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Gold Leads the Way Higher - David Brady (20/02/2020)

Gold Leads the Way Higher - David Brady (20/02/2020)
By David Brady, CFA 1 month ago 310985 Views 1 comment

February 20, 2020

Two weeks ago, I wrote “Decision Time for Metals and Miners Approaches”. Since then Gold has hit a new high and Silver and the miners have rallied to their highest levels in over a month. Now that we’re finally seeing some movement, it’s time to consider what could happen next and update the levels to watch…

TECHNICALS

Gold finally breaks out of its range for past two months to the upside. But it is extreme overbought and its new high was negatively divergent according to the daily RSI and MACDs. That said, the trend is clearly up based on a series of higher lows and higher highs. Unless we break the support zone between 1602-1605, I am looking up towards 1640.

Silver has underperformed Gold recently, but that just means it has more room to rally, imho. Aside from perhaps one more short-term pullback, I am still expecting north of 20 before our next major peak. Only a drop below the support zone between 17.30-40 would make me reassess Silver’s bullish prospects.

After a series of lower highs and lower lows until it bottomed out in November, GDX has been setting higher lows ever since. All we need now is a move above the September peak of 30.74 to signal that a far bigger rally is just getting under way. This assumes we don’t see a break of support at ~27.70.

Saving the best for last, SILJ appears ready to take off in a wave (iii) of iii, both on the daily and weekly chart. Only a sharp drop below 9.90 would make me reconsider.

INTER-MARKET ANALYSIS

Real yields continue to fall into negative territory and are now at their lowest levels since 2016. This should remain supportive of Gold prices unless we see a crash in stocks coupled with a sharp decline in inflation expectations. Even if such a spike in yields were to occur, it would be unlikely to last long as the Fed rides to the rescue again.

5-Year Real Yields - Courtesy of Quandl.com:

FUNDAMENTALS

Speaking of a reversal in stocks, the latest FOMC minutes indicated that the Fed is planning to taper its liquidity injections into the repo market beginning in May. Expectations are that the Fed has the market’s back no matter what. Given extreme valuations and narrow leadership in just five stocks, a February 2018 reversal would not be a surprise should the Fed follow through on its taper. Again, a dump in stocks could weigh on metals and miners in the short-term.

POSITIONING & SENTIMENT remain at extremes in both metals, but especially in Gold. While this maintains the risk of a sharp reversal in prices at some point, in a bull market trending higher, it doesn’t matter until it does.

SUMMARY

Absent a spike in real yields and / or a break of key support levels, I continue to look north in both metals and miners, with the possibility of significant rally to follow, especially in Silver and the miners.

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.

walter 1 month ago at 6:21 AM
YES, SEE 2000 IN THIS YEAR GOLD

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