Panic in the Precious Metals Market - Precious Metals Projections, August 2021

Craig: Welcome back to The Sprott Money News Monthly Precious Metals Projection. I'm your host, Craig Hemke. And joining me as usual, is Chris Vermeulen of the technicaltraders.com. Chris, of course, one of Eric Sprott's favorite technical analysts. And so it's always a thrill to hear from him each month to see what see what he sees on the charts and in the markets in general. So Chris, thank you so much for spending some time with me again this month.

Chris: Yeah, well, thanks for having me on the show, Craig, appreciate it.

Craig: And it's August, which is usually a pretty strong time for the precious metals. We started not so strong, but we'll see where we go from here. If you enjoy this content, please help us out at Sprott Money. And give us a like, maybe subscribe, help us spread the word and and get this information out there. Additionally, please don't forget that Sprott Money is the sponsor of all of these podcasts and videos. So when you're in the market for physical precious metal, please be sure to visit sprottmoney.com, you'll find all sorts of great deals there for both physical metal and storage. And if you don't wanna use the internet, you can always just give them a call at 888-861-0775.

Chris, we've had quite a doozy of a couple of months. You know, when we first talked back in June, if I recall, we were both feeling pretty good about the charts. Little did we know that Chairman Powell and the FOMC, in the middle of June would suddenly start talking about tapering and the dollar would spike. That wiped out the metals through some key moving averages. And it's been pretty tough sledding ever since all the way up until this past Sunday night with the big smash that we saw right after the Globex open in the U.S. evening. So I'm sure you've got some thoughts on all this. Where should we start?

Chris: Sure, well, let's start...let's take a look at the 10-minute chart of futures of kind of how the week kind of kick started, when we take a look at the selling pressure in silver. If we take a look here, you should be able to see the 10-minute chart of silver. And this goes back to August 4th. And you can just see here since the 4th every day, we just keep seeing these huge bouts of selling. And obviously, Sunday, we saw that it opened up and we saw a massive amount of selling hit the market, silver fell eight and a half percent in a heartbeat. And it rebounded very quickly after that. But I mean, we're just seeing this never ending stream of selling pressure. I don't know who it is who's just slamming it. But I mean, when you look at how the price has fallen, and especially how that we saw that kind of like a flash crash in silver this week, I mean, it really doesn't make a whole lot of sense that somebody would just sell that many contracts.

And as you stated on your Twitter, they're like somebody dumped 30 million ounces of silver at 6:45 in the morning, it made absolutely no sense when they did it. There's no volume out there to suck up that kind of sell order. And I mean, it really is just crazy. So silver, I mean, this is one of the characteristics that silver's kind of always had since I've been trading it in 20 years. It has these very huge fast red bars. Sometimes there's green bars, but they're definitely a little more rare. But there's definitely some selling going on. Somebody wants to keep the price of silver down.

Craig: Yeah. And again, we've, like you said, we've seen this for years, even decades, 6:45 on a Sunday evening, during the summer. Not a lot of folks around. Asia is not open yet. Europe is sound asleep. Most of the New York traders are still out on Long Island for the weekend. And yet 45 minutes into the Globex Session Sunday evening, you get a surge of volume, as you can see on that chart that was equivalent to what we often see on the COMAX.

Anyway, what that has accomplished has just been some massive damage to the chart and where they looked pretty good a couple of months ago now they look terrible. So yeah, perhaps maybe, as we ought to see at TF Metals Report, you always got to be ready to buy when things look the worst. Maybe that's where we are. Tell us about...I see you've got the daily chart of silver there. What levels are you gonna be watching now going forward?

Chris: Yeah, I mean, there was a lot of damage done to the silver chart, when you look at the short term. But when you look at the daily chart or the weekly chart of silver, this is actually a really strong support level that silver has come down to. This has acted as a very critical level. In the past there was a few...this is a daily chart a few days down here. So it really came down and dipped down into this oversold territory. It happened on just kind of a flash crash type of move, and it bounced right back up.

So to me this $22 per ounce level for silver is actually a pretty prime opportunity to move higher. Silver has been trading sideways for a year. And now it's at the lower end of the range. Typically, if something is range bound, which you could argue here, silver is fairly range bound. In this area, if something is at the upper end of the range, you typically wanna be trimming off positions, if it's at the lower end, you wanna be accumulating. And that's what this big sell order kind of brought us down to temporarily. I think there could be potential, maybe we come back down and still see a little more selling on the chart. Because we are seeing some panic in the precious metals market right now. The volume that's carried over which you can actually see on this 10-minute chart here. Yesterday, there was a ton of volume during regular trading hours, we're seeing it again today. And price really isn't selling off that much.

