Moving Closer to a Huge Leg Up in Precious Metals - Precious Metals Projections

Craig: Welcome back to your precious metals projections for the month of January 2022. We're kicking off a new year here at Sprott Money. And of course, this free service is available every month from Sprott Money. I'm your host Craig Hemke and joining us as usual as Chris Vermeulen of the technicaltraders.com. Chris is one of Eric Sprott's favorite technical analysts, and it's always fun to get his thoughts every month. Chris, nice to see you again.

Chris: Yeah, thanks for having me back on the show, Craig.

Craig: As I mentioned, this is a free service from Sprott Money. So be sure to thank them by checking out all the inventory at sprottmoney.com. They always have great prices and great deals on physical metal storage as well. You can go to sprottmoney.com to check it all out. Of course, you can give them a call at (888) 861-0775. Chris, boy, what an interesting month. We wrapped up December with the metals up pretty strong, drifting higher and looking like we'd maybe roll that into early January. And then we came out of it, shoots in January, just getting drilled the first and what? The third trading days of the month. We took it pretty hard, but have since balanced. So there's a lot going on. We'll just kind of start there. One of the key drivers obviously with the precious metals on any daily basis, but then kinda long-term too is the dollar index. So as you pull up the chart of the dollar index, maybe just give us your thoughts in general about how the year has begun, and then we'll just talk about the dollar index and where you think it might be heading.

Chris: Sure. Yeah, well, taking a look at the dollar, I mean, you know, looking at it from a long standpoint, going back to, you know, mid-2016, we had this upper range. We hit again that same level in 2020. We got this lower range. It hit down in early 2018. We came right back down to those levels. So, I mean, the dollar is in a huge range. But when we look at it from a closer term, a shorter-term timeframe, the dollar is putting in what looks to be a double bottom, a rounding formation. It has a series of bull flags. And right now, it's in a very strong bull flag pattern, and we're starting to see some good traction this week already, a nice pop in the US dollar, and really this chart is pointing to higher prices for the dollar.

And I think there's a lot of things that support this. But, you know, this reversal, as you and I were talking just before we went on camera here, you're talking about this low that we saw back in 2020 with the dollar how it crashed down to this level. Well, it acted as a really clear resistance area over here. Again, it acted as resistance back over here. And now that we're above it, it is acting as support, and we've got a very strong bounce off that. So it's gonna be very interesting to see where the dollar goes and, you know, there's a lot of things I think supporting the US dollar, which is all based kind of around the Fed. I think we're seeing...talking about interest rates going up, I mean, when rates go up, it's usually good for the underlying currency. Investors wanna move to currencies that have higher yields, higher return.

Also, when the stock market becomes fearful, we tend to see the US dollar rally as a cash safe haven or the place to liquidate and store your money. And I think we're starting to see people front-run the Fed. Big money, I think, is starting to be like, "Hey, I wanna sell my stocks before the fed starts dumping their massive amounts and drives the market lower." And so that's got fear helping the dollar here, I think, and that's part of the reason why we're seeing some selling pressure in the stock market in general. So there's a lot going on and the US dollar is stuck right in the middle of it.

Craig: Well, I'm glad you've got that long-term chart up there because, you know, obviously the dollar is a focus of precious metals trading, but it's often just a headwind or a tailwind. You can see it sometimes intraday when the algos take over, it might move tick for tick and, you know, in the opposite direction. But you've got that long-term chart up there. And, you know, in my forecast here I wrote a lot this year. I wrote a lot about how...this year's a lot like 2010 or even 2019. You know, the Fed's talking about tightening and all of that just as they were in 2010 and as they were in late 2018, but instead they went the opposite direction. And as you can see on that chart, though, Chris, if you can kind of point out to everybody where the dollar was at the end of 2018, yeah, look at that, about where it is now. And as the dollar trended higher all the way through 2019, what did gold do? You know, gold rallied that whole year from about 1,200 to 1,500. So it's not inconsistent...Stronger dollar is not inconsistent with stronger metal prices, I guess, is what I'm trying to point out.

Chris: Yeah, for sure. And gold, gold's, you know, obviously it's not tied to the dollar like that because gold is kind of as that global safe-haven. People naturally, when they're worried about stocks, or they're worried about other things, they like to go to a physical metal, or a physical asset, sorry. And gold, you know, isn't just driven by Americans or North American traders. It is driven by, you know, countries that believe in a precious metal and they wanna hold something. So that's why I think we see those rally together. I think we're gonna see the same thing happen again.

