Precious Metals Projections

Ever Closer to Break Out - Precious Metals Projections

Precious Metals Projections with Chris Vermeulen

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As we kick off the year of the tiger, commodity and energy prices are roaring to life. It’s the perfect time to look at the charts and see if precious metals are about to break out or are we just scratching the surface. Host Craig Hemke and analyst Chris Vermeulen of the Technical Traders break down explain the gold, silver, interest rate, and oil charts.

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

  • What’s the long-term trend of inflation rates
  • How the gold and silver charts are getting to a critical point
  • Plus: What’s the future trend in commodities and energy stocks

Don’t miss what Chris and Craig have to say on this month’s gold and silver charts, watch here:

Craig: Happy February from everyone at "Sprott Money News" and sprottmoney.com. It is February 2022, and it's time for your monthly precious metals projection podcast. I'm your host, Craig Hemke. Joining me as usual as Chris Vermuelen of the technicaltraders.com. Chris, good to see you.

Chris: Yeah. Good to be back, Craig.

Craig: Another month flown by. The only good news is we're closer to being done with winter. It has been an interesting month and we're gonna look at some very interesting charts. I just want to remind you... I think it's a popular notion that everything on the internet is free. It's not free. Okay? Costs money to put good content out there. You can thank Sprott Money by becoming their customer, but you can really thank them too just by of throwing him a bone in terms of getting the news spread on this type of information. Give us a like, maybe subscribe to the channel that you're watching this on for Sprott Money. That'll help us cast a wider net, get more people interested in the precious metals, and that helps everybody. So, again, please give us a like, or a subscribe, or just visit Sprott Money any time you can and you're in the market for precious metal. Again, it's sprottmoney.com is a website that you can visit for all of your bullion and bullion storage needs. Chris, it is February. It's February the 7th as we record this. It's been a really interesting couple of weeks, actually, couple of months, particularly in gold. Two weeks ago, we had the January FOMC meeting and Powell came out and talked about not only raising rates, but drawing down the balance sheet again. And now last week, we had Christine Lagarde over at the ECB talking about raising rates in Europe too. All right. So here we are in this pattern, it would seem again, of a rising interest. Pretty soon, you would think, we're gonna reach a point of maximum pain that's gonna force another one of these Powell pivots. So with that on everybody's mind, Chris, let's start with a discussion of interest rates. I know you've got a chart you'd like to show us. What do you see?

Chris: Sure. Yeah. Let's do that. Let's jump into the 10-year note here. This is a monthly chart going way into the '60s. And obviously, the long-term trend here has been down since the high in the '80s here. It just continues to grind its way lower, but, you know, we're getting down to this level here where there isn't a whole lot of rate left. Now, as we know from crude oil, as low as it goes to zero, I mean, you never know, go negative. So there never is a bottom. You never know where the low's gonna be, but when we look at this price action, I mean, we've seen the feds step in and take action at certain points, as you mentioned before, this call here. Back over the 2007 crisis, we started to see stimulus and we saw, you know, a big collapse in the yield. We saw the same back in 2018, stock market fell 20% in about a month and a half. Fed decided to step in. Another round of stimulus, yields fell again. And now we're starting to work our way back up to this kind of resistance area or this moving average, and who knows? If the stock market was to fall and collapse again, it could create another wave of panic and maybe we see some type of quantitative easing or support in the financial system again. So it's gonna be interesting. I mean, this market is so unique, and how the fed wants to just not let it collapse. Who knows what's gonna happen when yields get back up here. It's pretty interesting story.

Craig: Yeah. A lot of folks talking about, "Okay. This is the end of that 40-year bull market and bonds." Well, that chart would suggest not quite yet. That this is just another bounce in yields as you can see on this chart. This goes back to what, about the year 2000? There are all kinds of bounces in yields, but the trend is still down.