And that to me is saying, "Okay, well, these are more like program manipulation type sell offs." Whereas when there's huge volume here, and it's not really driving that much lower in the grand scheme of things, I think somebody is accumulating down at these levels. But the general public now is saying, "Whoa, silver just fell 14 plus percent in only a few trading sessions." They're starting to panic out. So I think this is a good sign for silver. And I think if 22 holds, then we're gonna be looking, you know, the next stop should be the upper end of the range or potentially a breakout maybe several months from now.

Craig: Yeah, well, we've been tracking that flag on the longer term chart for a long time, breaking out from a five or six year period between basically '14 and '18. And now just kind of flagging till it breaks out one way or the other. We're just trading that range, as you said, and gold's kind of similar if memory serves me, right. 1680 on the longer term chart is a key level in that as we rallied out of QE to infinity, or what seemed to be QE to infinity last March, we consolidated there, you got a little line under it between about April and July of last year between 1680 and 1780. So when price came down in March, it wasn't really surprising that it would base and bounce from 1680 March of this year. And now we're pulling back that level again. Do you see 1680 as a key support level too?

Chris: Yeah, this is a real key support level. Obviously, there's a whole bunch of highs through here, a whole bunch of lows pickled in through here, two more major lows back earlier this year. And then we had this, what would pretty much is a measured move on gold. If we take a look at that using Fibonacci extension, we had the initial drop, we had the rebound back up. And then Fibonacci tool draws where there's gonna be support level which is 618, which is happens to be where it is today. But it came all the way down close enough to this one, this green line here, this 100% measured move.

Now if there is a support level, just before 100% measured move, I'm not expecting it to actually get there, I'm expecting price buyers to step back in. And that's exactly what happened. So I would say gold just had 100% measured move to the downside. It's finding support at this real critical level that you just talked about. And now I think we're gonna see it eventually work itself out.

Now the market does have a way of dragging things out. And I think the market is kind of spooked. And maybe over the next couple of weeks or a month or so we see gold fade back down and maybe test this level which is around 1680, 1690 area and then eventually start to move higher. And kind of like the double dip just like we saw back here in March where it naturally sold off and then it kind of bounced back up and then did a quick double test before taking off to the upside.

So I like gold. I think it's in this very strong stage. It's at a major support zone just like silver. And when we look at the big picture of it in weekly chart, you can see gold is definitely in this big bull phase here. It came out of this rounding formation. It's rallied up. You could argue this is potentially even a massive cup and handle our bull flag pattern here. And eventually it's going to get traction and we're gonna have some huge moves to the upside.

Craig: Yeah. And you know you talk about what might drive it back down to double bottom off of Sunday night's lows near 1680 and silver down closer to 22. It's probably gonna have to be something to do this run up this month to Chairman Powell's Jackson Hole speech or maybe the FOMC meeting in the middle of September about five weeks from now where we're gonna get some details on what if any tapering they plan to do to QE. Now perhaps it'll be kind of a sell the rumor buy the news and the metals or buy the rumor sell the news and the dollar. We should look at the dollar next because with so much program trading taking place here in August with so many folks on vacation, you almost get this kind of tick for tick with the dollar, a lot of the times where it's just done by computer. The dollar's moved up. We were worried about this last month moving through those highs, then on the dollar index on your chart there, you can see them around 25, about 9340-9350 on the DXY. We're pushing toward that now.

Chris: Yeah, so this is the UUP, which mimics the dollar price action. But obviously, it's not priced the same. But this is a weekly chart and the dollar is trying to...it really wants to break to the upside, I can feel the upward pressure here, I think we could see the dollar pop, I think it could take maybe a few weeks. And as the dollar pops and pushes up, I think that's gonna apply a little more pressure on metals. And we could see silver, maybe start to drift back down to a double bottom of 22. We see gold put in a double bottom retest that spike low we saw this week, down around 1680, 1700 area.

And then when the dollar gets up here, I think this will be a very significant turning point. It's a 200-day moving average, which is this green line, the 200 period. It's also a major resistance on the chart in history. So it's naturally gonna wanna reverse. And then I think we could see a much bigger move down in the dollar. And that would be the big bottom, I think in precious metals over the next month or two potentially.