Craig: All right, Chris. You mentioned that's one part of the leg of the stool, I suppose. Another one that everybody's focusing on right now are interest rates. As we record this, we're about, oh, I guess, seven or eight days away from the January FOMC meeting, where we get another Powell press conference and some discussion I'm sure about what the Fed's plan are, at least at this point, or short-term Fed funds rates as we go into the year. Lots of people out there talking about two-rate hikes, three-rate hikes, seven-rate hikes. Then you've seen that play out particularly already this year. The rates have spiked in the two-year note, 10-year note. As you look at the bond market because this is so important, what do you see?

Chris: Yeah, the bond market...I mean, really, there's times, believe it or not, bonds aren't a safe haven all the time. When the stock market typically falls, bonds can tend to hold up all right. And over the longer term, they can do okay. But I kind of feel like that is gonna be over going forward. I think bonds have got a lot of different headwinds going for it. And when we look at the chart of bonds, I mean, they have been out of favor since the COVID crash. They haven't acted really as support on any real market corrections. And, you know, they're kind of just trading sideways here. And I think they're gonna probably trade sideways in a range for a while. I don't see rates going, you know, absolutely ballistic. I think there's gonna be waves of fear in the market that sends people buying bonds and we're gonna see, you know, the yields come down.

So I think we're gonna see bonds in this big sideways pattern as we get in this late stage, I think, of a bull market in equities. And what I wanted to show you here is actually a pretty interesting chart. If I was to pull down this other chart here and you looked at these two charts, and we just kind of sized them up, they look very similar. In fact, they're both TLT, except for this one here was back in 2008 and then...It's 2008, the bottom of the crash happened. We saw the big pop in bonds, and then they fizzled down, they rotated lower, and then they traded sideways. And, I mean, this was a big move of everyone piling into bonds as a safe-haven play. And then eventually, they wanted to get out of bonds.

And they were still scared of stocks because the stocks had just gone through that financial crisis. They didn't know where to go. Where did they go? They went to gold. And while bonds traded more or less flat and dead and sideways for a long time, precious metals shot through the roof as the choice, the safe-haven choice. And that to me is where we stand right now. This is a really interesting relationship and scenario that I think is repeating. When the stock market does start to collapse here, we're gonna see precious metals become one of those plays that I think investors are gonna want to go to because I think some very savvy investors are also worried that this, you know, 30, 40-year bull market in bonds could eventually burst and they might not be that safe-haven play.

And in fact, if we just take a look at bonds here, I mean, you look at TLT, and we'll just zoom into 2021, I mean, from the peak high down to the low, like who would've thought bonds could drop 22% in a week and a half. And so there's a lot of volatility in bonds and you really don't want to be, you know, long something if it bursts, unless you've got protection. You know where your stops are, you know how to manage positions. But that's a really interesting scenario I wanted to kinda share there because these charts are pointing to a repeat of the next leg up in precious metals becoming kind of that supercycle to the upside. I've talked about it a couple of years ago saying, we're getting closer to, you know, a huge leg up in metals and potentially the mining stocks as well.

Craig: Well, and on a fundamental basis, if you're right, and if nominal rates go sideways and the Fed is unable to really pull inflation back, and inflation expectations get entrenched, then sharply negative, real interest rates get entrenched too, and that's something that spills over to the precious pedals. That's a fascinating...I wouldn't call that a coincidence, Chris. It sound's like [inaudible 00:09:36.356].

Chris: Yeah, It's a pretty neat chart when I came across was like, "Wow, this is like the perfect storm setup for physical metals." I mean, it's a rinse and repeat. But as you know, the markets they don't generally repeat, they just kind of rhyme. It'll be something similar I think, but it'll happen in a very different way. It's very hard to just copy a move and see it play out the same. But yeah.

Craig: All right. Well, let's move to gold prices, at least COMEX gold in the gold futures. Interesting to watch as the year has begun, because as I said, we were kind of rallying into the end of the year, and now rates have shot so much higher with that yield on the 10-year notes up 30 basis points, I suppose, at least year to date. The dollar's been going down and here gold has really held firm above all of its key moving averages. It's holding 1,800 as well as a kind of psychological support. What should we be watching from here in your perspective?

