Risk-off periods in any market can be quite scary. In March, markets across the board melted down with gold plunging to a low of $1,450.90 while silver flirted with $11.74 per ounce. Gold dropped from over $1,700 but registered a low that was recorded as the lowest since November 2019. Notably, the precious metal held its technical support level located at $1,446.20.
On the other hand, silver became a falling knife recording n 11-year low. The industrial metal had not traded below$12 since 2009. But, both both silver and gold did not remain at low levels for long. Just five months later, gold recorded an all-time high of $2,074 while silver surged to just below $30 per ounce.
The upcoming US presidential elections, a new wave of COVID-19 in the US and Europe, tension between China and the US, and several other factors have re-introduced risk-off action in the markets. Gold and silver are tanking once more. Nevertheless, all the pieces are now in place for another considerable turnaround in the precious metals space.
Also, the sell-off in the stock market and threats to the US and global economies will just increase the liquidity; and stimulus that are bullish catalysts for precious metals. The ETFMG Prime Junior Silver Miners ETF (SILJ); and the Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG) products; will underpin the results when gold and silver prices find their bottoms and turn higher.
Bull Markets Are Never Straightforward
Even the strongest bull markets experience correction at some point. The bulls in the gold and silver markets surged from mid-March lows to the early August highs. Gold gained from $1,450.90 to $2,074 on the continuous contract or 44%. On the other hand, silver was more impressive as it surged from $11.74 to $29.915 or 154.8%.
These two precious metals took a breather and consolidated in the better part of August and early September. But, the return of the risk-off conditions made the prices of the metals to drop to their lowest since July in the past week. Experts are convinced that the reasons for the sell-off in the stock market and corrections in the silver and gold markets; may turn into factors that underpin prices to head higher in the coming weeks and months.
The second wave of COVID-19 seems to have hit Europe and the US. But, governments and central banks have promised to supply liquidity; and stimulus to markets as the health crisis continues to take a toll on economies. In the coming years, central banks have promised to keep interest rates at historically low levels.
During its September meeting, the Fed announced that the Fed Funds rate will remain zero percent until 2023. The American central bank is ready and committed to using quantitative easing to maintain rates low further out along the yield curve. Other monetary authorities throughout the world are likely to follow.
Political ‘noises’ in the US have thwarted another stimulus package and many factors that involve President Trump before the November 3 elections make the possibility of an agreement on a second stimulus package less likely. But, all signs point to the possibility that both parties will find a middle ground on another program soon after the elections.
The US Treasury has already borrowed around $3 trillion to fund the stimulus in May; but more borrowing is on the horizon. In the meantime, the Federal Reserve told markets that they are ready to withstand inflation levels above the 2% target rate.
The bottom line to this matter is that government stimulus, central bank accommodation, and increasing inflation are bullish fuels for the gold and silver markets. The metals are not appealing when the bears are driving the markets; and the prices may plunge even further in the coming days and weeks.
Nonetheless, buying silver and gold when they seem vulnerable has been a great approach to the metals in the last several years. The possibility of higher highs in these metals remains bullish and the odds for new highs are quite compelling.
Gold Harassed In Risk-Off Conditions
Gold lost $253.40 in March 2020 when the price fell from $1704.30 to $1450.90. the weekly chart shows that gold already corrected from $2,075 in early August to reach a low of $1,843 or a loss of $232 by the end of the past week. The price was trading near that low at the $1,875 zone on September 24.
Interestingly, the risk-off period in March hit the markets across all asset classes quite hard. Only time will tell if the current selling becomes as bad, the same, or worse in the coming days and weeks. Gold lost 14.9% from its highs in March. The same percentage movement can take the precious metal to the $1,755 zone.
Turning to the weekly charts, the first level of technical support is located near the June low of $1,668.60. Gold might continue to encounter selling pressure if the risk-off conditions increase. Nevertheless, silver may become even more volatile looking at its price action in March.
Highly Volatile Silver Will Suffer More
Silver seems to like huge price swings coupled with wild price variance. These characteristics make it quite attractive for the short term investors and speculators who seek to ride the bearish and bullish trends to make massive profits in percentage moves.
As the weekly charts show, silver lost $7.18 per ounce from $18.92 to $11.74 in March. That translated to a 37.9% loss. After the industrial metal surged to a high of $29.915 in August, it has again lost $7.955 since then to reach $21.96 with the low coming this week. The same percentage as that which occurred in March can take Silver to $18.58 per ounce.
Silver hovered from $16.975 to $17.015 in May through June which forms a gap in the weekly chart just like $19.795 to $20.125 from July. These gaps act as magnets for price action in the volatile markets. The price implosion in March and the subsequent explosive move is a clear reminder that anything can happen in the silver market.
Hence, picking tops or bottoms of peaks and troughs based on technical levels can be quite dangerous in the silver market. In the risk-off periods, silver seems to suffer more than gold which also creates more opportunities.
Many are bullish on silver and gold but experts advise that you should also be keen on the current environment. Trade from the long side of the two markets but ensure that you set quite tight stops. One trader said that they hold long physical positions and they will gradually add on a scaled-down basis.
Always work with a strategy after reviewing the trends and momentums in the gold and silver markets. Commentators say that you can buy the dips since these metals will eventually regain an upward trend.