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Tentatively Bullish Signals in Metals and Miners - David Brady (25/10/2019)

Tentatively Bullish Signals in Metals and Miners - David Brady (25/10/2019)
By David Brady, CFA 25 days ago 332 Views 2 comments

October 25, 2019

While it seems that nothing much has happened in the past week or two, metals and miners have stopped falling after a tremendous rally. Such consolidation bodes well going forward, as does increasingly desperate actions on the part of the Fed and other central banks. We are drawing closer to the next lift-off in precious metals, and if so, it could be even bigger than the previous rally.

FUNDAMENTALS

The Fed and global central banks are now turning on the monetary spigots as expected.

It does make one wonder where markets would be without such artificial stimulus. I believe this is just the beginning. I have been forecasting “monetary insanity on steroids” since 2017, and the central banks have not disappointed so far. The Fed’s liquidity injections into the repo market just keep getting bigger and bigger by the day. This speaks to just how fragile the system is. Like any Ponzi scheme, it needs ever-increasing liquidity injections in order to be sustained and avoid collapse. Make no mistake, this is QE. But we ain’t seen nothin’ yet! It’s only a matter of time before they go to full-blown QE4 that will far exceed QE1, 2, and 3 combined, in my opinion. The trigger is likely to be either a crash in stocks, which surprisingly continue to struggle, or a spike in bond yields.

While there are those who cite the drop in precious metals when QE3 occurred, this was simply due to the realization that the money being printed to buy government debt and toxic assets from banks was not making its way into circulation in the economy. It was being kept in excess reserves on the Fed’s balance sheet and used to pump the stock market, imho. In other words, there was no resultant inflation.

This time around it is being used directly to finance ballooning government deficits and maturing debt, i.e. government spending. While most of it is currently going into the pockets of the military industrial complex and to once again increase the banks’ excess reserves, the rest is going straight into the economy. It won’t be long before we hear the clarion call for QE-for-the people, i.e. MMT, and when that happens, those holding gold and silver will be rewarded handsomely for their patience.

Gold and Silver will anticipate this outcome and start to rise ahead of time, which we’ve already seen. They know that the Fed is on a slippery slope to MMT and that this is just the beginning. This is why I believe that QE4 will be more like QE1 and QE2, but the gains will far exceed those of the last rally from 2002-2011, at least in fiat currency terms.

TECHNICALS

We have seen the extreme overbought and bullish conditions completely reset to neutral or even slightly oversold and bearish. The only issue is whether we have fallen far enough. We got a $400 rally from extreme oversold to extreme overbought, and yet it took just a $100 to reset that overbought condition to below neutral. Although it could have further to go on the downside yet, such shallow consolidation is typical of a bull market, in my opinion.

We have been seeing lower highs and higher lows in both the metals and the miners recently. They will have to resolve one way or the other soon, but there are already tentative signs that it will be to the upside.

GOLD

Gold closed right at its upper trendline yesterday. Even if we break up, I’ll be looking for a higher high above the 1522-1525 zone to signal that the bottom is in.

The MACD Line’s break of its signal line in red is also a positive sign.

SILVER

The picture is much clearer in Silver. It opened above its trendline and closed near the high of the day. That said, like Gold, I want to see a higher high above the 17.90-18.00 resistance zone to significantly increase the probability that the bottom is in.

Again, we can see that the MACD Line has broken its signal line to the upside and is pointing up.

GDX

Like Silver, GDX also broke above its trendline yesterday. Another tentative signal that the bottom is in. But once again, I would prefer to see a break of the prior high at 28.38 to end the cycle of lower highs before getting too excited about the upside potential.

Once again, the MACD Line has broken up here, but we’ve had false signals at the two previous peaks in GDX.

SIL

Lastly, SIL, the senior Silver miners ETF, is still short of its trendline, which emphasizes how tentative these bullish signals are on balance. That said, it is closer to higher high than Gold, Silver, and GDX. The prior peak on October 9 was at 29.36, and we came within decimal places of that yesterday.

Furthermore, its MACD is showing the cleanest break up of them all.

In summary, these charts are moderately bullish, but a break of the cycle of lower highs would significantly increase my confidence that the bottom is in and that the next major rally has begun.

INTER-MARKET ANALYSIS

Keep an eye on real yields too, or more specifically, their inverse: “TIP” (Treasury Inflation-Protected Securities). Gold, Silver, and the miners are highly correlated to TIP. So if TIP breaks up, metals and miners are likely to do so also, and vice-versa for a break down in TIP.

On a final note, as I shared last week, whether the bottom is in or not, the risk-reward is heavily skewed to the upside from here, and I recommend buying the dip rather than trying to make a few pennies on any downside that remains.

For those of you interested in buying the physical metals, I recommend you check out sprottmoney.com for the best prices, customer service, storage, and delivery services. I use them exclusively for all of my purchases of physical precious metals.

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.

Jay Klee 24 days ago at 1:48 PM
Great synopsis, David. Thanks! I guess the fed needs to cut rates this coming week to keep stocks afloat, but it seems to me that will force them to increase the reverse repos as well. Rock and a hard place.
David Brady 21 days ago at 7:41 AM
Thanks Jay and agreed. That is if they want to keep stocks afloat in the ST.

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