Chris: Yeah, gold hasn't quite broken out yet. I mean, from a short-term standpoint, I'd be looking somewhere this 1,833 area as a level of resistance. I'd be looking at this short-term low. Ideally, we wanna see gold pop and rally here. We've had a really strong rally. It's had a nice pullback into the 50 and 20-day moving average. And if it can start to break this high, which is pretty significant, it's not just this high, it's actually a level over here that was high, a high, a high, and a consolidation through here, this is a really critical pivot point on the chart. Now, it did break it before, but the wind got taken out of the sails again. But I think this time around could be different. I feel like when we look at the gold chart and we zoom back, gold has gone through its kind of decline phase.

And to me, it feels like it's more on this kind of consolidation, the stage one kind of basing stage. And I do feel like it's gonna break and eventually start to pop and run above this level. So those two short-term levels break to the upside. Obviously, it's gonna be very bullish. If we break to the downside, we could continue to see gold, you know, drift down and go a little bit lower and take its sweet time to start this rally. We all keep waiting for it and it's just dragging out, and the market loves that. If it doesn't shake you out, it'll wait you out. And I think it's getting to that point where it's waited most people out. This is a pretty gnarly chart. This is not the type of chart I like to trade. I'll wait for a strong trend. I don't mind getting in at a higher price when it's got tons of momentum behind it and you just catch a big trend. You won't catch me messing around in this back and forth stuff. So that's kind of where we stand with gold.

Craig: You mentioned that momentum, that's one of the, I guess, pluses of this long of a consolidation is everybody now sees those levels, right? It kind of becomes a self-fulfilling prophecy as it moves higher because so many people have been waiting and watching the same levels.

Chris: Yep, yep. Exactly.

Craig: Well, we'll keep an eye on those to the upside, hopefully, maybe later still this month. Again, as we record this on the 17th of January, we're about a week away from the next FOMC. But also here on the 17th of January, we've got quite a commodity rally going. The dollar is rallying today as the stock market is down and the bond market is down, but commodities, just in general across the board, are having a very good day. Now, there may be, who knows? Some fundamental reasons for that. But let's talk about silver because it reversed strongly earlier today, bouncing from below 23. And now as you pulled up there, moving above some key moving averages, particularly the 50-day moving average too. And so with that as a setup, what level should we watch if it were to start generating some upside momentum?

Chris: Well, yeah, I'd argue today, it is generating upside momentum. If it can break, you know, this blue line here, these blue lines, this is a new higher high. We've got a higher low, and that's the definition of a new uptrend. And it's got a nice rally, a nice quick pullback, and it's pushing higher. So there's some good upside momentum here short-term for silver. It's got a nice bull flag. And just based on, you know, this very small pattern here, we can look at the range. I mean, silver's got potential, you know, in the next day or two to pop and rally to 2,423. That would be that measured move. Now, the 618, this is a level that I always look at typically if price runs and hits 618 and pulls back for a little bit. Typically, we're gonna hit that 100% measured move, and it actually looks like we did that today. We hit it dead on and it's pulling back a bit trying to hold above this resistance area.

We'll see if it can hold. There's gonna be extra selling pressure here because its previous resistance it acted as a consolidation, as a support zone, consolidation. But overall, I mean silver's showing signs of life and breaking out. So that's a really good sign. And I like the look of that. I haven't looked at the minors. They were trading sharply higher. They've given back a bit, but they've got a similar type of pattern. I wanna see the minors actually kind of lead the way. I wanna see the minors break above this line. We've got a bull flag pattern forming out. So we need to see these gold minors here break above here.

And if the gold minors break and silver breaks, I think we got a speculative rally kind of starting on our hands that could lead to something much bigger. But as you know, the precious metal sector and minors have had pretty negative returns, very choppy charts. And at this point, you know, it's still in a downtrend, it's still basing. I wouldn't be jumping in anything here. We really wanna see it start to break and run, and we might see a measured move going up from here. But it just hasn't fully come to life yet, but I can see life starting to brew because the markets are down big today, commodities tend to be holding up very well and moving against the stock market, which is a very good sign.