Chris: Yeah. We've seen bounces this size pretty frequently. Like you look at where we are now, say 380 basis points, you know? So 107...Or this is percentage-wise, sorry. These aren't points. These are percentage moves, but we've seen a lot of these moves around 100% multiple times. Obviously, these low rates definitely make things a little more extreme, but there's still a lot of work to be done on this chart. When you look at it from a long-term standpoint, I think a lot of us are thinking we're gonna start to see this go up, but there's a lot of work to be done before this megatrend changes. And, really, you know, on a short-term basis, we still have this, these... We have got this pivot high right across here which we're close to breaking. We have broken this one, which is good. You could argue, there's a little bit of a pattern here that this is a nice little bull flag pattern pointing to higher prices, but really, until we break one of these standout, these really major highs, the other one was back over here, until we break one of those, we're far from, you know, seeing this trend change. And I mean, the fed was talking about, you know, reducing stimulus and all that back in 2018, stock market collapses, and then they totally change direction and, you know, stimulus galore. So who knows what'll happen when we get back up here and where the stock market is and how things are gonna unfold. But whatever the fed says, I mean, you got to take it with a grain of salt. Collapse in the stock market, they tend to jump real quick and try to support things well.

Craig: One more thing to that end. I mean, I've been writing on my side a lot about how this first quarter of 2022 resembles so much that fourth quarter of 2018. You know, we entered 2019 with the same interest rate forecast we're getting now, you know, four or five head rate hikes and the 10-year note was allegedly gonna 4% or 5% and we all just were like, "Incredulous. It's not gonna happen." Then lo and behold, you got that Powell pivot instead as the stock market collapsed. I look at this chart, one last thing that catches my eye, you go back to 2007, there's that peak where rates went up and hit, what's that green line there, Chris? Jus...

Chris: That's a 200-period moving average.

Craig: Okay. Two hundred-month moving average, right?

Chris: Yeah.

Craig: Okay. So we basically tapped that in 2007 and then rates just plunged. Okay. Then we tapped it again in what? October? November of 2018?

Chris: Yup.

Craig: Rates just plunged. Where is that baby right now? Maybe that'll be something...That's the level we got to watch for max pain and that Powell pivot.

Chris: Yeah. It's 268. And, I mean, if we were to use just really basic momentum with Fibonacci extension, we can get an idea of where that's gonna be. So take a look at this bull flag pattern. It brings us to more or less 250. And by the time it gets there in several months potentially, this moving average will move down as well. I mean, it's gonna be a setup. If we get to that level, what will the fed be doing at that point? It'll be interesting.

Craig: Right. You can almost see that coming a mile away, can't you?

Chris: Yeah.

Craig: All right. Something else we can see a mile away. Since this is the monthly precious metals projection, I'd love to have you take a look at monthly chart of COMEX gold.

Chris: Sure.

Craig: To my eye there is...And, again, like I'm seeing things other people aren't. There is a massive, almost perfectly symmetrical cup and now handle which you might call a bull flag. It's actually in the shape of a pennant. Let's have some fun with this chart, Chris, because that looks pretty good to me.

Chris: Yeah.

Craig: I mean, we're definitely...You know, it was in a bull market, went into a bear market, base for several years, has broken out. This is the first real major, major pullback. It has broken to new highs. We've got a multi-month, at this point, we're getting close to a multiyear pullback in this bullish formation. And if this place to the upside, you know, we're gonna potentially see gold 2600, 2700 in the next year or two, if this was to pop and break and, you know, we're really stuck in this pennant formation when we zoom into it here. If I just freehand the overall all kind of price action, you can see we're kind of across this area, and more or less across these lows, we're getting right into the apex.

Craig: Yeah. We are.

