Is Silver The "New" Gold?

OK, very good morning to you. It is Thursday the 23rd of July. Hope you're doing well. Don't forget to follow me on Twitter as well. My handle here is my profile. I'll be tweeting throughout the day and the week some interesting infographics, so feel free to also message me on there if you ever have any questions at all. Always happy happy to help. But let's just get into the briefing for this morning and look at what's on the agenda for the day ahead. And fairly similar in a way of me talking through some, a couple of key long-term technical levels which have been breached. We're going to have a look at the euro again. We're going to also drop in on the US equity market. Obviously some aftermarket earnings yesterday from Tesla and Microsoft we can talk about, and we can talk about gold and silver. I had a lot of questions yesterday about silver in particular because if anything, that's been outperforming gold, and gold in itself has been putting in a pretty robust performance. So wanted to bring that to the table as well. So looking at the markets this morning from an overall sentiment point of view, um, yeah, I'd say it's moderately positive in terms of the European and US index futures are trading, um, higher at the moment. The S&P 500 is just above its weekly high at this point in time. Um, the NASDAQ Well, we're going to bring up these charts individually and we'll have a look. Is moving a touch higher, up about 70 points this morning. Consequently, the DAX up 75. Elsewhere, the DXY still remains fairly depressed. That's down about 0.12%. So it is below and has found some resistance in the overnight session from that 95. Remember I was saying yesterday, such a key level. We're now through that and it's, it's finding some upside resistance there now. Which doesn't bode well for the, the greenback at the moment for those fundamental reasons we discussed in, in yesterday's briefing. So still keeping the euro fairly buoyant at the moment. In the oil market, pretty flat overall, still maintaining though around that $42 handle. So breach of those longer-term resistance levels that got taken out a few days ago and still remaining fairly supportive of price for the time being amid the overall global tone that we're seeing overnight in Asia. A little bit mixed, I would say, in terms of how those local indices in the Asia-Pac region performed. A little bit of concerns over the renewed Sino-US tensions, uncertainty as well about this timing of the American stimulus package we've been talking about since Monday, whether or not they can get something together more concrete before the end of certain programs expiration at the end of the month. Still somewhat debatable. The main thing there, of course, has been about China in terms of the overnight story. The State Department in America yesterday ordering the consulate to shut to protect American property and American private information, that being the Chinese consulate. China then vowed to retaliate after that US forced the closure of that, the consulate in Houston. Again, this is one of the most populous towns in America, and the consulate is just one of 5 that China maintains in the US alongside its embassy in Washington. So this is the kind of next evolution, if you like, of the ongoing trade war. Markets in a Western sense, if you're going off this morning's open in Europe, somewhat brushing that aside. I mean, it did develop yesterday as a headline, but something to just keep half an eye on. But let's have a look at a couple of charts and I can wrap in a few stories as well for me to, to talk about. First of all, just want to have a look at the commodity market. I'm going to start here with— this is gold. So gold this morning, we're already up another $10 here. We're just taking out the overnight Asia-Pacific highs, which was at $1,875. We're just testing there at the moment. And you can see quite a nice actual floor to price going forward on the intraday perspective. Just around that pivot level. You've got those, uh, relative highs and lows that you can see from some of the price action activity, uh, around that pivot level on the intraday around 1861. So if we did get any pullback, that'd be a decent area of support to be looking at. If we fail to breach here, perhaps we might see a bit of a range play between 62 and 75 today. But again, that should provide, if any pullback, a strong level perhaps to reassert any long positions in the short term. Um, but I'm not going to talk too much about gold here. We kind of discussed that story in quite a lot of detail yesterday. I had a lot of questions, of course, about silver, and this came after, you know, we had a big pop in prices 2 days ago, and this was this move here. You can see technically just breaching around the $21.76 mark. However, it was, it was quickly retraced in yesterday morning's European open pretty much back to the tick, uh, in fact, of price action. You can see here and there we've had quite a bit of volatility, but generally a continuation of the upward trend in silver. And then we peaked out in the early Asia-Pacific hours and around $23.67 and a half here, looking at the silver future. One thing I'm looking at here is there's a weekly trend line, um, just going back all the way until, you know, markets really start to pick up a bit of pace from Monday's open, and you can see you've had multiple retests, and you've also got the daily pivot here in close proximity to around the low that we've seen initially at the European open. So I'll be keeping an