Craig: Yeah, yeah. Again, maybe it'll be kind of a buy the rumor, sell the news kind of thing for the dollar once those plans are finally announced. And so watch, it'll interesting to see where we are by the next time you and I visit at the beginning of September, because hopefully we'll have some of those announcements from the Fed about what if anything they plan to do.

I know you keep a keen eye on the stock market in all of this too. The stock market, gosh, on the daily chart of the S&P Chris is just remarkable. And I guess if the Fed is gonna print $120 billion a month, some of that's gonna make it in the stock market, it's gonna get levered up. Man, that chart takes you back toward when QE was announced in March or April of 2020. I mean, it's been nothing but straight up at about a 45 degree angle bouncing from the 50-day moving average, probably almost 10 times. What are your thoughts on that?

Chris: Yeah, the blue line's the 50-day moving average, it typically acts as like, institutional support zone. Usually, that's when big money's kind of looking to step back in. And you can see every time it got to that once it broke through it, every time it pretty much tagged it, we've seen buying.

There was a little bit...there was a multi-month consolidation here. And then we saw get closer or tag it several times, and money just keeps moving in. And it's on a pretty regular basis. That would obviously be the next kind of pullback target if we do start to see some type of correction here. But the stock market continues to really get inflows globally, we're seeing global money flow in to the U.S. dollar as kind of the safe haven currency. And we keep seeing the move into U.S. equities, which is why the S&P 500 and the Nasdaq just pretty much every week are hitting new all time highs.

This, I mean, this is a strong chart. And you can't fight this trend as much as people don't wanna buy at these levels, they feel like something bad gonna happen. I mean, as a long term investor you still have to be fully invested. And there could actually be a ton of upside potential from where we are like, if we take a look at the Russell 2000, you can see going back here, the last rally we saw from last year, the Russell ran 62%. Now it's been consolidating all year. And if we were to take a look at this chart pattern, the next upside move is about a 32% rally from where we are right now.

And I think this could be really bullish, not only for investors and stock traders, but also for the precious metals sector. We can see stocks and metals and miners rally together. I think there's a lot of investors, which I've had a lot of calls in the last week from people I generally don't talk to saying, "Hey, Chris, what's going on with the markets?" I'm watching this thing go up and they're in cash and they're being very protective and defensive, I get it, but they're not in the market. And if we're in a bull market, you have to still stay in it until it's proven to be...to have reverse trends.

But I think what's gonna happen is we're gonna see the stock market push up another 5% or 10%. And when it gets up into this range over here, those investors who have been trying to be conservative, are gonna hit a breaking point, they're gonna have FOMO they're gonna be like, "I can't take any more. I'm missing all this stock market rally I gotta get in." We're gonna see massive amounts of money pile into the stock market, it's gonna push the Russell up 30%. The Nasdaq the S&P 500 are gonna rally huge as well. And it's gonna be that euphoric blow off stage, I think in the stock market that I don't think we've seen yet. I mean, we've seen some pretty good rally in the market but it hasn't have been euphoric blow off style price action, like what we saw on Bitcoin, or anything like that. Until we see that, we're not, you know, the bull market is still fully intact.

And that's when precious metals really come to life is the second half of that stage, when probably when the Russell 2000 gets up to this area up here, then we're gonna start seeing people move into gold miners and physical metal. And those are gonna probably become leading sectors. And then eventually the stock market is gonna hit this kind of level and start to chop around and go nowhere, probably put in a topping formation. And that's when the miners are actually gonna just continue to rock it higher and muscle their way up. This happens time and time again during bull market tops. It's slow, takes forever to unfold, but it's coming and it might be late this year, early next year, that all this unfolds. So we're in for I think, a pretty exciting ride over the next four to eight months.

Craig: Yeah, I mean, you can see some of these pieces all coming together. You know, whether it's the Fed's plans that then get put on hold or the dollar begins to reverse and head lower, a number of these things are still potential drivers for what you just laid out in the months ahead. You know, one of the fun things we'd like to do here is answer any of your questions that come in over the course of the month, you can always use the email address submissions, just that word submissions@sprottmoney.com.

And a couple of questions come in this month that I wanna make sure we answer, Chris, before we wrap up. One of them has to do with platinum. Boy, long term underperformer there. Kind of like silver, finally broke out earlier this year with copper and everything else. And it's since pulled back, gee, almost 30%. What do you think of platinum here? And what are some levels to watch?

