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Precious Metals Projections

An Excruciatingly Long Year for Precious Metals Investors - Precious Metals Projections

Precious Metals Projections banner August 2022

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After a brutal period from April to July, things are finally looking a bit better for the precious metals. But are we out of the woods yet? Host Craig Hemke and analyst Chris Vermeulen of the Technical Traders break down all the gold and silver charts you need to see what lies ahead.

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

  • signs the markets are coming back to life
  • what might make gold “pop and rally”
  • plus: The Four Stages of the Stock Market

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


Craig: Welcome back to the Sprott Money "Monthly Technical Wrap-Up and Precious Metals Projections." We do this every month and it's always a fun chance to get caught up with Chris Vermeulen of The Technical Traders. Chris, nice to see you again.

Chris: Hey, thanks for having me on the show.

Craig: Well, Chris, it's now August. It has been a really excruciatingly long year for precious metals investors so far. That period from April to July was just brutal. But, you know, as July wrapped up, things started to improve a little bit. Fed gave us some signals that maybe they might have to start slowing down on their rate hike schemes, and now we'll wait until September before the next FOMC meeting.

And we got what appeared to be a pretty stout short covering rally in the metals. Let's start with your overall business first at thetechnicaltraders.com, because you're just not precious metal specific. You say you're always looking for the best asset now. What is the best asset now? And how have things been going?

Chris: Yeah. So, I mean, it's been a pretty good last couple of weeks. If we take a look at the charts...I'm gonna pull up the Nasdaq because the Nasdaq really represents kind of growth stocks. You know, a couple of weeks ago we had a buy signal on the stock market to get into growth stocks. We have all kinds of our indicator cycles coming into play where our system was saying, "Hey, get into the best assets now." So we jumped into about seven different positions.

We only have two positions left open. A lot of them hit our targets and our protective stops have been moving up. So, we've been doing really well in terms of the markets here. You know, we've been in TAN, which is one of the ones that have done very well. It's popped about 15%, hit one of our targets. If you look here, you can see the Nasdaq really starting to...it's kind of carved out of bottom. It's moving higher.

And if the Nasdaq and growth stocks are outperforming, like, the S&P 500, if we're seeing, you know, a lot of growth stocks, like the ARK ETFs really starting to come back to life. Those are all signs that, you know, money is kind of getting anxious and they're starting to move back into this market. And if we look at the Nasdaq here, you can see it's a pretty significant level here that we've broken this week.

We've been flirting with this resistance high. Today we're seeing a pop and a move. And I think there's a pretty good, significant move. Another, probably 5% to 6% to the upside on the Nasdaq, and even on the S&P 500, which...it equates to probably a fairly big move for growth stocks. So, we still like growth stocks, but the stock market, in general, is just on the cusp here of putting in a really big multi-week or multi-month rally, which I would consider to be a complacency rally, which means more or less it's kind of like a bear market rally.

So, it doesn't mean that we're starting a new bull market by any means, but it's an opportunity to play things to the upside. But this market is very close. At any point, it could reverse and sell back down and hit new lows. And so, that's why we've been very defensive with our plays and closing out some of our trades that have hit our targets because this market could turn on a dime. Literally in a day or two, most of these gains could be wiped out based on the volatility, the way the charts are set up.

So, we're being very defensive at this point. We are bullish, but we're not, you know, gung-ho

all-in on equities. We only have a couple positions left and we're mostly in cash still, because the market is definitely struggling a little bit here.

Craig: Well, I think we could probably extend that to just about every market, right?

Chris: Mm-hmm.

Craig: As we're dealing with the old leftovers of the everything bubble. I mean, that left side of that chart of the Nasdaq looks a lot like gold or silver. You know, I mean it was just declining, tried to rally into April, and then fell into June and July. But now, on the...you know, where it's breaking out, it seems like it's starting...you know, it's definitely made several moves up here and it's starting to break out.

