Peter Hug, global trading director of Kitco Metals, breaks down the gold market’s recent price action and the next key support and resistance levels to watch for.
Markets are taking a hit all markets, not just a gold markets equities too. As yields continue to rise. The ten-year is now above 1.5%. The dollar is up as a result and Peter hug, global trading director of Kitco metals is here to discuss this today. Peter, welcome back while the top markets this week, much more than last week.
How are you reading it? Well, I mean, when we spoke last Friday, we, uh, you know, I indicated that I thought goal had a good shot at getting over 1800 where I saw little resistance and possibly test 1820. The cheer looked good on Monday, it got up to 18, 17. Uh, but then the, uh, you know, that 10-year bond deal continues to rise.
Uh, Putting, uh, putting pressure, uh, uh, on both the equity markets and the commodity markets. It's taken the edge off a dollar that was headed lower at the beginning of the week. Uh, and with the stock market selling off both Wednesday, yesterday, and, uh, down some 400 points now, 300 points right now as we speak, uh, there's just been a move to cash.
And, uh, there's been a selling of risk assets, uh, to be perfectly Frank with you. I'm surprised, uh, Goldman, once it got through 1750 this morning, which didn't seem to be, uh, uh, an issue for it. Uh, I was surprised that it, uh, it, it's not holding the 1725, which I consider a pretty significant support. Now it's still early.
It may close above it. Uh, I always base my, uh, my technicals on clothes. So we'll see how this market finishes off during the day. But right now the technicals look terrible for gold. And if we can't get over that 1725, there may be some selling into the Asian market on Sunday night. And we may see a test of 1700 early next week.
Right. Okay. So that's a, that's a, that's a very good point, Peter, it's now 48 bucks right now, as we speak. Do you think gold is down primarily because of the selloff and risk assets? Usually when brisk assets sell off, people immediately sell gold as well as raise cash. Or do you think gold is down because of the strength of the dollar, which she thinks is more likely.
Well, you know, I mean, from a strength of a dollar perspective, I mean, the dollar is stronger than it started off at, uh, the weak, but it's not materially stronger. Uh, uh, you know, the, uh, the Euro, uh, opened the week at, uh, just, just North of a one 22 to the dollar. And it's now just under one 21. Uh, the Yang's down about a 2%, uh, but where my focus is, uh, when I look at the commodity, uh, pictures, I, I, my currency of choice to watch, uh, is the Canadian dollar.
And at the beginning of the week, the Canadian dollar right through, uh, yesterday morning was trading at about one 25. Um, Which was the high for the past year and a, this morning, it's at one 27. So the Canadian dollar lost almost 2%, just, just in 24 hours. And, uh, so I sorta correlate, uh, where I see the metals based on the value of the Canadian dollar as the Canadian dollar has strengthened, uh, it tends to mirror the rise.
In commodity prices, uh, and whether the Canadian dollar, uh, takes the hit, you generally see some weakness in commodity prices. You bet oil down, almost dollar a adult. We're a 30 today. Uh, although it's had a significant run over the past four or five days, uh, and, uh, And you're seeing, um, selling both in gold and silver.
Now yesterday, silver held up at the 27 50 level as gold broke down below 1800, uh, on Tuesday, uh, silver was still holding fairly well. And so it was platinum. Uh, but eventually, uh, silver, just, uh, uh, succumb to the pressure. And, uh, as gold broke through that 1775 level early this morning, uh, and then through 1750, a selling team into the silver market as well.
And we're looking at silver right now and in the low 26. Okay. I've been speaking to economists about the relationship between guilds and gold. As you know, if yields rise, it means the opportunity cost of gold holding gold is also higher, which means gold should go down. I'm looking at the, a yield over the last year.
So yields the nominal 10 year yield has reached an all time low, last year around, uh, the summertime, July, August that coincides with the all time high in gold prices. And ever since then yields have been ticking up. Gold has been ticking down. I wonder then. If, uh, if that really is the sort of the max level of gold price, assuming because yields were pretty much at zero, it couldn't really go much lower than that.
