Gold and Silver 2018 Outlook - The Fundamental Technician
Editor's Note: Colin Cieszynski, chief market strategist at The Fundamental Technician, provided exclusive commentary for Kitco News' 2018 Outlook Series.
Finding a place for metals among new currency options
(Kitco News)- Historically, gold has helda special place in the currency world; as a store of value whose level ofsupply is outside of the control of the world's central banks. As the world'spremiere hard currency, gold has tended to trade in opposition to the world'spremiere paper currency, the U.S. Dollar.
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| Colin Cieszynski, chief market strategist at The Fundamental Technician |
Since bottoming out in late2015, gold has been steadily recovering with some setbacks along the way. Thefirst setback, in late 2016 coincided with the election of President Trump andthe emergence of a more hawkish Federal Reserve, which boosted the value of theU.S. Dollar. With other central banks starting to normalize monetary policy,particularly in Canada and the UK, the U.S. Dollar eased back in the secondhalf of 2017, enabling gold to resume its uptrend.
The setback of late 2017,however, has been very different with longer term implications for gold. Cryptocurrencieshave been loitering around the fringes of the financial world for some time butin late 2017 exploded into the mainstream. The move toward the listing of BitcoinFutures on the CME gave cryptocurrencies the stamp of credibility they had longbeen lacking.
Part of the attractivenessof cryptocurrencies is that, like precious metals, Bitcoin and Co. are notunder the control of central banks and their money printing/devaluation/manipulationprograms. Because of this, some traders clearly shifted money that previouslywould have been allocated to gold into chasing Bitcoin depressing interest ingold.
In the latter part ofDecember, following Bitcoin's debut on the CME, some of the cryptocurrency hypehas died down and capital has returned to the gold markets. One of the keydrivers of trading in gold and silver in 2018 is likely to be about therelationship between precious metals and cryptocurrencies and how both groupsfind their place in an expanding currency trading world.
Traditional drivers of Goldtrading are unlikely to go away in 2018 and may also have an impact. Risingcommodity prices and the potential for the return of inflation could supportGold in its role as an inflation hedge. This may be offset, however, by centralbanks continuing to normalize monetary policy, whether through raising interestrates or tapering QE/money printing programs, which could boost the value ofsome paper currencies relative to hard assets.
Key levels for gold in thecoming year on the upside include $1,300 where a breakout would complete andascending triangle base, then the $1,375 to $1,400 zone where gold rallies havedied out several times over the last four years. On the downside, $1,250 and$1,200 have emerged as significant support levels. For Silver, significantupside tests appear near $18.50 then the $20.00 around number, and then $21.50a resistance level that has remained in place through multiple tests since 2014.Key downside support for Silver appears near $15.50 then $15.00 and $13.75.
There is a small chance of abig event that could totally rock precious metals were it to ever come about.For many years, one of the gold bugs wildest dreams has been that someone wouldlaunch a gold backed currency, and was one of the main plot drivers in NealStephenson's Cryptonomicon (Avon Books, 1999). Last Friday, reports started toswirl that Venezuela is considering launching a cryptocurrency backed by someof its oil reserves, which would be the first time that a cryptocurrency wouldbe backed by a hard asset. Should reality once again follow Science Fiction andgold or silver be used to back one of the burgeoning cryptocurrencies outthere, it could become a generational defining moment in precious metalmarkets.
By Kitco NewsFor Kitco News
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news@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.