Chris: Yeah. You can see our trend analysis. When the market goes red, you know, obviously you don't wanna own any stocks. It doesn't really matter what sector it's in. When the stock market's going down, it's like the tide going down. We had a little pop and a nice little trade with growth sectors back over here. We're just getting into this next trigger. Now, we need to figure out if we're gonna get into something, you know, bigger.

But the thing is, when this market is selling off, pretty much everything goes down. We see gold miners get pulled down during bear markets, during big corrections in stock market. The miners in physical metals get pulled down. So, understanding, like, these core trends in the index allows you to really be able to trade, not just stocks but commodities as well, because you generally don't want to be holding almost any asset when the broad stock market is selling off in a big way.

And the big money flow is all moving out of equities, or out of the markets in general. That really pulls everything down. So, just being able to identify when to be in stocks and when not to be is a huge game changer for most traders and investors.

Craig: Yeah. And you've identified kind of that conundrum. I mean, are the equity markets anticipating that the Fed is closer to being done than they've been letting on? You know, the Fed funds futures are starting to price in a rate cut as soon as the first quarter of next year. So, maybe the stock market either continues to rally on all that new liquidity that would be coming, or, as you said, could roll over any day because the Fed, you know, through all their jawboning, is gonna try to jam things back lower by talking about higher rates.

For the metals, which are in kind of that same...I don't wanna call it no man's land, just kind of in the middle trying to figure out where they want to go. Again, you can see that it looks a lot like that Nasdaq chart.

Chris: Yeah.

Craig: Let's start with the dollar, though, if you would, the dollar index, because, you know, it seems...you know, not that they trade tick for tick, but especially here in August, with so many traders on holiday, the machines have a bigger role than usual. And the machines are gonna buy and sell gold futures based off moves in the dollar index. And today it seems a lot. So, the dollar is clearly, as you've pulled it up there, in a bull trend.

So, one of the first things that we'd wanna see, I would think is a breakdown of that trend and have it roll over, because that would indicate, well, maybe the fed is done.

Chris: Yep.

Craig: But that would put some wind in our sales for the metals. So, in looking at the dollar, it pulled back earlier this week as we record this, the first week of August, and tapped its 50-day moving average.

Chris: Yeah.

Craig: What would you watch for, Chris, technically to make you start thinking, "Okay. This baby's starting to roll over."?

Chris: Yeah. I don't think it's gonna roll over anytime soon, but if I was to look for it to roll over, I mean, this is a pretty significant level across the chart. Pretty much, you know, through this high, this high, this consolidation and breakout, this low, and I'd be looking for it to put in some type of topping formation. Maybe it puts in a double top, maybe it, you know, flounders, or maybe it flounders down here for a little bit and then eventually starts to break below it.

So, this level about the 105, 105.20 area, if it was to close below that, it could definitely create a sharper drop, and then, from there on, it could work itself down. But right now, I mean, really it is still in a very strong up trend. We had a beautiful bounce off the 50-day. If the stock market does start to roll over and we start to see fear creep back in, we tend to see the dollar do very well. So, if the stock market does roll over, I think the dollar very easily could come back up to test these highs.

That will put pressure...a rising dollar will put pressure on metals and miners. And the selling pressure of the stock market will also pull down on those commodities. So, I don't think we're really in the clear yet. You know, stocks are at resistance, the dollar is at support, miners and metals are at resistance. Everything is kind of, you know, at this turning point. Our trend is gonna break here and the dollar breaks down, you know, the stock market rallies, and we see commodities start to rally.

Are we gonna have all of those things happen at the same time? I'm not sure yet. And that's what we're waiting for. And that's why we've trimmed off our positions because we're about to see a very big move, and we're weighted to the long side with a couple of long positions still with some leveraged ETFs. And we're just kind of waiting to see if we're gonna get follow through on the rally or if this market is gonna reverse and rollover.

