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Despite Difficult Quarter, Good Year Ahead for Gold and Silver - Precious Metals Projections

PMP with Chris Vermeulen and Craig Hemke

 

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It’s been another challenging month for the precious metals, but will April showers bring May flowers? Host Craig Hemke sits down with Chris Vermeulen of the Technical Traders to break down all the gold and silver charts you need as we head into the second quarter.

In this edition of the Precious Metals Projections, you’ll see:

  • What’s happening with the Bond market and nominal interest rates
  • A look at the daily chart: how close are we to a bottom?
  • Plus: Levels to watch in SILJ

To view Chris’s full thoughts on the gold and silver charts, watch here:

Craig: Well, greetings again from Sprott Money News at sprottmoney.com. Hey, welcome back to the third installment of our new series with Chris Vermeulen of The Technical Traders. We call this "Precious Metals Projections." Each month Chris takes us through all of the key charts and helps explain what's going on not only in the precious metals but all the other markets that serve as inputs to whether futures are being bought or sold. So you get some idea of what the general trend might be in the month ahead. If you like this new series or any other things we offer here at sprottmoney.com, whether it's the weekly wrap-up or the "Ask the Expert," just please do us a favor, like, subscribe, maybe even share this information on whichever channel you prefer to watch it. So again, thank you from Sprott Money for checking in with us on this new series we hope you like it, of course, sprottmoney.com your physical bullion dealer. Just go to sprottmoney.com for all the best deals that we currently have, but also, you can always call us at 888-861-0775. Let's bring in Chris. Chris, how are you, my friend?

Chris: I'm good, Craig. How are you?

Craig: Just another month older. I like to joke sometimes because I've been doing this now for 10 or 12 years and it feels like about 30. So you know, there's human years and dog years, that kind of thing. There's also human years, and there's gold years.

Chris: And now there's COVID years. I can't believe how fast this last year went by.

Craig: Oh, my, gosh, yeah. This last month...actually, this whole opening quarter of the year has been very challenging. For anybody that follows all the other segments we do here at Sprott Money or anyone who follows me on my website, you know, we're expecting this still to be a good year. But unlike the last couple of years where we exited the year in a consolidation pattern only to start rallying again in January, we started the year in a continuation of the consolidation pattern. We've got Chris here to talk about how things may be changing, how the charts might look a little bit better than they had the last time we met.

So Chris, let's just dive right in. I wanna start with one of the macro things that we all watch very closely, and clearly the computers that doing a lot of the trading in the futures markets, they watch it closely, and that's the bond market. We've seen, well, what almost seemed like a historical sell-off in bond prices and a spike in yields to begin the year. Heck, we just go back two months back to the 1st of February, and we had the 10-year note yielding 1%. And now last week, it got all the way up to 177. You know, I can't even do that math man, that's a 75% move, in, like I said, only 60 days. However, when we look at it from a historical perspective, maybe the picture starts to change. So let's start there, Chris, let's talk about the bond market and this nominal interest rate.

Chris: Sure. Well, this is the long year bond, the bond future's here. And if we look at the daily chart, just zoom back since, kind of, the COVID crash, we saw bonds spike up but we have seen this massive sell-off in the bond market. And really off those, the spike high when everyone piled in and they didn't know what to do but move to bonds, we created this huge spike. I mean, bonds are down, you know, 18%, 20% from where they were. And people now are starting to panic, obviously, rates are going up, bonds just keep collapsing. Nobody wants to hold bonds. No one's really that fearful in the market, believe it or not. And I mean, we've seen that also in the precious metals market, if people aren't fearful of things, then they don't really want gold that bad.

And so I think this cycle is coming to an end. And you know, people are thinking this 18%, 20% correction in bonds is kind of out of the norm. But the reality is, this is really we've seen this happen over and over again. If we go way back to the '70s, we've seen the bond market have these massive pullbacks time and time again. This one here, 26% correction. Another one over here, 20%-plus, another one over here, you know, 20%. There's just these corrections after corrections that are 15%, 20%-plus over and over again. And so what we're seeing right now is absolutely nothing out of the norm. It feels a little scary because we don't encounter these very often. It takes several years. So time heals all wounds, we forget about the last crash in bonds. And so here we are, again, in this phase where people are not afraid to buy stocks, and so they're buying stocks and they're dumping, kind of, gold and they're dumping bonds and there's just not a lot of fear and in that regard.