eye on that as we go through today's session. Uh, silver's volatility is pretty high at the moment, so it is quite whippy in its price action. Any further movement higher, then I'd be keeping an eye at around $23.35, which is around the area where the price reacted to in the overnight Asia-Pacific session. And we found a peak in price activity yesterday afternoon going into the early hours of US trade. Um, and then anything above there would be targeting around that $23.65 and a half. So that's the shorter-term intraday type of levels that I'll be looking at. On the longer term, this is on a weekly chart, in fact, looking at silver. Um, and you can see here it's quite a bit of a different setup to gold. Remember, gold on a much longer time frame, we are not that far off. You remember this was a discussion point from yesterday. We were talking about Citigroup's targets, the all-time high. We are, you know, only around or less than $50 away from there at the moment in gold. And I really do see that happening, a test of that level, um, in the coming days actually. Um, Citi having that probability about further push up to $2,000 as a psychological target if we were to breach those levels. But if you look here, the point being gold relative to all-time highs in close proximity at the moment, whereas silver was still a long way off where we were trading back all the way in, uh, 2011, for example. Here then we have breached some very important targets here technically for silver prices in recent trade. Here was the big one that's really catapulted price considerably higher has been the initial break that we had, uh, really about 2 weeks ago or so when we got through $18.92. You can see this was a really big area for silver on, on prior occasions, you know, back in 2013-14 as an area of support, resistance in 2016 and also 2019-2020 until we've busted out here on the upside. And we've also taken out that high of 2016, which does put us at the highest levels now. We've traded in several years for silver. Now we're right here now at the $23 mark this morning, in fact just above it, which does trade above then that high that was seen in the Q4 period of 2013. And that does then give the next upside target, really, if you're looking at technicals, quite a clear one then up toward $25. And that again, the latest Citi note to incorporate around these precious metals, they've said is around this area of $25 is a 6 to 12 month target. But given the way in the volatility momentum behind the silver trade at the moment, um, that is a clear target and that wouldn't take 6 to 12 months. I think just given the bullish nature of the product at the moment, wouldn't be surprised if we get there in a matter of days or weeks rather than months. Um, beyond that point then, the other key areas here in silver, just looking much more on the, the medium-term horizon, $26 above then again is quite a crucial level from a technical standpoint. You've got the support and where the market bounced aggressively in both 2011 and 2010. And then Citi, same note, they're looking at a bull case scenario of $30, and that will put us back up to where we were trading really early 2013 type territory. So a couple of points here and, and differences as well, observations behind silver. I have tweeted this on my account if you want to have a greater read, but I thought this was a really really great summary that I read on Refinitiv this morning. They were asking the question, which a lot of people are at the moment, is silver the new gold? It's kind of like, is the euro the new dollar in the currency market? And there's 3 key points here, so I'm just going to read them out. One, over time they do move in tandem, but correlation is not as strong as some may perceive. So a lot of people just think, you know, the precious metal space in terms of gold and silver, they'll just move in uniform in a tight correlated fashion. That is true to some degree, but like with any correlation, it does tend to move in regards to, you know, how strong it is at any point in time. The second point here is silver is viewed as a better reflationary hedge given its support from industrial and tech applications. So this is quite important because at the moment there are some concerns about supply constraints that has also elevated silver a little bit beyond that of just gold as a traditional kind of safe haven. But also this reflationary hedge— if people are more optimistic then about the, uh, the, the narrative, the story, and the recovery of the global market going forward, well then silver is a much more regular, frequent, uh, component in industrial and tech applications. And so therefore it's much more sensitive to overall macro environment, you could say. So the perception of that economic future and the shape of the recovery globally is going to be quite key for ascertaining the fundamental directional bias for silver. And then third here, half of silver demand is electronics, connectors, etc., and also not forgetting jewelry as well. So over the past few months, people have been focused on gold as a safe haven hedge in an uncertain macro environment, but silver, they're suggesting, could continue to outperform form, um, and but the reflationary trade has already gone ahead of itself. They're suggesting long gold seems a lower beta play and still offers the macro safe haven status, while silver is more sensitive to economic narrative change. So I think that is also quite an important, um, and good question to ask yourself with any trade is that yes, it's