Chris: Where, where gold's...it's gonna pop. And the big question is, is it gonna pop to the upside or is it gonna pop to the downside? And if it goes down, obviously we're gonna be shaking out for a little bit longer and see where things are resolve from there. But we're definitely getting into this apex and something, I think, big is about to pop. I mean, we're starting to see precious metals come to life a little bit. On the shorter-term charts, we're seeing, you know, gold and silver trade more sideways. We're starting to see a little bit of upward momentum, but when you look at the big picture here, we're really still trading sideways within a pennant to see which way the next break is gonna be here. But this is a beautiful pattern. As beautiful as it is and as beautiful as this one was, you know, it can break in either direction, you know? So we just have to be aware that if it does start to break down, we could see a pretty quick drop to around the 1,600 area which is kind of a pivot zone. It's a whole number. It's also a really critical kind of support area back over here. So we'll have to see which way this breaks, but we are very close to seeing, I think, metals and minors become a leading sector. When you look at commodities across the board, the different sectors of its agricultural commodity basket as a whole, commodities are on fire. It's a matter of time before the ernegy...or the gold stocks start to really take off and the metals themselves.

Craig: One more thing on that chart. Let's tie that back into the chart. We just looked at, Chris, I mean, to go to 2007 or '08. No, just leave chart. Fine. Let's find 2007 or '08 on that chart when interest rates peaked and then began to fall. Okay. Well, that's a pretty good multi-year run from what? Six hundred dollars to $1,900, right?

Chris: Yeah. It had a huge move all the way up here.

Craig: All right. Let's find October or November of 2018 on that chart.

Chris: Yup.

Craig: No. Okay. That's pretty broad as well. So the fed gets revealed. You know, as driving rates lower and lower, gold tends to suddenly take off. So I maybe we'll resolve, you know, that at least gives me a little more confidence that we might resolve the upside rather than the downside.

Chris: Yeah. I think so as well for sure.

Craig: All right. I know you've got a couple other it's on your mind. What else do you have queued up for us?

Chris: Sure. Let's take a quick look at the monthly chart of silver, just the grand scheme of things of where silver is kind of trading. Obviously, it had a multiyear base just like gold. It's popped outta that base. And this is a very long bull flag pattern, a big pause. And really, silver's kind of trading in this tight range. If we draw just the support level on here, we're kind of stuck in this range, these highs, these lows, but the daily chart gives us a bit better view, I think, here. Let's take a look at the daily chart and just zoom out. And if we take a look at this overall pattern, you can see we're really kind of stuck in this down near this support let level and I think we're getting close to it wanting to start to pop and break and run to the upside.

And when we zoom back...Let me go back here a little further. You can see how the range, low, and the high that we had over the last year and a half happens to also be the same range where we had, you know, the high back in 2008 more or less through the volatility lows over here. So as you know, stock charts, typically, I like to look at them almost like apartment buildings. You bust through a ceiling and you're usually gonna fly up to it to hit the next ceiling and then you're gonna ping pong around in that floor until it builds enough energy to either break through the floor or break through the ceiling. So it's pretty interesting. We've been holding in this is kind of like a bull market kind of run. This was the bear market drop. And so now we're filling and putting in lots of volume at those areas. And so when we pop and run, it's gonna be pretty exciting once we get going, but silver's in the same predicament that it's, you know, it's really just kind of channeling in this tight little range just like gold, just like miners. And it's just a matter of time before they pop. And we just really have to wait for them to pop. And I think an important level will be really just splitting this whole range in the middle. You can see it acted as resistance, support, and then became resistance. So if we can break above this high that we saw back in November, that would get us into this upper range and start to, you know, build a much bullish picture for a breakout to the upside. And when they break, I think they're all gonna run together. And silver, I think, has got the most upside potential simply because it just rips to the upside as a speculative play once everyone piles into an asset class.

Craig: Yeah. How about the gold shares or the silver shares? What do you see there?

Chris: Sure. Yeah. Let's take a look at the SILJ. Let's go to the monthly chart. We'll go to the big view here and take a look at it from that standpoint. And if we take a look at it here, you can see the range that it has traded in and really where it is right now, if we were to just draw the halfway point right through this range, either the price chopped through it, build a lot of volume through there, and then it found support, support, support, became resistance, resistance broke through it and now we're flirting down with this level. And so I think silver miners are at this... And same with gold miners. They're at this turning point, this major pivot area, "Are we gonna see that reversal and head back up to the highs, hopefully, break out from that pattern?" I hope so. And so that's where the whole precious metal sector is. Everything is independent. Everything is getting to the apex or is at long-term support. And if this market does start to rally for precious metals, I think it's gonna be pretty explosive because everything is lining up for all the different metals to move up.