So I think this is all boding really well for the price of metals because when no one's fearful, typically that's, kind of, coming to the end of the phase where eventually fear is going to start to creep back in. It's gonna be good for bonds, it's gonna be good for metals. And we're coming into, I think, a big supercycle to the upside for commodities, in general, that I think is gonna be really exciting. And the last major supercycle, you know, we'll take a look at the monthly chart of gold, and we'll go way back to the late '70s. And take a look at this here.

Let's just take a look at this recent...This was back in the early '80s, we had this massive rally up. Now, if I was to get rid of the time on this chart, a lot of people can get confused and think, okay, well, this is a 2011 spike in gold, 2012 bounce, and then it went dormant for several years. Well, this pattern is kind of what's happened since 2012 but this is back, you know, 40 years ago. And when you look at how the market rallies, you see usually these blow-off tops in gold, or in any asset really, they all move the same, and then it goes dormant, and eventually, people give up on it.

Now, when you start to break previous highs, like this high over here, or more so these highs right over here, these very significant ones, after a long time of being dormant, people give up on the commodity, eventually, you start to see it rally up. And as we start to see gold breaking here and picking up speed, lots of volume moving in, it's starting a new bull market phase, and it rallies up and it hits all-time highs, it breaks the high from back here in 1979. And then it has its first major positive pullback. And you and I've talked about this a few times, Craig, that the first major pullback in a bull market is a very good opportunity to get in.

And so the big question is where do we find a bottom in this market? And then where are things gonna go after that? So, for example, if we use a Fibonacci retracement, we can go off the lows of gold back here and go up to this high and say, "Okay, well the sweet spot for the market to pull back between this pink line and this purple line that the 0.38 retracement and a 50% retracement point." So if gold was to pull back in between these levels here, that's gonna be a really key long-term investment opportunity to get in, this is the first major pullback in a bull market. Now, if we were to fast forward, you can see it came all the way down into this range here. Whoops, let me just drag this forward a bit more. You can see it came right down into the sweet spot and then gold started to rally again. And it went on and on and on and eventually had a big blow-off top in 2011, and then in 2012, it put in this phase.

So when we look at the chart from this standpoint, 40 years ago, this pattern, and we fast forward to today, we get this similar type of price action, you get the blow-off top rally in 2011, you had a 2012 bounce, it goes dormant for several years you get stuck under these previous highs. The closer they're layered together, the more explosive the breakout will be. And gold, it really at its first major run-up, it's hit all-time highs again, this is the first A, B, C, a three-wave correction. And now we wanna see okay, well, where is gold gonna find support? And we can do that off the Fibonacci retracement. And we can pull that up. And you can see gold here is now starting to get into this sweet spot in between this purple and the pink level. And this is gonna be really critical over the next couple of months here. I think we could see gold really start to find support and start to rally.

And then the big question is where is it gonna rally? And we talked about this in our last month's report. I mean, we've got an upside target using the Fibonacci extension that, at this point, is gonna take us all the way up to roughly, you know, $2,700, $2,600 an ounce over the next 1 to 3 years. That's what this pattern is pointing to. So it's pretty exciting. These are big investment patterns and they take months to really unfold, it's not gonna be imminent. But gold is in that sweet setup that we've seen happen over and over again. This same chart pattern happens on a one-minute intraday chart, it happens on a weekly or quarterly chart. That's the nice thing about technical analysis is it's fractal, it works on all timeframes. And what is setting up in gold is pretty darn exciting when you look forward, you know, two, three years from now.