kind of like bigger reward, greater risk though associated with silver comparative to gold seemingly being a lower beta play here. Both then do have this underlying same fundamental support on certain narratives, but silver, for these other reasons, could then be more susceptible for reactionary type moves to forthcoming information data, the COVID developments, and so on and so forth. But certainly quite interesting. And this is a chart looking at the performance, um, to put it in some comparative terms. About how just aggressive then the, the, some of the recent movements have been here in comparison from one to the other. Um, okay, this is looking at volatility, but looking at some other charts and some other things to have a look at, um, and I just want to have a quick look at equity markets and just going to have a look at the NASDAQ. NASDAQ has been such a, such a roller coaster of activity this week. It's been super interesting, and we can talk about some of the, the equity earnings as well that we've had. Um, from a price point of view, on the upside, it's obviously from the weekly price action that was also last week, and this in fact is the all-time high. Quite a definitive marker now on the upside around that, just above the 11,000 level, 11,059. In the near-term price activity though, we have formed what you could say is a, is a near-term range of price from what is quite a decent and strong level of support going back to resistance points on the 9th, the 15th, and also on the 20th before the breakout higher that we, we had. We had a retest of that yesterday, of course, uh, as well, and around the late part of the European afternoon. So in the upper and low extremities in the near term, be keeping on 10, 8, 0.9999. That was the open, uh, the high from yesterday, basically the part, main part of the range that was formed yesterday, down to the low, which was that more relevant support point, which also coincides with the S1 today. So pretty decent level there on the downside to keep an eye on should we start to reverse course. On the upside, there's a bit of a cluster here of resistance points, being that high I've just spoken about, but then the Asia-Pacific high from yesterday and then the US late session high and support point on the ascent that we had at the beginning of the week. So upside kind of obstacles to surmount here, you've got 10,899, you've then got the 10,916, yesterday's Asia Pacific high with the R1 on the daily pivots, and then 10,932 on any further push onto the upside. On the S&P, it's similarly quite bullish this morning, and it originally at the European open, we're just managing to get head above what was the, the high point that we printed, uh, 2 days ago. You can see the market on those wicks just pulling back and finding a bit of support now, having breached that level, um, with a bit of force this morning initially as Europe has come into the market. Looking at daily continuation then, uh, we continue to see now this grind out, and I really don't see, as I've said kind of all this week. Any obstacles now, barring any shock unexpected events, that we don't get closer up into water test at 3,300 now that we've come this far. Reading a couple of banknotes this morning, including one from JP Morgan, quite a lot of their— excuse me— technical analysts are looking up at around a key level at the level of— I mean, it's a little bit different in the cash than it is here. I'm looking at the future but it would coincide with 3328. So obviously you've got the, the round figure to, to tackle first at 3300, but then they're looking at the gap down in price action we had from the 21st to the 24th, and that being the high as well when we were pushing up at the time to all-time highs in the latter part of January. So here they're suggesting is a really strong area of, or key test technically. So at this point in time still got about another 25 points to go until we get up to the first target. And so all things remaining equal, I don't see any reason not to believe that the market doesn't continue on its push higher to grind it out up to those levels for the time being. And then the euro final chart, we'll have a quick look at. I mean, this has been such a, such a nice combination of fundamentals and technicals coming together. And that longer term picture then, we have now hit hard our target. So I know Alex will be, you know, just happy that finally this trade has played off after he was kind of stalking it for, for weeks, you know. But he's, you know, made a good 2 points on this trade now, and I know he's, he's riding this out all the way up, that he firmly believes that this is gonna, gonna take out that 118 and push up to those, those summer '18 highs. So I'm sure some, some of the trade coming off at around these levels Now this does have longer-term significance. You can see here, if I just put on these rectangles in the euro, I mean, we're going back here for a number of years in price activity. So 1.16, uh, kind of next target has been achieved this morning. And for the time being, although this is a technical point of resistance, I still don't see too much then to detract from the continuation of what we were discussing yesterday. The dollar still needs to be watched, and I anticipate that weakness will continue to remain evident in the contrast of the, the euro kind of positivity at the moment. On that euro positivity story, quite an interesting thing I did read this morning. We were talking about the success of the recovery plan has been the next kind of, you