Craig: Wow. We've got a couple of interesting months ahead of us, don't we? I mean, like that gold chart where it seemed like you can barely squeeze a couple more candles into that before you get to the corner.

Chris: Yup. Yeah, for sure. We're really close to seeing a big pop, I think, in pricing.

Craig: And, again, you know, like that fourth quarter of '18, everything finally really got kind of sideways and started to break down in December and then that's when everything changed. I wonder if we don't play out the same way, the next FOMC meetings in the middle of March, that might be your first-rate hike, maybe be a 50 basis point rate hike, who knows? But certainly seems like we're building towards some type of event, some type of conclusion, doesn't it?

Chris: Yeah. Yeah. And the fed, you know, the fed loves to raise rates into, you know, overbought markets in general, right? I think the last time, I think they raised rates 22 times back in into the 2007 top and here we are there, I think they've played with the rates like 25 times or something in this last bull market. And so we're right back at a point where something critical, I think, is gonna snap. It's gonna...

Craig: Gonna be interesting to see where we are next month and the month after that. That's for sure. Chris, one more chart. There's been a lot of...I mean, we're talking about the miners, right? And I think if you're in the mining shares, most everybody knows. And one of the biggest input cost for a mining company is energy, right?

Chris: Yup.

Craig: So crude oil prices going up impact your mining shares a lot of times as well, but then you look at crude, and I mean, it's the most important commodity on the planet? Energy goes into everything. And so, you know, we're talking about inflation and stag inflation, higher crude prices are gonna be another thing that, you know, regardless of what the fed does, is gonna create problems. So a lot of interesting crude, it's been moving into the 90s. What do you see on that chart? Because that's one we've all gotta keep an eye on here.

Chris: Yeah. I mean, I can't believe the energy prices. I filled my truck up last week and it was $200. I was like, "This is getting in Canada." But it was $200, which is absolutely crazy to think how much you have to spend just to fill your truck up with gas. It's absolutely wild. But when we look at the price action that we're at right now, we're at a pretty critical area. I mean, I'd say pretty much where we are here between 93 and 100 to me is a pretty critical resistance area. There's a lot of volume is traded through here. We had some chop through here. It's also the point where the market...We saw crude actually break and go into a waterfall selloff. So we're getting really close, I think, to an area where if we see a final squeeze, there's potential for it to move all the way up, you know, somewhere into these highs. This is like the 107, 110 area. Anywhere up in here to me is gonna be a level where we're gonna see big volatility, which means we could see a euphoric kind of pop and run. I feel like crude wants to push into the 100-plus mark. I think it'll be short-lived. There's a lot of volatility. Just look at this...I mean, this monthly chart kind of makes a little bland, but overall, if you look at the broadening information in general here, we got higher highs. We kind of got sideways lows. I mean, this isn't a good sign of strength. At any point here, we could come right back down to the lower end of the range. So we're into the nosebleed section testing the upper limits. But it's not to say it's not gonna go up there. I think we could still see crude oil have this squeeze. It feels like everyone in the market is gunning for 100 to 110 somewhere up into this range. So we could see a big move up, could be followed by some big selling.

And you go back on these charts, that is where massive selling has stepped in before. So anywhere above 100. And 100's a whole number. There's naturally gonna be more resistance when you get to a 100 because that's how traders, investors like to think...they're like, "Hey. If it gets to 100, I'm selling all my positions or I'm selling all my energy stocks when oil hits 100." It's just one of those whole numbers where investors tend to place the same bet, do the same thing. If you're above 100 and you come down to it, everyone says, "I wanna buy it if it drops back down to 100." So these whole numbers, these century numbers are really powerful support or resistance, depending where you are on it.

