Weekly Wrap Up

Panic in Precious Metals Market: a Good Sign? - Weekly Wrap Up

METALS-Base metal prices bounce

It’s been a rough start for precious metals in 2021, but lower prices and strong fundamentals make a case for buying the physical dip. This week, host Craig Hemke sits down with Chris Vermeulen of the Technical Traders to break down all the gold and silver news you need to ride the bull all the way to the end.

In this edition of the Weekly Wrap Up, you’ll hear:

  • Why gold isn’t Bitcoin—and why that’s a good thing
  • What the bond market is trying to tell us
  • Plus: How to use technical analysis in uncharted territory

“It’s been a pretty choppy start. Obviously, it started out with a bang, but now we’ve got the new stimulus plan getting digested in the markets today, and that is definitely playing a toll. When we look at the equities market, it was getting a little weak in the knees the last couple days. The short-term sentiment and indicators were kind of saying, hey, the stock market’s ready for a bit of a pullback to the 20-day moving average. That’s where the SP 500 is hitting today…”

To hear Chris’s full thoughts on this week’s gold and silver news, listen here:

Man: You're listening to the "Weekly Wrap-Up" on Sprott Money News.

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's Friday, January the 15th, 2021. It's time for your "Weekly Wrap-Up." I'm your host, Craig Hemke. Eric Sprott is unavailable this week as he is still tending to some family health matters. He wants you to know, though, he very much appreciates all of the well-wishes and prayers that have been sent his way, and for his family. And as we might as well keep those going, and hopefully, we'll get him back soon. In the meantime, hey, we've got Chris Vermeulen of The Technical Traders sitting in, and I know Chris is a very popular sub for Eric. He's one of Eric's favorite technical analysts, so great to have him join us. Chris, thank you very much for your time this morning.

Chris: Hey, thanks. It's a pleasure to be here, Craig.

Craig: And we're going to be talking about lower prices again today. Not off to a good start of the year, but fundamentally, things seem to be improving all the time. That makes a case for buying the physical dip. If the digital markets are going to sell off, it gives you an opportunity to add to your stack at lower prices. Sprott Money is the place to do that. Great deals on bullion and coins. Great deals on helping you to store that metal as well. Again, just call us anytime, 888-861-0775. Of course, just visit sprottmoney.com and you'll find everything there as well. Chris, gosh, we were having a pretty good week after the tough week to begin the year last week. Unfortunately, all of those gains from Monday through Thursday have now been wiped out today. I'm sure this is all on your radar. What do you see hereafter, basically two weeks of trading in 2021?

Chris: Yeah, I mean, it's been a pretty choppy start. I mean, obviously, it started out with a bang, but now we've got the new stimulus plan getting digested in the markets today, and that is definitely playing a toll. When we look at the equities markets, I mean, it was getting a little weak in the knees the last couple of days. The short-term sentiment and indicators were kind of saying, "Hey, the stock market is ready for a bit of a pullback to the 20-day moving average." That's where the S&P 500 is hitting today. The big question is, is the stock market going to find support here, or is it going to break down in a bigger way? Are we going to see that sell the news? Everyone bought the rally, or bought the rumor that we're going to get stimulus?

Now, it's out and now people are going to sell into the news, which is a very typical thing. And what happens in the stock market is going to, I think, directly affect what happens in the precious metals market. And if we see the equities start to break down and close below that 20-day moving average, we're probably going to see metals and miners get hit pretty good and have another leg to the downside. So, definitely, things are getting shaken up. There's panic in the market, in the precious metals market, and even in the stock market today. So, that's a good sign that we might actually see a little bit of a bounce and a bottom. But when you look at the swing trading kind of momentum over the next two or three weeks, the charts, to me, for gold, silver, and miners are actually still pointing to quite a bit lower prices from where we are.

Craig: You know, I might add something that I've been telling people on my site. One, you know, you talk about the next couple of weeks. Well, the next Fed meeting is coming up a week from Wednesday. That will conclude on Wednesday, January 27. It might be interesting to see how things have changed since December for the FOMC. Another thing, you know, and you and I have discussed this, is the last seven years for gold have been positive in January, all of them, seven in a row, green Januarys. However, if you go back a little further, everybody remembers the great year 2011 and how we hit those new all-time highs back then in September 2011, 2011 actually began -6.4% for gold. And as I keep saying, you know, the bull market will try to buck you off every chance it gets, I would imagine. Again, fundamentally, you still see some strength, but it's just time to be cautious.