know, big event for Europe to help bolster those European assets. Equities in mainland Europe outperforming some of the other global counterparts, but The latest thing here I've read this morning is another step, another form of supporting the economy in Europe. This was that Brussels is set to unveil a series of quick fixes to the financial market rules, including measures to ease trading in small-cap stocks, energy derivatives, in just another format of trying to release liquidity and help then the economic recovery in the eurozone. The planned measures due to be announced in the coming days include changes to the European-wide MiFID II regulatory regime tweaks to standards for company prospectuses and exemptions to formal regulatory burdens, uh, where they are not strictly necessary according to draft papers seen by the FT. So again, it's kind of like, remember what I was talking about yesterday, this mammoth response from both a fiscal, now independent, national government, a coordinated European-wide recovery fund, the ECB in their PEPP as well as their APP program, as well as their TLTRO 3 assistance. You know, there's just so much going on here and, and reasons then to support then fundamentally why this euro has continued to outperform at this point in time. And this is just another, another element to add to that basket of, of kind of goods. All right, well, a quick look at some other stories then and some things there for me to get you up to speed on. And we've talked about the commodity markets, talked about the charts, let's talk about earnings. We did have Tesla last night, and this is the headline: Growth is Musk's goal after profit positions stock for the S&P. So remember, we were talking about yesterday, a positive quarterly earnings from Tesla, now marking the fourth in a row, is one of the components then that would mean it could pave the way for its ultimate inclusion into the S&P 500 index, given the size of the company Uh, it's not just purely down to, um, having 4 consecutive profitable quarters. There are some other metrics that need to be taken into consideration, but it almost does feel now inevitable with a company of the magnitude of Tesla to be included in the S&P index, which of course then opens the doors for lots of other things in terms of the inclusion into different indices or ETFs that would require then potential pickups to a new investor base. Um, in terms of the numbers, profit was at 50 cents a share on a GAAP basis. Uh, analysts were actually anticipating a share loss of $1.06, so big outperformance. Revenues from a year ago, um, to $6.04 billion, that was above the expectations of $5.4 billion. The company also announced that they would build another new vehicle assembly plant in Texas to keep lowering the costs of its models and Interestingly, Elon Musk saying on the kind of analyst call afterwards about this idea, and this is obviously highly unusual approach, that he's not really interested in making Tesla a highly profitable company. He just wants to make then these cars. He's still disappointed about the revenue growth figures, which have generally quite plateaued, and he wants to accelerate that. So he actually wants to lower the cost of the models in which they're producing, produce more vehicles, make it more accessible from a price point of view, and not necessarily making more profit, but just generating more growth for the company is his tactic that he's trying to follow. Aftermarket, the market did like this. Tesla shares were up about 4% in extended hours. You can see momentarily breaking $1,700, failing to sustain that, but sitting just above $1,650 now. For Tesla, which was about a 4% incline in aftermarket trade. On the flip side, Microsoft was the other big company, of course, people were looking at, and all focus was on the cloud computing division. And almost, you know, kind of victim to its own success, I mean, the cloud Azure revenue in Microsoft has just been phenomenal in recent quarters. They're really starting to worry the likes of Amazon, who have really dominated that space for for so long with AWS. And so, as I said, their Azure revenues rose 47% in the quarter, so a phenomenal number, but that was actually below market expectations of 49%, and it was lower than what they had in the prior quarter of 59%. So again, this is the problem. It's kind of like those Netflix numbers with the new subscriber rates. If you, if you post 10 million in one quarter, the market gets hungry for these types of numbers to be repeated. But it's almost kind of doomed to fail to keep up that massive outperformance every single time. Sales though for Microsoft were up 13%, $38 billion above the expected $36.5 billion. The results showed subscriptions and cloud programs like Office and Azure continue to grow along with remote working, but just basically the bottom line here was just short of what markets kind of lofty expectations were. So in terms of aftermarket trade, I wouldn't say this is anything to panic about with Microsoft shares. Um, it's just a, a relative small comparative to the year-to-date performance in this stock. Uh, they were down about 2.25% in aftermarket trade, uh, trading at $207. Um, some interesting graphics actually on this equity focus front. This was a chart that I saw on the FT this morning, and it was talking about the small cluster of companies that dominate the S&P 500. So we've known this for a while, but I just thought they were quite visually a nice graphic to put into some comparison. This chart basically is