Can gold fall but silver rise this year? Possible

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Can gold fall but silver rise this year? Possible
The scale of the outflows from gold exchange traded funds have been staggering, with $700 million in outflows in one week in December alone.

Dubai - If Federal Reserve continues to hike interest rates thrice, gold may fall to $950

By Matein Khalid/Commodities Corner

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Published: Sun 1 Jan 2017, 8:00 PM

Last updated: Mon 2 Jan 2017, 4:47 PM

Gold has had a cruel 2016 and while this column caught the $280 an ounce rally from its winter lows near $1,050, I completely misjudged and mistimed the outlook for the yellow metal in the second half of 2016. After all, back in July, just after Brexit, a free fall in sterling, on ominous rise in the implied volatility of the foreign exchange markets, it was easy to be long (and wrong!) gold, at $1,340, up 25 per cent for 2016.
My strategic error was to accept that a Donald Trump win would mean chaos in the world financial markets and global safe haven demand for gold that could take the Comex contract to $1,500 and a near 50 per cent rise in the post 2011 embattled asset class for the year. Sadly, the Scottish poet Robert Burns was so right. The best laid plans of mice and men aft go astray and so they did with a vengeance. Gold is now $1,150 an ounce, almost $200 an ounce below its Election Day high.
The scale of the outflows from gold exchange traded funds have been staggering, with $700 million in outflows in one week in December alone. The December FOMC, with its three projected interest rate hikes and explicit Yellen warning to Trump about her response to fiscal stimulus is gold bearish and US dollar bullish.
Higher US dollar overnight borrowing rates in 2017 are Count Dracula's cross of gold at dawn to the zero yield gold market.
While there has been a post-election uptick in inflation expectations and 25 per cent rise in the price of crude oil after Saudi Arabia played Opec swing producer in Vienna, this has not really helped gold find a credible bottom.
Nor has the failure of Renzi's Italian political reform referendum or the capital woes of the world's oldest bank in Siena attracted any real demand to gold, in sharp contrast to its post-Lehman rally from $700 to $1,900 an ounce in 2008-11. Trump's election has led to a fall, not rise, in market volatility. US GDP growth in the third quarter has accelerated amid a surge in consumer/business confidence, not fallen off a cliff.
If US economic growth rises to an above trend three per cent and the Federal Reserve continues to hike interest rates thrice, it is possible that gold will lose another $200 an ounce in 2017 and reach the $950 a troy ounce level my Fibonacci obsessed elves tell me is its ultimate strategic technical target.
Stung badly by accepting the wisdom of crowds and market consensus on the eve of the election, my mind imagines scenarios where the next $200 an ounce move in gold is up, not down.
This could happen if Trump is unable to pass his $1 trillion infrastructure spending package through the fiscal hawkish Republican establishment in Congress - and the Fed backs down on interest rate hikes or a major German bank, the ultimate German bank, faces a funding big chill in the global interbank markets. We do not need Nassim Taleb to remind us that we live in a world of black swans. Silver has been the Pavlovian collateral damage to gold's fall from grace since Trump's election. Can silver fall below $15 in the first four months of 2017? Sure. The outflows from the silver index fund SLV and the options skew on the New York Merc/Comex all suggest the current downtrend will continue.
Yet it is also a fact that silver peaked at $21 an ounce in July, that silver is an industrial as well as a monetary metal, that automotive/medical/solar panel demand could be well above 50 per cent of total demand in the silver bullion market in 2017 and silver mine output form gold/lead and zinc mines will decline in 2017.
If silver sees a 200 million ounce deficit in 2017, almost double the supply deficit of 2015, I can easily see a short squeeze in the silver market. So the ghost of Nelson Bunker Hunt haunts me as I believe we are on the precipice of a major bullish move on silver, though only after short term pain down to a 14 handle. So this is the level where I will begin to accumulate silver longs for an $18 target, using Comex silver options and futures.
 


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