Chris: Right. Well, we look at the big picture going back aways, as you can see, it was in a big bull market, consolidated, had that euphoric blow off top, which I just talked about I think is coming for the stock market, and potentially the real estate market. And it's been out of favor for years here. If we look at it now, though, this year silver, or sorry, platinum broke into a bull market right above this blue line around 1050. It broke through it, traded through it for a few weeks, and then continued with its first kind of push up.

Now a lot of times we see breakout levels get tested. And it has had a very nice five-wave correction, it's back down to this kind of breakout zone. It's still above the 200-day moving average, it's settling down into kind of the upper range here of this area, which should be acting as a support zone. This is kind of into these highs. As you can see, there's highs over here that act as resistance. Of course, once you're above that this should act as support.

So it is finding support here, it's above the 200. And it is still making a series of higher lows, higher highs. It is the first pullback within the bull market. So this is an opportunity. Anybody who's interested in owning platinum long term, I mean, this is the opportunity you're looking for is the first pullback in a bull market. And it's right back to the breakout level. And everything is pointing to higher prices longer term. So it's a pretty good looking chart.

Craig: Okay. And the other question I thought it'd be fun to answer is more technical in nature. One of the patterns A lot of us technical analysts look for on a long term charts, particularly, is what's called a cup and a handle, where you get like this bowl type shape on long term chart with the top of that cup like the water line, being like an old time resistance line. And then you break through and then you pull back forming what looks like a handle to that cup. The question from a listener was, yeah, how much validity do you as a technical analyst put into cup and handle formations, Chris?

Chris: Right. So I mean, I put a lot, I put a lot into them. Because, I mean, I learned from John Murphy, he I mean, he's got a really detailed section on it. Cup and handle patterns are really powerful. I mean, if we were to look back at this pattern here, this is like a full on legitimate cup and handle. It's something that has been a sector that's been out of favor for years, it's just been beat up and not performing really tough to trade because it's in a narrow range and generally resolves to the downside.

So when you have one of these major bottoming formations that build this cup and handle pattern, I mean, it's pointing to a lot higher prices. So as you were talking about if we were to just draw a line across here, this is like kind of, you could depending where you wanna draw this level, this is kind of the basic formation. You could argue this right across here is the top of the cup because there's kind of a level here so you've got this cup and handle right through here. And this is the handle right there, which is a bull flag as well.

And so this cup and handle pattern, typically you're looking at the depth of the cup, and times it by two, three or more 100% to the upside. And if were to do that for GDX, it brings us somewhere up into this $80, $90 mark, very, very quickly. So the fact that something's been out of favor for a decade, it's got an upward bias. Now it's finally coming into favor. I mean, the whole global economy is favoring towards precious metals, there's all kinds of issues going on, I think we could see a very big run here.

So I like this pattern. This is like the most legitimate cup and handle pattern I've seen in a long time, because something this size of this scale has got a lot of potential. And John Murphy says, they can go 300%, 600%, the depth of the cup to the upside of it's a full legitimate cup and handle pattern. And we all know there's huge potential in precious metals, especially if the U.S. dollar breaks down in a big way. And the dollar has got a lot of potential to break. I think it's at 88 mark on the index. If it was to break that level, I mean, we're gonna see the dollar collapse and commodities, especially precious metals are going to soar. And that means miners like GDX here are going to just rock higher, hundreds of percent. And it's gonna be crazy.

Craig: And again, tying all that back together, when we first looked at the weekly chart on gold, Chris, let's just wrap up with that.

Chris: Sure.

Craig: Where you mentioned a cup and handle kind of unsolicited. What does that project to? Because again, if you think, "Wow, that's crazy," you think GDX would go to 80? Well, what if it plays out in gold? What does gold project to in that same type of pattern?

Chris: Yeah, well, I mean, if we take this high, and this this low here and back up, we'll count this as the top of the cup and handle, I mean, there's a lot of potential here for gold. So let's just squish this down and start dropping on a couple of these, you can see the upside, potential. There's 200%. I mean, 300%, I find actually is fairly conservative with something like this, I think you could see a move like this. And where does that put us for gold, that puts this massive rally up to 34, 4500 an ounce. So it is a huge, huge potential for precious metals to take off. And I mean, who knows what the big tipping point will be, right? For all we know, no one's gonna like to hear this, but maybe there's some huge catastrophe with cryptocurrencies, or regulations, or something, and maybe tons of money comes out of them and goes somewhere, which would be precious metals again as the core kind of, you know, play their currencies break down. Who knows? We don't know what it is, until after it happens.