Craig: Right. Exactly. And that's important, you know, not just for traders, but for physical stackers as well. You know, if let's say you want to head over to sprottmoney.com and check the deals page and pick up some bullion and bars and that sort of thing, well, you wanna time your purchase, you know, to get as many ounces as possible for your dollar or your Canadian dollar.

And so, you kind of have to, you know, want to keep track of price. You know, if you can save a dollar an ounce on that tube of Maples or Eagles or something, $20. You know, that's not an insignificant amount of money. So, again...

Chris: Yeah. They've got a sale on right now, the summer sale. So it is a good time. Everything's cheap. We've had a nice correction of metals and they've got an offer, so it's pretty good.

Craig: Precisely. So, that's why, you know, people watching this may think, "Ah, you know, I'm not worried about the trading and all that kind of stuff." But if you're regularly buying metal, as you should, then this stuff's pretty important. So, let's now have you pull up that chart of gold, because this is the one that I think is at least most interesting to me and obviously moves the metals and the mining shares together.

You know, we had just this big move down from March, you know, with the Ukraine war. And then we got back briefly over $2000 in April and then, man, boy to the bottom drop out all the way down. Now, a couple of things I'd like to have you comment on. That low, that tail hanging off that candle a couple of weeks ago, that was $1680. Now, $1680, people that watch price closely, that's another test of that level.

You can see it right there. Yeah. Look at that. And that's last year, and again, last summer, August the 8th. See that one hanging down in August, $1680. That was a Sunday night when all of a sudden the bottom dropped out. So, that's a pretty important level of support. So then you get this bounce, and maybe a lot of it is just short covering, but that's a pretty significant bounce of about $125 off those lows, getting above the 20-day, but failing to get above the 50-day.

So, all right. So, now, Chris, what do you watch? Do you look for support now at the 20-day? Break back down below the 20-day. Would that be bad? I mean, what will be your technical signals as this month unfolds?

Chris: Yeah, I mean, I like to see a series of higher highs and higher lows. So, I would like to see gold create some type of consolidation. So, however it pulls back or pauses, we wanna see it kind of pause here, build a nice bull flag pattern, which is usually a halfway mark. And then you can see the second half of that move head up later. So, ideally, I don't really wanna see, you know, gold just rocket higher.

When we have a very strong move that goes straight up, it usually comes straight back down. We had that over here, it gave back half of the move and then the rest of it. We had a very strong pop over here. It fizzled right back out. So, in reality from a technical standpoint, we want consistent trends. We want something that is kind of just chugging away, kind of slow and boring because that is a consistent trend.

If gold was to pop and rally here, it's most likely gonna be because some piece of data or news hit. And if you get a parabolic move on news, it's gonna give back those gains later. So, in a perfect world, we're looking for it to flag sideways, build a little launchpad. And then if it starts to come up and break this previous high, it could be the start of a new breakout to the upside. But the grand scheme of things, it is still...you're making a series of lower highs, lower lows.

And I think it's gotta build some base. Maybe it's gonna flounder down here for a while, build a double bottom. Who knows what it's gonna do? But at this point, I am not interested in getting in for any type of short-term trade yet. I want to see it build a platform to launch from, or for it to pull back and start to build a bottoming formation and then see it break out of a very clear bottoming formation, which would be something more like this.

If it was to come down and chop around for a while, we'd have this line right across here, which would be a fairly significant area. This would be like a rounding formation, and eventually, it would pop and have a big move up. So, I think there's a lot of work to be done in terms of it changing its trend back into a new up trend.

Craig: Hey, and for an analogous period, can you just flip that to a weekly chart and go back to the end of 2018 and the first half of 2019? Let's kind of focus on that period. Okay. Now, see, since you pulled that up, Chris, what I recall is the end of 2018 and in '19, you know, the Fed was allegedly gonna be hiking all through 2019. We had that liquidity crisis and the stock market collapse in the fourth quarter of '18. And that was that first Powell pivot in December of '18.

