Liquidity Crisis Accelerates and Hits Metals Hard

Liquidity Crisis Accelerates and Hits Metals Hard

The sell off in markets accelerated by coronavirus and the global reaction to curtail the pandemic has left no prisoners, as nearly all asset classes are selling off in a flight to liquidity. As large institutions face margin calls, they are forced to close positions or raise cash by selling anything and everything that is liquid. Gold and silver - the “safe haven” assets - are no exception. I would remind readers that in the global financial crisis gold fell 27% and silver fell 55% in nominal terms. Gold outperformed equities on a relative basis, but silver actually underperformed.

The selloff in the markets has gold now testing key technical levels and silver breaking down from support. Mining stocks have accelerated to the downside even faster. In a liquidity crisis, nothing is immune.

Gold

Gold is now retesting the rising trend line from the August 2018 low. A break here would target the major horizontal breakout area ~$1530-$1540. That will be the last gasp to preserve a bullish regime. If price trades below that level, it could send gold down towards a retest of the six-year breakout level at 1370.

Gold-3-12b

 

GDX - Gold Miners ETF

GDX is in a similar position to gold. All key technical levels have broken down and only one remains before a complete capitulation (the rising trend line from July 2018) at ~21. A breakdown there would target 17.

GDX-3-12

Silver

Silver has broken down from its megaphone pattern, and most importantly just broke horizontal support. This is bearish action in silver, and there is no meaningful support here until a retest of 14.30 from May 2019.

Silver-3-12

Trading activity in the physical market has been extremely robust and consuming nearly all of my time, but I will try to keep updates coming. Be safe out there!


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