Craig: Well, then let's take that one step further. How close does the daily chart look to be to a bottom? I've got some charts I follow on my site that make it look like 1730 is pretty important right now but then above 1780, I think will get everybody excited because there was a double bottom back there in November and again in February in 1780. So I would think above there that's gonna start pumping some momentum a little bit. But then Chris, gosh, $2,700 gold over the next 24 months, I can't even imagine how much money the big miners will be making at that point. How much free cash flow they'll be generating, how many exploration projects will suddenly look like, wow, we can make this work. So from here, please take a look at the daily chart and then some of the other things you're noticing within the mining sector.

Chris: Sure. Well, when we look at gold here, I mean, it's had this series of bull flags over and over again, you could break this down, but this is the first major, major bull flag, and overlaid are those lines, those Fibonacci retracements. So we came down over the past month or so and tagged this level, we had a nice bounce off it, came back down last week, hit that level, put in a nice bounce. Maybe just maybe this is a nice double bottom level for gold. And it just might find some traction here and start to rally higher. So I'm really liking gold here. I mean, as a long-term physical gold holder, this is a really good opportunity to get in anywhere down here and hold it long-term. You're getting it at a huge discount, obviously, it's...what is it? It's a 16% discount from where it was not that long ago.

But when we break down to the miners, I mean, if we take a look at the gold miners, they tend to lead the way. We wanna see gold miners break out and start to move ahead of gold. And when we look at this pattern, you can see we've got this pretty clear falling trend line across the tops of all these. Gold miners are just starting to push up to this blue line, which is a 50-day moving average, it's close to breaking this previous pivot high over here. So gold miners are really close in terms of breaking out and starting another run to the upside. I would expect we see gold miners break first. We've got a few different levels but this is, kind of, the line in the sand that if we can get above this yellow line, preferably above this previous high here at 3440, if we can get up in this zone, I mean gold miners could have turned a corner. And that means physical bullion is probably turning a corner as well. And there's a lot of upside potential.

And if you look at the actual...the ratio of, like, GDX divided by GLD, it gives you an idea of how different...of what gold miners are doing in relation to gold. And it looks like they're putting in a really nice bottoming formation, we should see this start to move up ahead of gold and hold up better than gold, which it has been. So I definitely like when we look at the ratios. I mean, this chart pattern is pointing to much higher prices in terms of gold and in miners going forward. So I really like it, I think there's gonna be huge potential and gold miners. As you said, if we get up to $2,000 again, $2,600 an ounce in gold and, of course, silver will be skyrocketing as well, there's gonna be so many opportunities, the precious metal miners, there's gonna be so many new companies coming online and fundraising. And I mean, it's just going to be absolutely amazing.

And so obviously, you can get into these, a lot of small companies, and you can look into, like, some of the leveraged ETFs, like JNUG, which is the leveraged gold miner juniors. Now, if you look at it, it doesn't look that attractive, there's a big flaw when it comes to trading with leveraged ETFs, they just don't function quite the same. But in a short-term base timeframe, if you can nail a move, you know, you can have these explosive moves in these leveraged ETFs.

There's another one also for UGL which is two times the gold fund. And if we were to zoom back here on gold, so you can actually see the 2012 high and where this two times leverage fund is now, you know, it doesn't look all that pretty, we are still down, you know, 50-something...54% from those highs versus gold. If I was to just pull the chart of gold up, you know, we're trading, you know, really only down just a little bit from there. So there's definitely some issues with leveraged ETFs. They're not good for long-term holding. But if we get a breakout in miners and gold starts to run, I mean, those are definitely ETFs to get into. It's almost like playing options. They're fast-moving. If you hold them too long, they will lose value. But I really like that type of play for very quick moves.

Craig: And you know, we should touch on that real quick because that's something people may be scratching their heads. Again, if you've got a two times ETF or a three times levered ETF, think about how that eats away at you over time, you get a 10% drop and you go from 100 down to 90, right?

Chris: Yeah.

