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Lockdowns: Replay of March 2020?

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I first suggested the risk of another lockdown in April back on March 4, despite mainstream optimism citing "herd immunity by April":

David Brady tweet

From the Wall Street Journal:

David Brady Wall Street

Ontario, and possibly all of Canada, is likely heading into another lockdown starting this Easter weekend. If this does occur at the same time other countries around the world enter new lockdowns or are already in lockdown, the probability soars of a repeat of the rally in precious metals and miners following the March 2020 lows. Back then the combination of massive fiscal and monetary stimulus ($3 trillion in three months), rising inflation expectations, falling real yields, and most importantly, the closure of refineries and mines around the world sent Gold, Silver, and the miners to new highs and a new record high in Gold. I would not be surprised to see the exact same thing happen this time around, perhaps even more so, with rumors that several of the major Mints around the world will close during the lockdown. Should that occur, demand would soar for the physical metals while supply virtually disappears. Economics 101 tells us that prices would explode.

Given that Bullion Banks have been racing to clear their short position at the fastest pace since October 2016, the prices of paper futures are likely to catch up to physical prices also. Of course, this assumes that the COMEX survives the next rally. Precious metals and miners appear to sense this is coming this morning, with decent rallies off their lows this week.

That said, the risk of lower lows before takeoff remains. At the very least, we should get a pullback following the five waves up. However, if Gold breaks and closes above 1800, the probability that the low is already in place increases dramatically. Here’s what I’m seeing for Gold, Silver, and the miners…

GOLD

David Brady analysis

Resistance at the prior high ~1760 and 1800.

Support in the 1670s and below there 1630-1650 for a positively divergent lower low.

SILVER

David Brady analysis

Resistance at the 200-day moving average ~24.75 and 100-day moving average and downtrend line ~25.60.

Huge support level for a possible triple low at 22. Above there, Silver still hasn’t closed below 24.

GDX

David Brady analysis

Resistance at 33.80, prior high of 34.50, 35.20, and the 200-day moving average at 37.15.

Support at the prior lows of 31.65 and 30.60.

SILJ

David Brady analysis

Resistance at 15.40 and 16.30.

Big support level at 13.75, possible triple low.

CONCLUSION

With five waves up off the lows in Gold and Silver; massive new fiscal stimulus that will have to be financed by more #QE from the Fed; the prospect of refinery, mine, and Mint closures associated with renewed lockdowns; extreme bearish sentiment; bullish flags; and the Bullion Banks near neutral in their positioning; following an eight month decline; the risk-reward is dramatically to the upside, imho, whether we see those lower lows or not. My “minimum” targets on the upside are 2100 and 33 in Gold and Silver respectively.

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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*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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