And see where price was. You know, it would come down sharply then too. And then it started to recover, rallied for a while, pulled back. But then when it really took off was when the Fed actually did change policy about five or six months later in June of '19. So, Powell's kind of hitting at that again last week. I mean, could the chart kind of play out like that?

Chris: I think it could. And this is exactly what I was talking about a second ago in the chart. We've got this nice rally up. Now we need to see it flag out and build a platform to launch from, right?

Craig: Right. There we go.

Chris: And so that's what we want. We don't wanna see gold just pop up because it's just too much and it'll usually come back down. But this is exactly the type of scenario we're looking for when we go, you know, the hard right edge here and go back to the daily chart, this is, you know, what we're looking for. We've got this rally. Maybe it's gonna go a little bit higher, but we wanna see it eventually flag with a bull flag. And that could be the start of something much more significant.

Craig: And you can time that up. Like I said, just the way the Fed kind of hinted at that in late 2018 and actually changed policy six months later. And it kind of bid its time and kind of slightly moved higher, certainly at bottom. I don't know. We'll see. Let's take a look at silver, Chris, because a lot of people are stacking silver at Sprott Money.

What an interesting chart this is too, blasting above its 20-day, extending all the way again almost precisely to its 50-day. Just how the dollar index bounced from its 50-day, silver was rejected at its 50-day. What are we gonna watch for? Because we don't know if it's gonna bounce higher, if it's gonna roll back over, make another low? What will you be watching?

Chris: Yeah, it's the same thing as gold. When we look at the bigger picture of silver here... Let me just zoom in a little bit more. Silver's done a little bit more damage, but silver always has a very noisy chart. I find it's always shaking all over the place. It had this really clear line, which equivalent to gold. Gold tagged it and had a really strong bounce off it. But silver actually broke through it, found it as resistance. It sold down.

So, silver's got a little bit more of a downward biased. But in the grand scheme of things, we're looking for the same type of thing with silver. We're looking for it to like build a bull flag pattern, consolidate sideways or slightly lower, and then for it to start to reverse and head higher. And that'll start to create a higher high on the chart and bring it back up probably to this $22 resistance area. But, yeah, they really do... All of them do have a lot of work to do to get back into what I would consider a safe up trend to get into.

Craig: Yeah. You know, and to that end, you know, higher price usually leads to higher prices, especially coming out of a low like this where there's so many hedge fund shorts. While you're at Sprott Money, I just give myself a plug. I wrote earlier this week an article about the silver commitment of traders' positioning and that massive hedge fund short position, which is there for the squeezing.

I mean, that's all part of why we rallied 10% in the last 10 days. But we need some higher prices to keep that pressure up. And so what? Getting above the 50-day? Would that kind of start the process? Or what would you watch?

Chris: Yeah, I think getting above the 50-day will be pretty important. I mean, Silver's pretty noisy. It's been chopping through it a lot. Right now, it's in a very strong downtrend. So, if we can get above it, hold above that level, it'll be the first...it's kinda like the first shot across the bow that, "Hey, this trend might be turning up." So, that would definitely be a level that could start to spook traders.

But silver chops I find through a lot of moving averages all the time. So, it's kind of numbed that sensitivity I think for a lot of people that they don't really care too much about the moving average. They're probably looking more specific price action, probably shorter-term timeframes to try and get a gauge on where silver's headed going forward.

Craig: Yeah. That $20.50 level you can see it horizontally looks important too. Let's get to the miners and we'll wrap up, Chris. Let's start with one specific one because this is weighing on the big ETFs, and that's Newmont. It washed out a week ago last Monday, about 10 days ago as we record this, to some of the lowest levels it's been in a long time. Some of the most oversold levels it's been in decades, maybe.

That's a pretty gnarly chart, but maybe it's at a spot of support. I mean, I know Newmont we can take back to the 1980s, I think. What do you make of it?