Craig: And, again, past is prologue to some extent. I mean, look at those four peaks from 11 through 15 where you got up above 100 to 110, those are some massive red candles that immediately followed.

Chris: Yeah. Yeah. Those are big selloffs, 31. Yeah. These are all painful collapses in energy stocks. You know, they get hit real hard when they get up in that level. And if we were to get up there, I think we'd see the exact same thing. I think we're gonna see a couple green bars, a big pop or something we're gonna see potentially pop up here and then, you know, it's gonna probably pull back somewhere, you know, 20%, 25% very quickly and potentially put in a topping phase or maybe trade sideways for a while. I mean, we've got this whole supply chain issue. We've got COVID still having a lot of people struggling to get workers and we've got, you know, just...I think commodities in the inflation are gonna stay high for a long time. So crude oil, even if it gets up there, we could see it trade sideways here for who knows, several years. We saw it happen over here. It trades into sideways range, expensive crude until the world catches up with supply and everything kind of starts to hopefully come back down to more, what I like to think is a normal price.

Craig: I bet you, if it gets up there, it's gonna be on your radar on a daily basis. And I, you know, the service you provide for your customers is just fantastic because you watch everything. You've got your best asset now. I'm sure there's a worst asset now that creeps up every now and then too. I always tell everybody I met you because of Eric Sprott himself. He thinks the world of your work. Tell everybody what you do and what the technicaltraders.com is.

Chris: Sure. Yeah. The Technical Traders, I provide every morning, a pre-market video. I walk you through the charts like we're doing right now. I drop down to shorter timeframes, obviously, but we cover gold, oil, natural gas, all the hot sectors, see what's moving, what's not. And whenever I put on an ATF trade, I share it with everybody. We all trade them together. We provide entry, targets, stop levels, and pretty much, you know, you can learn from my charting every morning. I usually explain what I'm doing, why I'm doing it, how to figure out these moves, and it really helps you kind of navigate the markets with any other portfolios you manage. And from a technical standpoint, we don't, you know, put in any news. So we're following price and that's the key here. We don't get caught up in any emotions. And when we see emotions in the market, which I've got a few indicators that show all that, we actually get excited because it creates great opportunity when there's volatility and panic selling and all those things. So I try to educate and follow the markets and profit with all the subscribers.

Craig: And you keep track of so many. It's so hard as a, you know, an average person that's busy with their lives and, you know, working and trying to make a mortgage and all that kind of stuff. Who has time to wonder, you know, what's going on in crude oil, you know, or copper, something like that. So, you know, just staying on top of it is great value, Chris. Keep going.

Chris: Thanks.

Craig: All right. And as we wrap up, just another reminder. Again, if you like this content, this is all courtesy of Sprott Money and sprottmoney.com. And we talk a lot about precious metals here, and obviously, the charts that Chris has showed make you wonder if, over the next 18 months or so, there might be some upside. The key is that I have found, and any financial planning person will tell you this, is to be always averaging. You buy someone that's up, you buy someone that's down, take that emotion out of it. Like Chris was just talking about. Okay? And you average in. All right. Well, that's what Sprott Money is there for. You can buy all sorts of bullion, bars, coins, maples, eagles, they've got them and always at competitive prices. And if you want a place to store it, they can take care of that as well. So, again, go to sprottmoney.com to thank them for this content. But if you want, pick up the phone and call them. You can do it the old-fashioned way too. 888-861-0775. We've been talking with Chris Vermuelen of the technicaltraders.com. Chris, at least where I live, we'll be working on springtime by the next time we talk. But, man, I'm curious to see where the markets are by next month as well.

Chris: Yup. It's gonna be an interesting turning point, that's for sure.

Craig: It is. And I will look forward to visiting with you. Thank you so much, my friend. Great to visit with you.

Chris: Yup. Same here. Take care.

Craig: And from all of us, "Sprott Money News," sprottmoneynews.com, thanks for watching. We'll talk to you again in March.

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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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