And so would that just, would that indicate the ceiling for the gold price for you? If, if let's say yield is the 10 year yield is at 0.25% under 0.5%. And the maximum price for gold is $2,100. What that be the max price for gold? No, I don't think you can make that correlation. Uh, you know, I think the using yields is, has been, uh, recently, uh, new, uh, phenomenon in the sense that, uh, you know, it's basically just sort of been progressing over the past four to six weeks.
Uh, you know, this wasn't a, this wasn't something that was taking at that had any legs to it, uh, near the end of 2020. Um, you know, I think what. The perception is, is that the economy looks like it may be getting better, uh, with the, uh, with the virus. And, uh, you know, there's just some pressure on, on, on, on yields because of that.
I think it's premature. And I, you know, I don't think the fed is going to take any action yet, but I can tell you if that Dow drops below 30 and, and, and starts to run into some serious trouble, uh, I think the fed steps in here. So I, I, I. I'm having trouble understanding this drop. Uh, I can understand Dan, the concept of moving away from, uh, from some risks, assets and raising cash.
Uh, uh, but I think the macro picture is still a very positive for the commodity commodity index in general. And, uh, you know, I think goal at 1720, uh, continues to look attractive to me. Right. So it's not just gold. That's down today. Silver palladium, platinum, it's all down. Uh, same metrics, same forces driving those prices down as well.
Well, I mean, if you look at silver it's down, but you know, we're still, uh, you know, sort of in right now, it's trading at around 26 40, uh, you know, when. Silver got to a high of 29 when gold was at a, you know, $2,200. And, you know, Silver's down $3, which is approximately 10% and goes down $500, give or take from the high.
So, you know, I still think that there is interest in silver. Uh, At these levels. And I certainly think a platinum themself with $1,200 a is an opportunity to buy it. I do not think that the trend in the industrial metals, uh, from the upside is, is over by a long shot. Right. Okay. So let's talk about, uh, very quickly the equities markets.
You mentioned that should the equities markets, the Dow dropped even more, the fed might step in to intervene. Why, why would the central bank intervene on lower equities prices? Peter? Basically fear. Uh, I mean, every time there's an issue with the economy, the first place, it shows us in the equity market.
And it's just sort of a barometer that the fed looks at. I mean, it, it, it, it basically is a bastion of wealth and liquidity and, you know, if that starts getting, uh, getting hit. and dropping significantly. I mean, there are a lot of people affected by it, not just the rich, I mean, people that, uh, you know, that have 401ks pension plans, uh, I mean it affects the economy overall and eventually, uh, it creates fear and it scares people from spending, uh, Airbus.
And, uh, so the fed steps in and tries to mitigate that, uh, that enhanced by creating some liquidity to support, uh, you know, one of the markets that, that, uh, that maintains a significant, um, allocation of wealth for the American people. Well, what, what could they do? The fed funds rate is already. You know, very low near zero times.
Right. But, uh, you know, they could, they could do more in their bond purchases. Uh, I mean the fed has a number of tools out, uh, that can, uh, uh, that can create liquidity for the market. They could intervene against. The dollar. So, you know, there's a number of things the central bank can do if they think that it's starting to get out of hand.
And I, and I think it's premature. I don't think it's getting out of hand yet. Again, the Fed's looking at this and saying, well, the dowel is still at 31 to, um, you know, that's not bad. It's, you know, it's not trading at 18,000, but. But again, you know, investors, especially traders in the gold market have been looking for a catalyst to bring this market higher and they just haven't got it.
And, uh, you know, eventually, uh, sometimes you just sort of get bored with it and, uh, you're seeing other asset classes that might be doing better. And, uh, you know, you liquidate, uh, you liquidate your investment and you, and you move into other things. Uh, I wouldn't, but, uh, I think you're seeing that type of, um, action in the market.