Chris: Yeah, well, we see gold at a really good rally. I mean, it broke out in 2019. It broke out a long time ago, and it's having this great big bull flag formation. It's working itself out. I mean, when you look at the size of the pattern from the 2011 top to a multi-year basing formation like a rounding formation, and now it's rallied up to new highs, I mean, it could really trade sideways here for another 6, 12, 18 months. And it would actually still be a very well-balanced bull flag and a bullish chart pattern. So, these major trends, I mean, I know we all want the price to go up and up and up like Bitcoin has, but that is not sustainable. When something goes straight up, it's going to have to either pause or come straight back down.

And so, gold's had that run-up. When you look at the monthly chart, 2019 to where we are, a beautiful rally and a sideways consolidation here is very bullish, as long as it breaks to the upside and really doesn't break those lows that we saw back around 1,770. We want to really kind of hold above that ideally, but charts look really good from a long-term standpoint going forward. And it's going to try to buck you off these plays. That's what the...during bull markets, some of the strongest pullbacks are in a bull market, just like some of the strongest rallies are in a bear market. So, it's just the way the markets move and it makes it very difficult. It's very efficient in trying to pull money out of people.

Craig: Right. Right. You know, Chris, what do you think of...? I want to ask you about the bond market, you know, because so much of this trading here in the 21st century is done by a pre-programmed computer algorithm, you know, or a computer sees, if you will, movement in the bond market or movement in the dollar and then reacts by buying or selling this and that. And gold is obviously taken it in the shins here over the last week or so by a rise in nominal interest rates with the bond market selling off. Do you follow the bond market? Do you see anything interesting there? Any levels to watch?

Chris: Yeah, like, I do follow the bond market. We could look at the [inaudible 00:06:24] futures bond there. It's got a very similar type of pattern. It's in a big bull flag. I feel like if it can get stability and close and hold above the 50-day moving average, I think it could still have another big leg to the upside. Now, that'll mean we're probably seeing the stock market some type of negative event happen where it's starting to rally, but right now, it's clearly in a downtrend. It's in kind of a bear market here.

I wouldn't be touching bonds. I do think they are holding up very well, and I think they are going to have some type of run later this year that could be very significant. It could bring it back up to last year's kind of not the all-time highs, but the highs that we saw back in April and in March, things like that. So, I like bonds. It gives me a good idea of what the investors are doing. Investors are definitely still putting money into bonds because it's not collapsing. And so, there's definitely a stream of money going there because a lot of investors really don't know what else to do, right?

Craig: Right.

Chris: Their advisor says, "Well, if you're scared, just put more into bonds," and that's what the masses do, and that's why bonds are holding up. The fundamentals in the stock market, and the fundamentals, the way price is moving for gold versus the fundamentals, like nothing makes sense. And so, there's a lot of confusion and the masses are confused, and they continue to buy bonds. Obviously, it's been under pressure a little bit, but bonds, overall, are showing us that fear is still very high among the average investor. They don't know what to do, and they're really just kind of plopping money into the bond market.

Craig: How about the dollar index? You know, this all gets back to my chagrin of the machines, right? As we record here today, the dollar index is up about half a point. And it's up because the primary component of the dollar index is the Euro, and the Euro is down today, I guess, because it looks like the Pfizer vaccine is being rolled out very slowly in Europe. So, if you connect the dots and square the circle, gold is down today because the Pfizer vaccine is being rolled out slowly in Europe. That doesn't seem to make a lot of sense, but we'll watch the dollar. Obviously, I mean, to me, it looks like 91 on the weekly chart seems to be an important level. What do you see?

Chris: Yeah. I think the dollar could be setting up a lot like what we saw from 2017 down to the 2018 lows. It's actually very similar percentage-wise. It's almost exact same move. The chart patterns have moved very similar when you look at it on the weekly chart. We could see this dollar put in a pretty strong bounce. I was just talking about it a couple of days ago that the dollar, if it finds support here, has the potential to have this massive kind of rally that's going to catch most people off-guard because, obviously, stimulus should mean lower dollar, but the markets never do exactly what we expect or follow the fundamentals.

And we could have a very big rally to 94 or 95 on the U.S. dollar index, which is a long ways up. If that is the case, metals and miners are going to be dormant and trading sideways to lower for several months as that unfolds. It doesn't mean it's the end of the world for metals, but it's going to postpone that next major leg to the upside. In a perfect world, we'd probably see the dollar bounce up to that 94 area, and then eventually, we'd start to see it head down and then break, you know, this 89 level eventually and really collapse. And that's when gold and silver, I think, will have a very big move, which will be late this year, but I think it's still in the cards, but it's just maybe not right away.

