Gold & Silver Soar To New Highs, Followed By A Dramatic Correction

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Last week was an extraordinary one with Gold making new 2020 highs of $1,690 per ounce, followed by an unexpected major correction of $75 per ounce on Friday. The precious metal surprise correction was the result of a financial liquidity crisis, caused by fears of inevitable economic slowdowns as the coronavirus numbers grow.

To quote Carsten Fritsch, a precious metal analyst with Commerzbank, “It’s bloodshed, it first started with forced selling from equity investors who also sold their Gold positions to cover their losses in equities and also to cover margin calls. Gold investors don’t want to sell but are forced to cover the losses in other asset classes.”

“The coronavirus outbreak has further undercut investor demand for raw materials, which was already wavering because of increasing supplies and concerns over global trade wars. Returns from commodities have plunged on worries that the fast-spreading virus will crush demand for raw materials, fuel and food across the globe.”

Last week reminded me of the October 2008 financial crisis when concerns about a banking collapse caused a liquidity crisis in stocks, bonds, and precious metals markets. During that month of October, Gold initially dropped from $903 to $712 per ounce. Then, it rallied back by year-end reaching $880 per ounce and, within a year, was trading over $1,200 per ounce.

Gold closed last week at $1,565 per ounce, down $82 for the week.

Today: After a crazy week of trading, I am seeing some stability in the precious metal markets this morning. Gold has been trading over and under the important $1,600 per ounce support/resistance level. Right now, Gold is finding support around $1,595 per ounce.

Silver followed Gold lower last week and at a faster pace. The financial markets liquidity crunch drove down the Silver price by 11.57% last week. Silver hit a low of $16.34 last Friday, before rallying back $0.20 by day’s end. Additionally, most of the precious metal mining stocks dropped at a faster rate. Last week’s dramatic Silver correction caused the Silver-to-Gold ratio to increase to 95-to-1.

Today: Silver traded as low as $16.39 this morning before rallying with Gold. Silver is currently trading in the $16.70 to $16.80 area. When Gold moves back over the $1,600 level, Silver needs to move back above $17 to restore confidence in traders and investors.