And you're also seeing computer selling. I mean, again, 17 sort of 75 ish was around the 200 day moving average. Once we lost that, uh, there was nothing but sort of air until 1750. Um, got through that relatively easy. Uh, I would have expected again, and I still hope to see gold close above 1725, that, that 1725 level, uh, well hold.
Um, but again, it's all technical selling and you got computer, uh, algorithms that are indicating, uh, the momentum is down. Um, so it just sort of feeds on itself, uh, from a. Chart perspective if we lose, uh, 1725, I mean, I think there'll be some support psychologically it's 1700, but the next main target I'd be looking at would be the 1680, 85 level as a as significant support.
Alright. Okay, well, that's, um, let's talk about the relationship between equities and gold now because, uh, like you said, the fed intervenes on a lower equities prices that should be supportive for gold prices as low. Could it not that action from the fed, if they, if they, if the fed does something extra ordinary, as opposed to what they're showing right now in support of, uh, We use the equity market as an example, he has to definitely, in my opinion, would be, uh, uh, constructive for, uh, the, uh, for the gold market and for silver.
So, so yeah, it just occurs to me that the gold and silver, sorry, the gold and equities markets right now are seeing a positive correlation. Is that a, is that, is that fair to assume? Is that something you've considered as a trader. I think what happened to them? This market was, uh, I think the Mark got caught off guard.
They did not expect the tenured, uh, to go North of one 50 on the yield basis. They thought there'd be a wall there and it would back down from that. And, uh, it doesn't seem to be stopping here yet. Uh, and I think that's making people, uh, somewhat nervous about yields. Well, and the potential short term strengthen the dollar that these yields may cause.
And, uh, they look like they're trying to jump ahead of the curve and they're, and they're selling golden anticipation of a stronger dollar. And I think any stronger dollar, I think will be short-lived. But again, you know, traders trade based on what they see and, uh, uh, again, once, uh, once they start hitting the button to sell, uh, it tends to be a cascading effect once, uh, once the momentum picks up there.
You talked about the downside support levels for gold. What about the, um, upside resistance levels? Any resistance levels? Yeah. I mean, again, this is based on the assumption that we get to close at over 1725, but if we don't then, um, 1725 becomes resistance. Then, uh, next significant resistance will now be the 200 day moving average, which is a boat at 1780.
And we'll need to clear those two hurdles, uh, before, um, anybody can talk seriously about a test of 1800 or beyond. All right. Well, thank you very much for the update, Peter. It doesn't look like it's a bright days ahead for golden vetros at least for the, not for the foreseeable future, but, um, we'll see what happens.
I mean, if investors were looking for a pullback because they missed the move higher, uh, they're getting there, they're getting their opportunity and pull back. I mean, it's all relative. It depends where you are in game. Uh, if you're long at 2190, uh, you're obviously not very happy, uh, but, uh, mean on a, on a, on a two-year basis, gold is still looking.
The long-term chart for gold is still looking very strong. If you just zoom out. And take a look at two to five years where we're still at a very high point. True again. Uh, but if you're a trader, uh, this market is, uh, if you're a law, I mean, you could be shortened and you're happy, but if you're a trader in your long list market, but you're not feeling very good right now, uh, again, as an investor, again, without.
Again, the broken record scenario, uh, uh, it's part of your portfolio, uh, and, uh, you make adjustments. Uh, so, uh, it was 10% of your portfolio. And now you have this downdraft, you, uh, you recalibrate your portfolio and it goes at 8% or 5% because of this drop. Uh, then you add to the position in gold to bring it back to 10%.
Um, and that's the way you have to do it as an investor. And if the market rallies and, uh, your, your position is now not 10, but 14% of your portfolio, you sell 4%. Uh, and you need that discipline, whether you're buying gold or Apple stock or, uh, or anything else, you just recalibrate your portfolio, either every three minimum, every six.
Uh, months and, uh, uh, again, uh, you, you keep your, your waiting where you want it and you add or subtract to that waiting depending on which way the market moves. All right, Peter. Thanks very much for your update. Let's catch up next week. All right. Have a good weekend. Have good weekend to you too. And thank you for watching Kitco news.
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