Craig: Right. Right. No, I agree with that. You know, it wouldn't surprise me at all. It probably wouldn't surprise you if instead of, as we've seen the last two years, gold and silver rallying the first eight months and consolidating the last four. Maybe we'll consider to consolidate the first four and rally the last eight.

Chris: Yeah. Yeah.

Craig: Hey, I want to ask you about the shares. Talk about a bull flag. You know, you look at something like the GDX on a monthly chart and it looks beautiful, but it's still in that bull flag consolidation. It can't seem to break out. Is that what you see as well?

Chris: Yeah. Yeah, I do. It would be nice if we could find some traction here, but when you look at the monthly chart and the size of that pattern, GDX, it can still fall all the way down to roughly $31 a share. And it's still actually a very bullish sign. It's actually had kind of a first move and then it's at a pause the last three months. So, if it came all the way down to $31, it would kind of be an A, B, C, a three-wave correction, and it would be this next little leg down to $31, which is actually what's going to flush the market out and spook the average holder out of their play. And that's what creates that fear. It's what creates a bottom in a market when people panic out. There's going to be a lot of levels kind of triggered there.

So, I think it still has room to go to the downside, but overall, it has a series of major high or lows, series of major higher highs, and so it's in an uptrend. It's just in a consolidation phase. So, I like them, but, I mean, it's definitely not favorable. They're actually...I follow a hotlist, this band hotlist, which is the best asset now. I focus on which ones are outperforming, and believe it or not, and this, I think, drives some of my subscribers crazy is, GDX is the bottom of the barrel. It's actually the worst sector based on all of our analysis. And I know most of my followers own it because I have a lot of gold bugs, and even silver miners is now down at the bottom. It's like fifth worst of all of the sectors that we follow, like 40 of them, and people are like, "Well, how can it be down there?" I'm like, "Because price is not favorable for them right now." I mean, we closed out our SILJ position right when it hit that double top, around 11% gain.

We kind of moved out of it last week because we are having early warning signs that, hey, things are shifting. We need to be super defensive here. It's better to be protective of our money. We can always get back in later. And so, I mean, it's worked out really well from that standpoint, but they're not in favor right now. They're not a sector that I want to get into. I mean, we just moved out and we dodged a bullet, thank God. But it has a lot of work to be done before climbs the scale and goes to our best assets in terms of where do we want to deploy our capital. When the stock market starts a new leg up, when the dollar starts to roll over, when all these things come into favor, we'll reanalyze that. Until then, I mean, we're focusing on other sectors. The EV market is still on fire. I mean, a lot of these sectors and the marijuana sector is on fire. So, we're following and moving with those versus the metals right now because the metals are just out of favor. This is a time to accumulate. But in terms of the shares, I'm not too excited about owning them right at the moment.

Craig: You dodged that bullet in SILJ and it hit me.

Chris: Yeah. It was totally...I mean, we had an upside target using Fibonacci extensions. It hit that target. We got out. Believe it or not, it was the exact same target that we had for GDXJ back in, I think it was...Was it February? I think it was February. When GDXJ gap sharply higher just before the market collapse, we saw this massive move. Yeah, it was February 24 or 25 there. It actually gapped above our Fibonacci extension target, the same setup we just had in SILJ, and we closed it at the opening ticket, the high, and then GDXJ felt like 57%. So, when I told subscribers that, when we got over SILJ, I'm like, "Guys, just think back. Here's the last time we had this exact setup. Let's take our money. If it runs without us, you know, it's not the end of the world. Let's just lock it in and we can reenter on the first pause or pullback if it continues up." So, that settled people's nerves realizing, you know, I mean, now it's played out perfectly. It's falling to the downside. We might be able to reload at a much lower price yet.

Craig: You know, a lot of people like to criticize technical analysis, but I held my SLIJ calls, yeah, because earning season is pending here for a couple of weeks, you know, and then we gapped down Friday so I didn't really get a chance to get out. And, well, how's that worked out so far? The only thing I have left going for me, Chris, is a little bit of time.

Chris: Yeah. As long as you bought some options far enough out or you kind of...

Craig: Exactly. Exactly.

Chris: ...had a detailed strategy with either decay or something.