Chris: Yeah. If we go way back into the '80s, '87 when it peaked out, I mean, that's what it hit just recently, and it pierced through it, and it's collapsing back down, and it's pretty much right back to the medium price, like right at a really critical pivot zone. It's a also a support trend line as you mentioned we were talking before here. So, this is a pretty important part I think for Newmont price for it to find some type of technical balance.

But overall, if this level's broken and there's more blood in the streets, the stock market goes into a bear market, whatever unfolds here, you know, this could really wipe out and decline. But I mean, the selloff in Newmont is just huge. And obviously, that is weighing down very heavy on the miner ETFs, because it's a big position in all those gold mining ETFs.

Craig: Yeah. And, you know, [inaudible 00:18:59] standard are specific to Newmont. Maybe some of the other bigger miners aren't having the same cost and production issues. But nonetheless, yeah. I mean, this is the biggest one, and so it's hurting the GDX. Let's finish with the GDX, because, unlike COMEX gold and COMEX silver that broke above their 20-day and then ultimately tested their 50-day, GDX can't even get above its 20-day.

Chris: No, it's struggling. It's not a good sign. It's definitely not a good sign.

Craig: They had to change the symbol to PIG rather than GDX. It's just...what a drag that is. I mean, what is that? I mean the 20-day just kind...it's not like it's forcing it lower, but at least it's got to get above there before you can even begin to start feeling there's a hint of hope.

Chris: Yeah, I do. I find if price is generally above the 20-day, in a way I generally consider it an up trend, a short-term kind of swing trading up trend. If it's below it, it's in a pretty strong downtrend. And I look at the 5-day moving average for the same type of thing, which is that baby blue line here. It's my momentum.

If it's on average below this little blue line, we're in a very strong momentum trend down, and it's the opposite during an up trend. So, you know, the blue line here is the momentum, the pink is kind of like swing trading. The blue line is kind of like position trading, could last months in position. So, they all have a different kind of bias and kind of trend and cycles to them. But definitely, the fact that it's just stuck under the 20-day and rolling over is not a good sign.

I mean, if gold was really to bounce and take off, you'd think the miners would be taking off as well. But I mean, when we take a look at our band hot list of the best assets now, the two bottom of the barrel, the worst ranking sectors are SILJ and GDX. I mean...

Craig: That's the [inaudible 00:20:50].

Chris: It's just terrible. Yeah. The worst asset now. The crazy part was they were right at the top of the list earlier this year. Like, if we were to go over to GDX and just look at the beginning of the year...I don't know if it'll load here. Right up here, they were coming to life. They were on the verge of starting something very, very massive. But then, the stock market kind of flipped to bear market mode and there was huge liquidation and, of course, it pulled them down.

But this sector can change very quickly. I think we could see a lot of sectors that have been doing well this year start to sell off even more. We see the gold miners come back to life in this complacency rally. And I think the gold miners will work themselves back up this list. Just to quickly go back to this complacency rally that I mentioned here. So, this is the emotions of the stock market participants.

And I feel as though the stock market has had this correction. We kind of started a bear market. And now we're going into this complacency mode. And this is where we've seen in past stock market tops. This is where we see gold, silver, and miners come back to life and become the top leading sector. And they can do very well for several months, even though the stock market really doesn't do anything or could actually be going lower.

So. this is where we're at, and maybe gold miners and all that have finally found a bottom and they're about to come back to life. The thing is, if this is a complacency rally, when the stock market does start to break down again, you do wanna liquidate positions because everything generally gets pulled down with it. Not too often you'll see gold miners rally in a bear market. So it is a trading opportunity.

I think long-term, if we go through a bear market in the equities, we'll see precious metals will be one of the first pockets to bottom, probably months before the stock market does. And that'll be the prime opportunity to get in for the next major wave higher I think in gold, silver, and miners. Something that's like an investment. You could probably be in it for several years and see hundreds of percent return, but I don't think we're there yet. I think there's a lot of chaos to happen over the next 8, 12, you know, 16 months from now.