Craig: You get a 10% rally, you only go back up from 90 to 99. You do that often enough and you end up down 25% over the years like you just pointed out, Chris, that's why there may be very aggressive trading vehicles but that's about it. Physical metal is still your best option. You mentioned the miners. Let's just double back there for a second, Chris, because I do think this is intriguing. You mentioned they may be the lead in terms of sentiment. And I think that's an interesting point. But also, you know, here we are now, it's early April, we're only about three, four weeks away from another earning season. That's always when interest picks up in the miners as well. So I'm just wondering, if you look at that you think, "Well, okay," and we start to break above the 50-day, we start getting sentiment to turn. You start getting some earnings reports that really, again, are still very good, especially year over year when we're talking the first quarter of this year versus the first quarter of last year.

I just wonder if all that could conspire to lift all the boats, as they say, Chris. So as you look at that chart of the GDX, so maybe we can take another look and say like the SILJ as we go to wrap up, the Junior Silver Miners, what are some levels on a very short-term that you think people should watch to say, "Okay, look at this, now we're finally getting somewhere?" Now that you did...one more thing too, my friend. Now you've got that SILJ chart up there, look at that series of six slightly higher lows coming off that low and on September 24th. That's pretty cool, too.

Chris: Yeah, there's a lot of analysis here. So silver and silver miners have been holding up a lot better than gold. If they're trading sideways, silver miners, when you look at this, is really trading in this tight little pattern is getting squeezed into the apex. There's a lot of energy building, whichever way it breaks is gonna be a big move. If it breaks to the downside, not that I want it to, but it could be very, very ugly. So let's just...so everyone can get an idea of you don't wanna be left holding the bag. Every time there's a low on the chart, I'm gonna draw a blue line, I think there's a nominal new low right here. There's another one right here. There's another one here, another one there, and another one here, and there's one right back over here that is, kind of, a standout as well.

So I talked about this with subscribers the other day on the NASDAQ. We had this on the flip side, all the little blue lines were above the NASDAQ. And I said, "Listen, these are layered in here that the NASDAQ is gonna like pop and run like 4% once we trigger one of these, it's almost like a tripwire." You trip one and all the shorts get out of the market and then they wanna buy long. And then you trip over the next one and the next wave of shorts get out. And those shorts also wanna now get long the index. And so when you have all these lines layered in here, if we start to break down every time we break one of these tripwires, there's gonna be a new wave of selling in miners. And the closer they are together, the easier it is for one to create enough momentum to send it past the next tripwire, which then sends it past the next one. And then eventually it could...you know, it can get really ugly. So that's the potential downside if it were to break down, so people should be aware of that. If it starts to break, your best to move to cash. You might be able to pick it up way down here in the 11, 12 range if it breaks.

Now, if it goes to the upside, which is where the bias is, the long-term trend is a bull flag, it should break to the upside, there's gonna be these key levels here. Obviously, we wanna get above this 1530. It's above this high, it's above the trend line. Typically I like to break a couple of previous pivot highs. So we wanna see it, kind of, get back up above this 1632, which means it's probably gonna be rallying up here, it'll probably make a higher low somewhere over here in terms of price action. So it's gonna start to make, you know, another higher low, you know, kind of ping pong its way around up between these levels. If I can just get this line to stay here. What we wanna see is price either breakthrough here, and then kind of chop around and build some type of base. And then we wanna see a break this upper blue line and when it breaks that blue line, I think that's gonna be the line in the sand where it could really pick up traction and start to go.

So I like silver miners, it's still a pretty noisy chart, it's not crystal clear where the breakout level is there's a lot of these highs, lots of gaps, and island tops. So there's a lot of big sellers lurking up there that every time it gets there, it gets crushed. So there's definitely some work to do. But above 1630-ish on SILJ on a closing basis would be a really good sign. If we go back to the GDX real quick, that level is gonna be a close preferably above 3450, which is this high. And we wanna be above this yellow line. So if it gets up to 3450 and it's still under this yellow line, it hasn't really broken out. We wanna see above this high and above the yellow. And you could argue this, you may wanna be more conservative and drag this, kind of, up to some closing prices or some wick highs you might wanna go to some external levels like that to be a little more conservative.

But overall, I mean, there's still a lot of work to be done in the miners, they really need to clear the chamber, really have a big blast and then have some type of consolidation. And that consolidation, the start of a new run to me is where you wanna get in. And that's where you get that explosive move to, kind of, follow suit.