Craig: Hey, you left me with a final question that just kind of...I don't know how many people here are interested in Bitcoin or some of the cryptocurrency, but you'd mentioned using Fibonacci levels when you get into kind of uncharted territory. And I think a lot of folks if they own any of these cryptos at all, they see them in uncharted territory. Maybe, you know, Ether or Litecoin are still below their all-time highs, but everybody knows Bitcoin is blasting higher. How does someone go about trying to use technical analysis when you're in these uncharted new all-time high territories if you're an aggressive trader?

Chris: Yeah. So, I use a few different ways. I mean, I just quickly drew the Fibonacci targets for Bitcoin of where if this is a little pause, it can... Well...I wouldn't say little, but if this is a pause in Bitcoin right now over the last week, if this continues up the next two upside targets are $46,700, and then it goes to $56,000 after that. That is where the most recent rally from the December lows to the recent high we saw just like five trading sessions ago, six trading sessions ago.

And then you peg that off the low when Bitcoin fell 20% in one day, you peg it off that low and the upside targets, I mean, it could be an explosive move. I know there's a lot of people talking about, you know, $50,000 plus Bitcoin, and that's what the chart is pointing to. If this trend is intact, it's going to $56,000. It's got a very similar chart pattern that we see on pretty much every asset that goes parabolic. If you were to squish the chart and kind of look at a bigger timeframe, it looks like it's going straight up.

And in the last month, we've seen a couple of big gaps on the chart where Bitcoin gaps up on the futures and then continues to rally. It did it again a couple of days later, then it rallied significantly and then fell like 20%. All these are signatures that, you know, it's in a parabolic stage. It's very unexpected what's really going to happen here, but if this momentum continues for another leg up, it's going to have that rally. And the key here is, let me just grab the levels.

So, if it breaks more or less $43,000 to the upside, then it's probably going to more or less $47,000 and then $56,000. If it breaks below and closes below the $31,500, it could very quickly collapse right back down to around $17,000. So, it is in this super volatile pattern. If it has legs, it's going to be unbelievable. It's going to skyrocket. It could go much more parabolic than just $56,000. This type of phase is like the tulip bubble. It could go up to $100,000 a Bitcoin. So, it's a roller coaster ride. To me, it's a crazy high-risk bet. You have to put small positions in because you're going to see a massive 50% or 100% move in this very quickly, so yeah.

Craig: Well, that's helpful too, though, because even if you don't own Bitcoin, at least we hope, if not, plan for maybe some new all-time highs in gold later this year, and then you'll be in uncharted territory there too. And you can apply some of those techniques to try to figure out where the next intermediate top might be. Chris, it's always great fun to talk to you. Anything else on your mind today that you'd like to share with us?

Chris: Not at the moment. I mean, I think we kind of covered it. I think the stock market is starting to digest all the news. We're on the verge of seeing I think a multi-week pullback in the stock market. It could even last a couple of months, so I think it's going to become really difficult for traders. I think it's going to put pressure on metals. The only way to kind of get around this is a strategy that I use focusing on relative strengths. So, we focus on the leading sectors because even back in September when the stock market put in a two-month, three-month top, these leading sectors just continue to move higher and higher and higher, and that's really I think something that listeners need to follow.

If you're playing something that's pulling back and selling off with the market, it's not going to be favorable for those plays. So expect there to be some sideways chop and either just avoid it. When the market rolls over here, we're a day or two away from a potential sell signal in the stock market. Not that we shored it, but we just close at any long positions we have because if the stock market is not favorable, we don't want to own any asset. And then when it starts to turn to the upside, hopefully, in a few weeks or a couple of months, we can get back into the leading sectors. Maybe gold miners will be back up on the list by then. We'll just have to see how things unfold, but it's going to be, I think, a tough next month or two in the markets for traders.

Craig: Okay. Hey, and just one more message from Sprott Money before we go. If you enjoy these "Weekly Wrap-Up" podcasts, please make sure to subscribe through your favorite platform, whether that's YouTube, or Spotify, or wherever you find the "Weekly Wrap-Up." Give us a subscribe, maybe a like. We hope to have Eric back soon. Next week, we'll bring back Rick Rule from Sprott Inc. and get his thoughts as 2021 begins, but for now, thank you very much, Chris. It's always great to hear from you. I appreciate you sitting in this week.

Chris: Hey, thanks, Craig. No problem. Anytime.

Craig: And from all of us at Sprott Money News, it's sprottmoney.com. Thank you for listening, and have a great weekend.

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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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