Craig: Well, and if I could speak for pretty much everybody that's watching, I'd say the mining shares are in right now in that capitulation, anger, and depression.

Chris: Yeah.

Craig: Kind of looks like the chart of GDX actually.

Chris: Yeah, exactly.

Craig: We are right now in the GDX right under the word panic as I look at it. It looks just like the GDX chart would just show...

Chris: Yeah. We're somewhere right in here. And, you know, if you look at this chart of the emotions, it's like a school of fish. When the masses are thinking and feeling the same thing, you get this huge move, complacency, and bear market face. So, just see this pattern. And if we go back here and we take a look at this. I think we've covered this before, but there might be some new viewers. You look at the ARK ETF.

Craig: Oh, yeah. Yeah.

Chris: And this is it. You've got...

Craig: Same thing.

Chris: ...your stage one. You've got your rally. We had the blow-off phase that everyone piled into the growth stocks, and then it struggled and has like a complacency kind of pause, and then it's broken down. It's been in a bear market. I mean, it's down 70%. And so that was the emotional roller coaster. That's the majority of market participants. And unfortunately, they're all angry, depressed, frustrated. They're down huge money. And that's simply because, you know, most people don't understand how the market moves.

If you can identify the four stages of the stock market, you're really golden. I mean, you're set, because if we take a look at the four stages, stage one is usually a dead stage. It's kind of going nowhere. We don't want to touch it yet. Kind of gold miners are kind of in this stage one, I think. I think they still have some work to do. Stage two and stage four, where we have huge trends. Whether the trend is up or down, it doesn't matter. Big money can be made.

And right now, the stock market itself is in a stage three. It's a very tough time to make money. You get a hot wave of one sector for a week or two, and then it rolls over and dies. So, if you can identify which stage we're in, every asset is in a different stage at different times generally. So, you need to gauge it, but if you know what stage you're in, you know whether to be aggressive or to just avoid it.

And, you know, the ARK ETF is a perfect one. Right now, the ARK ETF is, like, right here, late stage four, starting stage one. I think gold miners are kind of in a stage one phase. They have some work to do before they start the next big rally. So, that's kind of...you know, we're in different stages for different asset classes.

Craig: Yep. Great stuff, Chris. Obviously, that's just a hint of your valuable service that you provide at thetechnicaltraders.com. That's the website they need to go to to learn more about what you do.

Chris: Yep. Yeah. They can go to thetechnicaltraders.com, and I do videos like this every morning for subscribers before the opening bell. We go over what happened yesterday, what happened this morning in pre-market, how it's gonna affect any positions, and what we're doing. And I provide everything from trading hot sectors to index bond, currency trading, and then all the way down to passive long-term investing signals where we just want to know when to be long stocks and when to avoid bear markets with our retirement accounts.

So, kind of provide all that in a total kind of ETF package. And we just trade ETFs. We keep it very simple. And you can move large amounts of money because it's an ETF, a basket, versus individual stocks that are all over the place.

Craig: Great stuff as always my friend. And again, before you go, be sure to thank Sprott Money for all this great free content that they put on the internet for you. Go to that site, sprottmoney.com. You can see Chris got it pulled up, their deals page. You can look storage, great storage options as well for your physical precious metal.

And again, that summer sale continues through the 7th. You take advantage of. It's one of the biggest sales they have all year. Again, thank you, Chris. It's always good to visit with you. We'll see where we go the rest of this month. You got Powell's speech at Jackson Hole later this month. That'll probably be a big deal. And then, hey, by the time we get around to doing this again it'll be football season. So, at least we'll have that going for it.

Chris: Yeah. Sounds good. All right. Well, thanks for having me and we'll talk soon.

Craig: All right. Thanks, Chris. And from all of us at Sprott Money and sprottmoney.com, thank you so much for your time and thank you for watching, and we'll do another "Precious Metals Projection" video for you next month.

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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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