But there's a lot of upside potential for gold and metals to go ballistic. And gold, to me is the gold safe haven. It's the metal that investors around the world would want as the safest place to dump and store money versus silver's more speculative. I think there's bigger potential, but a big investor who wants to actually kind of protect their capital that more will dump into gold.

Craig: Yeah. Again, this isn't crazy town stuff. I mean, we went from $100 to $900 in the late '70s. We went from 250 to 1000, between about 2003 and 2008. We went from 700 to 1900, between 2008 and 2011. So yeah, look at...there's a big long cup from 1980 to 2003 right? I mean, that's a really long one there.

Chris: Yeah. I mean, it's stretched right out. I mean, there's a whole bunch of...I mean, yeah, I mean, you can look at this in a whole...all kinds of different ways. This is like one massive dormant. The longer something is more dormant. The bigger the run later. So it's pretty exciting. I mean, there's a lot of upside. It's just not gonna happen overnight and it's gonna unfold.

Craig: Right. Right. That's the important thing to remember. No doubt about that. Chris, I want you to take a second and last month you introduced us to a side project you've been working on that I think is really cool. And if regular listeners, customers of Sprott Money if you have kids or grandkids and you wanna teach them how to be a capitalist, an entrepreneur, this is a pretty neat deal you got going. Tell everybody about it again, would you?

Chris: Sure. Yeah. So we're working on a project, the team and I here called URLYstart, and it's spelled URLY because we're teaching kids how to build a website in URL, a micro one-page website where these kids are building, creating products, things to sell online locally, or they can sell them worldwide. And really we help them set up this website. It takes anywhere from 26 minutes to about an hour.

And it's like a step-by-step follow my daughter to kind of success. My daughter and I recorded her process, including all the bloopers. And it's awesome. Kids like ages 8 to 18 can literally build a website, sell something that they want. They become their own bosses, we show them how to market it. And overnight, my daughter and I built this as just like out on a whim last minute project on a Saturday morning. And overnight, she had sales and she sold things to California, Idaho, Toronto. And then she really focuses on local pickup only because she does dog treats. And she loves to bake the dog treats and do all that stuff. And now like the confidence level is through the roof. She realizes she can do whatever she wants. She's got like five other businesses lined up that she wants to build and create these websites and do that. She's teaching her friends how to build websites. I mean, this is a real confidence builder. It shows how kids can be independent.

She manages her own email list, she actually writes these very short little emails, but to her list saying, "Hey, I'm making a new batch of dog treats. I've got a new shape or design." And then usually she comes to me says, "Hey, Dad, we got to go shopping, I'm making more dog treats," so we have to book it, go bake everything. But it's a great program. We've got teachers, and we're working with some potential TEDX speakers in this category of kids and youth entrepreneurship. Really exciting stuff. So we just kind of have this [crosstalk 00:26:29]

Craig: What's that landing page, Chris? What's the landing page web address, if people wanna check it out?

Chris: The web address is urlystart.com. So U-R-L-Y-S-T-A-R-T.com. And you can opt in there. It's something we're gonna be launching live in September. It's a crowdfunding platform. So we're gonna do is huge, huge media and exposure. And we wanna try and get a big kind of splash to get into schools and programs, other youth programs and is the best way to really kind of get things seen and create a movement of helping kids become independent.

Craig: Very cool, Chris, very cool. Glad to help support that.

Chris: Appreciate it.

Craig: That's a great initiative you're building there. You know what else is very cool, too, we'll wrap up with just reminding everybody about Sprott Money. Prices have come down, obviously, but so have premiums, you know, we're looking at $6 and $7 premiums per ounce earlier, we're now down closer to three or four. It's a great time, it's always a great time, frankly, I mean, none of this price action has forestalled what's eventually coming.

So you wanna add some physical metal or if you're looking for a place to store it, sprott.money.com should be one of your choices that you always check whenever you're in the market. Go to that website, you see great deals on physical precious metal, great deals on storage. But again, if you don't wanna use the website, just give them a call. We'll do business the old fashioned way too, 888-861-0775. Again, we've been speaking with Chris Vermeulen of the technicaltraders.com with our monthly precious metals projections. Chris, man ,by next month we'll get Jackson Hole behind us. We'll be looking forward to the next FOMC. I'll be curious to see how the charts look then. Thanks for your time today.

Chris: Yeah, appreciate it. And it should be interesting. This could be a major low in metals if they hold here, so we'll see how it plays out. Thanks for having me.

Craig: Yeah. Let's... I look forward to talking to you again next month and from all of us here at Sprott Money News, sprottmoney.com, thanks for watching. We'll see you again in September.