Craig: Chris, let's close with one more chart if you could pull it up because we've yet to talk about silver.

Chris: Sure.

Craig: Silver miners are gonna do anything and get above that 1630 level in the SILJ. We got to get silver going too. I know I'm closely watching 25, but then again, a round number of 26. And then for me personally, anything above 28 on a weekly closing basis would be important. No one's here to hear what I think, what do you think?

Chris: Okay, well, let's take a look, you and I were talking a little while ago, we have this bear flag forming. And so there's a couple of different bear flags, we can get some downside bias. So we have this initial drop. And then we have the bottom put in right here, and then it rallied up. And we carry this forward to where that first level of...the 100% measured move is technically silver's dropped, formed a bear flag, and it came down to the 618, found little support, and then came all the way down to that 100% measured move. That to me is a really good move. So we're starting to find some support here, might be a little more volume starting to step in, which is nice. You could argue it's a bottom from over here as well. There's a lot of volume traded through all this, plus a spike low and some other consolidations. So this 24 is a really critical line in the sand that you and I talked about a few months ago when this had formed, or I think it was last month we were talking about the downside was 24, potentially could come down to 23 with some type of washout of low.

So silver looks to have hit bottom, hopefully, it'll find some traction, we need to get it back above this blue line, the 50-day moving average, we wanna get above this previous high over here. And then ideally, it'll work itself out probably some type of little bull flag. It's done a lot of damage on the chart, this is a big correction. And so typically, it's gonna have to claw and dig its way out, meaning it's gonna rally up, it's gonna break this higher right over here. And then we're probably gonna see it have some type of pause or pullback, and then it's gonna rally up and it's probably gonna come up somewhere to this high. And then it's gonna probably try and build a plateau and some energy before it starts to, you know, really break out and start to run to the upside.

And you know, this is gonna be a pretty significant resistance zone right through this area where the previous high was, it gapped above it and crashed and then sold off. So this is gonna be a pretty critical level here. Once we start to close above that 2830, it's a long ways from where we are. But that's when I think the real bull market really is starting again for silver miners.

Craig: And good news is you just don't prepare for that. Again, that's a pretty nasty double top that was painted back. Unfortunately, we were all excited on that silver squeeze day back on the 1st of February but all that did was paint a pretty gnarly-looking double top. And even the action leading up to that, you can see that in January, February, and March, there's a little head and shoulder action there even.

Chris: Right here?

Craig: Yep. But we made it this far. And again, so the time is still left. We all have some time now to prepare for what we think is coming next. Chris, extraordinarily valuable info again. Before we wrap up, I wanna point out here we close the presentation talking about silver. A lot of folks looking to invest in precious metals and they don't know where to start. Silver may be your best bet if you check out all the gold, silver, even platinum products for purchase at sprottmoney.com. Again, you can always call us directly at 888-861-0775. We'd like to help you with any questions you might have. We can also help you with your storage needs. And hey, we can even help you open up a retirement account. It's tax season, if you need to open some kind of retirement account, rollover an IRA, or...what do they call those things up in Canada, Chris?

Chris: An RSP or a TFSA. There's a couple of them.

Craig: Yeah, can't just call it an IRA, you're copycatting the U.S., you got to come up with something else. So anyway, we can help you with all of that as well. Again, sprottmoney.com, and one more time that phone number, 888-861-0775. My friend, by the time we do this again in about four weeks, I'm really curious to see where we'll be. I look forward to talking to you then.

Chris: It should be exciting. Hopefully will be really bullish stock charts for gold and silver and we could be off to the races. I think we're close.

Craig: That would make me happy and everybody watching, that'd make us all happy. All right, well, anyway, thank you, Chris. And thank you, all of you, for watching. I hope you enjoy this. Again, please shoot us a subscribe, a share, a like on whichever channel you're enjoying these podcasts. And then come back next month for another edition of the "Precious Metals Projections" with Chris Vermeulen. From all of us here at Sprott Money at sprottmoney.com, thank you for watching, and we'll talk to you again with another presentation like this in May.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, 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.

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