looking at the weighting of the top 5 stocks within the S&P 500 as a proportion of the index. And one thing obviously that this, this type of environment tends to cultivate is a lot of chatter about, well, you know, is this a healthy rally that we're, we're seeing at the moment? Because Microsoft, Apple, Amazon, Alphabet, and Facebook now account for roughly about 23% So 5 companies account for almost a quarter of the entire index. Comparatively, just before the dot-com bubble, Microsoft and Cisco were the tech industry giants back then, and at that point we're only looking around 17% comparative to today's 23%. So the 5 mega caps, way more influential now than they were then. If we look at the actual market performance of the year as a whole, this is looking at um, the individual 5 companies, which are the colored lines at the top, and the kind of maroon color at the bottom is the actual benchmark S&P 500. So the way that this index is measured— so looking at this then, the S&P basically, having had this recovery we've had of late, is flat at this point for year-to-date. Actually, now it's slightly positive, uh, very, very minor. But Amazon obviously has been a massive outperformer And a lot of this, you know, obviously due to COVID-19 helping accelerate that e-commerce kind of revolution quicker. It's kind of forced that, that story that's been to the benefit of those types of companies. So two things here. One, what a lot of people look at here is, well, when a market is so susceptible to such a small cluster of companies, and given the fact that they're tech-oriented and they're becoming more of an almost monopoly, then a tougher regulatory environment could be an existential threat to the tech groups. It's what a lot of people are saying in this FT article this morning. However, I thought actually the best summary that I've read to encapsulate this idea about the composition of the index and how it's forming at the moment is the result is that there's no better business model than the mega-cap tech. And the reason for that is cloud computing media streaming, and a delivery of consumer goods that are tailor-made models for the COVID-19 life. I couldn't agree more. I think that was a really good statement that really encapsulates, you know, a lot of the under— underpinning the reason why they've been so stellar so far. There's lots of other reasons as well, of course. So that's pretty much it from me, really. Looking at the calendar for today, it is super quiet. We know this, we, we've known this from Monday. Friday is really the focal point for economic data because that's when we get the global flash PMIs tomorrow throughout the day, so including UK, Europe, and the US. Today you do have the initial jobless claims coming out and it's expected to remain pretty much static and around this 1.3 million level. I would not anticipate that to be a market-moving event. I think people are acclimatized now to the situation that is happening with those jobless claims. Otherwise, European morning is kind of defunct of any real data. And other than that, jobless claims, there really is not other a great deal going on. Speaker-wise, you've got ECB's Di Guindos speaking at 10 AM London time. Bank of England's Haskell tends to be leaning on the dovish side, is speaking from lockdown to recovery, economic effects of COVID-19. This could be quite interesting, get a bit of an insight, obviously market pricing has been factoring in potential negative rates in the UK coming into the spring of next year. So Haskell being of a dovish disposition, it'd be interesting to see what he has to say, speaking at 12 o'clock London time. Earnings-wise, we have a couple of names to look out for pre-market: Twitter, AT&T. Get a number of the, the major US airliners, American Airlines Group, Southwest Airlines reporting today. And then after market, one of the larger cap names will be Intel, which might capture some headline attention. But overall, in terms of this morning, again, fairly, fairly bullish out of the gate in terms of the equity performance, largely brushing aside some of this renewed tension on the US-China front on this consulate situation in Houston in the US, which broke yesterday. For the time being, gold is a quite a key technical resistance point from the overnight session. So keep an eye there, it has remained pretty bullish. And if you think about it, again, for all those reasons discussed yesterday, whatever the case might happen, whether positive or negative, a lot of this is kind of helping these precious metals for the time being. So still remain quite bullish there despite the, the strong moves we've already seen. Um, and then yeah, S&P is already targeting now its R1 And if we continue this current price pattern, then keeping on the euro on yesterday's high for continuation of that move beyond that key technical 1.16. And then oil, we would, we would foresee would continue to follow the general trend higher with the equity market, all things remaining equal. All right, that is it. Just remember, again, reminder to subscribe to the YouTube channel if you haven't already done so. I spoke to Milan from our tech team. He has put together a fresh video with 5 key points of how to formulate an algorithmic system, and it's really interesting. It's going to be a really cool video. He's going to release that on Saturday, so remember to subscribe to the channel and you'll be able to watch that this weekend. All right guys, I'll speak to you tomorrow. Have a good and profitable day in the market. Take care.