This article is based on a live webinar which was hosted by InvestingHaven.com on Wednesday April 13th during which 15 questions where answered by panelist Rob Tovell, market analyst at RobTovell.com and investor/trader for 4 decades covering all markets including precious metals, and panelist John Newell who manages the “Global Precious Metals Program” fund at Field House Capital. The first part of the webinar was focused on the gold and silver mining points, while the second part about the gold/silver price and futures market.
This article higlights the outlook for the price of gold and silver price. Next to that, it talks about the COMEX futures gold market, the Commitment of Traders Report (COT), and physical gold investing. Courtesy of Rob Tovell.
What is your outlook for the gold price and silver price?
Both gold and silver are looking great, technically. Silver has the cleanest chart pattern: a bullish cup and handle pattern. So it’s worth analyzing silver’s chart to get an idea of where the precious metals complex is going.
Silver just broke back above its cup and handle resistance line at 16 USD. From a technical point of view, the upside target is reflected by adding the value which represents the depth of the “cup” to the resistance line. That price target results in a price of $18.15.
The most bullish target is $21.32. However, it is not a short term target, as, usually, the first and second targets are quickly achieved, but the third and fourth targets take (much) more time to achieve, so it could take several months or a year before getting there.
Note how we spotted this cup and handle pattern correctly already a month ago, in this article Silver’s Bullish Cup And Handle Pattern.
Apart from the silver chart setup, another bullish driver for precious metals is the price of the US dollar. As we will see below, the US dollar is looking quite bearish. How comes? A bearish US dollar is visible in the bullish chart setups of the major currency pairs: Australian dolllar, Canadian dollar, British Pound. More fundamentally, however, is the fact that the world is awash in US dollar, so at some point that has to reflect in precious metals and commodities.
The bearish US dollar setup should be a big boost for commodities, precious metals and base metals.
What is your outlook for the gold to silver ratio in 2017 and beyond?
Silver will definitely outperform gold going forward. The highs in the gold to silver ratio were set in January around 83.70 points. Since then, the surge in silver miners anticipated the price rally in silver. Moreover, producers are not hedging anymore, they are cutting back on their hedging programs, in other words they know that silver prices are going up.
We believe a 68 reading in the gold to silver ratio is coming in the not too distant future (after summer probably). That target coincides with the higher silver price targets discussed above.
Are copper prices and gold prices related in any way?
Gold and copper are related though not in the way you would expect. They are, in fact, not necessarily correlated, but rather they both have an inverse relationship with US dollar. Copper is going higher from a chart setup perspective: its long term moving average is sloping up, right at a time when the copper price put in a higher low (after a retracement to $2). This setup is very similar to the one of gold. So we firmly believe that copper and gold are higher together.
The COT report looks very bullish. Is the COT not too bullish to push the price higher?
Many years back, traders were very dependent on the COT, but in a contrarian way. For example, commercials could be extremely long on June gold, so they would be bullish between that month and June, but at a certain point they had to sell their positions, which would drive prices down significantly. Because of that, our advice would be not too read too much into the COT reports. The accumulation that is seen at one point will have to be offset at a later point.
Will there be a default of the COMEX gold market?
Maybe yes, maybe no. Both sides have a valid argument. COMEX is leveraged 312 to 1. The issue is that probably not everyone simultaneously is going to want all the gold at once, in other words nobody is going to take delivery at once.
However, at a certain point in time, traders that are holding long positions, instead of rolling over (i.e., take profits and sell back) MIGHT request their gold in physical format. If enough traders are asking this simultaneously, the world will have a serious problem: as COMEX will not be able to offer this, it could lead to a financial disaster which could even affect the tax payer. Warren Buffet was right when he said that derivatives are a weapon of mass destruction.
What is the likelihood of this scenario to play out? That’s a hard question. Rationally, one would think that it is probably not going to happen. On the other hand, from a common sense perspective, it is arguably an inevitable scenario. So much money has been printed over the last 8 years, and we can only conclude that QE has not worked. A rational economist would observe that the Fed’s economic models are based on economic dynamics from several decades ago (even a century back), when economic stimulation was driven by manufacturing things. However, today we don’t manufacture things anymore, so money printing channels resources to a wrong place. Armageddon can really happen as our leaders are not focused in the right area. Sooner or later, there is a day of reckoning.
If one would store gold outside of the country how will we get it back inside some day?
We can look at the analogy of Germany who tried to repatriate their gold, in order to answer that question. The Fed could not deliver Germany’s gold, so most likely the US spent Germany’s gold. In the first place, Germany should not have exported its gold.
Do you think there is any gold in Fort Knox?
No, not one ounce.