Sprott Money Contact Form
 

Thank you for contacting Sprott Money.  We will respond to you within 1 business day.

 

Sincerely,


The Sprott Money Team


Sprott Money Ltd.
111 Queen St. East
Suite 501
Toronto, Ontario M5C 1S2
Canada

[t] 1.888.861.0775
[f] 416.861.9855
sales@sprottmoney.com
www.sprottmoney.com

Administrative office only - no walk-in sales.

 

Please Try Again After Some Time...
Please enter valid captcha
Name*
Email*
Comments*
Loading Image
Swipe to the left

Consolidation Continues in Gold & Silver Prior to Next Rally - David Brady (June 4, 2020)

Consolidation Continues in Gold & Silver Prior to Next Rally - David Brady (June 4, 2020)
By David Brady 2 months ago 8314 Views No comments

June 4, 2020

Precious metals and miners continue to go sideways-to-down for now. This makes sense after strong rallies in each, and it facilitates a reset of the overbought and bullish conditions to enable the next rally to new highs.

However, there is a small but not insignificant risk of a deeper dive across the board if we see a spike in bond yields and/or a dump in inflation expectations triggering the break of key support levels. Although the probability is low right now, the magnitude of the risk to the downside means we need to be mindful of it.

Gold is still trapped in its wedge with the risk of a false break to the downside. However, if we break to the upside, it's going to new all-time highs, imho. Much of the overbought condition at the peak in April has been reset, but it could go a little lower, providing the necessary fuel for the next rally.

Following its extreme overbought, bullish, and negatively divergent higher high, GDX looks like it is completing a classic 3 ABC waves lower. If wave C = A, the target for the bottom is ~30.50. Given the prior low was 31.30 on May 1, that may be sufficient.

Below 30.50, and especially the 200-day moving average of 28.60, and then we have to consider a more dramatic decline. But until that occurs, I am only expecting the completion of wave C before higher to new highs.

Silver is trying to rebound now, and depending on where that top occurs, we'll head down in wave C to ~16.85. Alternatively, there is the low at 17.19-23. As we can see on the chart above, the overbought conditions have been largely corrected. This sets us up well for the next rally. That said, it could become oversold, creating the ideal conditions for a sharp rally higher. Either way, the prospects are bullish.

Stepping back to the bigger picture, we've had three waves up so far, so the risk of much greater downside remains, perhaps even below 12 again. However, the probability of this occurring remains small for now. It would take a close below the 200-day moving average for more than a couple of days to raise the specter of such a move.

SILJ stalled at the triple top of ~12.67 in December and January and was extreme overbought and negatively divergent at the same time. I'm waiting to see how high the current bounce is before solidifying targets on the downside, but 10-10.40 remains the support zone, 9 below there. The MACD Line remains elevated, which is certainly a concern, but only a sustained drop below 9 would make me concerned about an imminent deeper dive.

In summary, while downside risks remain, recent paper price moves appear to be classic consolidation after a sharp move higher. The conditions at the recent peaks in each have corrected and could have a little further to go before we begin our next rally to new highs. Then we’ll reassess if and when we get there.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.



David Brady has managed money for over 25 years for major international banks and corporate multinationals both in Europe and the US, with experience in Bonds, Equities, Foreign Exchange, and Commodities



The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

Back to top