Silver demand for use in solar panels grew by 19% last year, driven by wider adoption of solar generated electricity, particularly in China.
However, the latest solar panels are achieving greater efficiencies, while using significantly less silver. According to a report that came out last month from global commodities consultancy CRU, the amount of silver per photovoltaic cell declined 67.5%, from 400mg to 130mg between 2009 and 2016. CRU projects “silver content to begin levelling out at 65mg around 2028.” That’s another 50% drop from the 130mg figure over the next decade.
In addition, those first generation higher silver content solar panels have reached their useful life and are starting to be recycled. There are a number of recyclers out there that do nothing but process photovoltaic cells.
According to the U.S. Geological Survey, new and old scrap accounted for 1,150 tons of supply in 2017. Recycled photovoltaic cells has the potential to add significantly to this number in the years ahead.
Platinum is rebounding from a new near-10-year low of 754.03. These gains leave the 2008 low at 732.50 protected for the time being. A simple hook reversal is likely to be confirmed on today’s close, but corrective potential is thought to be limited. The intraday high at 795.38 defines initial resistance, protecting yesterday’s high at 800.99.
There’s an outside day in palladium with scope for a key reversal on a close above yesterday’s high at 898.00. The 61.8% retrcement level of the recent leg-down has already been retraced and the 9-day MA has been regained. A breach of the 20-day MA at 908.96 would favor additional retracement toward the 920.00/925.31 zone.
While the chart pattern looks pretty favorable, palladium is not generally a leader. I’d look for technical confirmation in gold and silver, before getting too bulled-up.
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