Craig: Chris, one last thing before we get to our last chart. You made me think of something on that silver chart. If you can go back to that one for just a second, you mentioned a measured move and an upside target of 23 and change 23, 25, something like that. All right. Take that purple and that blue line off of there and give me a 200-day moving average. Would you? And let's just see if that isn't about that same spot around 2,330 or so because that is a level that has been problematic as you can see offered some support back there in July, but it was stiff resistance in August and also very stiff resistance back in November when we tried to rally to 2,550. Where is that 200-day moving average now?

Chris: So that 200-day moving average is at roughly 2,475. It's right here.

Craig: Okay, it's a dollar up.

Chris: And as you can see, it acts...you know, when price breaks that, we see pretty big trend changes take place. So there's definitely that headwind, you know, lurking up there, which really also coincides with a lot of volume. You know, we got a lot of highs through here, a lot of lows. So there's naturally gonna be a ton of volume. If we put price by volume on here, we would see a lot of bars across here saying, "Hey, there's a ton of supply up there that anyone who's bought at that price through the past, which is a lot of people, when it gets there, they're gonna be like, 'I'm done this rollercoaster ride. Get me outta silver. I'm tired of it. It's not going anywhere. Give me my money back.'" And so that'll create that overhead resistance. But when we do, and if we do break it, we should be off to the races and it will probably very quickly go right back up to 28, 29, I think, in a flash. Silver can move pretty darn quick.

Craig: Right. And like gold, there are these clear levels there that people will be watching that may continue to act as resistance, you know, for a few more weeks or a couple of months, but boy, when they go, everybody's gonna notice it at the same time. Okay, let's look at one more chart, talk about everybody noticing things. Everybody follows the stock market, right? So let's use the S&P 500 as a proxy for the entire stock market. I've asked you to pull up the 50-day moving average, or I think maybe that purple line. Is that a 20-day?

Chris: I'll bring the 50-day back here. Let me grab that.

Craig: Now this, again, cash S&P, that blue line is the 50-day moving average. And as the Fed's been pumping cash every month, some of it gets into the stock market. It gets levered up multiple times. And look what happens every month. For the last really 18 months, look at how far back you can go. S&P pulls back, taps that 50-day, moves to a new all-time high, taps the 50-day, moves to...I mean, it's a pretty regular pattern. Brokedown for a little while last fall and then, of course, just surged to a new all-time high. And now, look where we are, Chris. Interesting little spot here.

Chris: It is.

Craig: What do you see? I mean, I look at that, I have all that thing and I think, "Boy, 4,500 looks to be like a very important level. That's another 100 points down or so. What do you see, though?

Chris: Yeah, I mean, the market is definitely feeling toppy. I mean, we're just not seeing...All of 2021, I mean, the growth stocks, the high-momentum stocks completely died. 2020, everyone, the whole world piled into the stock market. You know, you saw the ARK ETFs, they happen to get into, you know, all those really strong momentum stocks, got everyone's attention, and everyone really piled into them. In 2021, it was dead. All that money gave up, moved out of the market and sectors have been struggling. In fact, all those high-momentum stocks and sectors are trading lower. I mean, let me give you just a really quick visual, like ARKK, any ARK ETF, though, if we were to just look at it, everything topped out in 2021 and it's been moving sideways and lower, and that's how most sectors have been moving.

And if you think about it, if all the speculative money is flowing out of this market and more and more stocks are hitting new lows or are, you know, continuing to make lower lows, and yet the stock market keeps hitting all-time highs, which it did just a couple weeks ago, that's a sign of serious weakness that the market is rallying with really only a handful of big stocks holding all the weighting. And when it does reverse and roll over, things could get pretty ugly. We could see the market have a big correction, which is kind of leads me into where I think we are now. I think we're getting very close to the stock market potentially getting a little more gnarly and breaking down. At this point, though, we do still have a series of higher lows, we have a series of higher highs, and this is, you know, still kind of channeling is what it's called. It's going between resistance and support channeling its way higher. So we'll have to see how things go.

Today, VIX is up big. We have panic selling on the New York Stock Exchange, meaning most shares are being sold on the bid. People are just dumping shares. When we get those type of panic selloffs, they happen...we had one right over here as well. We're back in that type of scenario. So we need to see this market reverse because if it does start to break down, it's gonna get pretty ugly. And if it does break this 4,500 mark as you said before, that could be the start of a much bigger unwinding that'll bring us right back down to these lows over here. So this market is at a pretty big turning point depending on what happens here, and it'll be interesting to see how precious metals move going forward.

If the market rallies, do precious metals and minors become a leader, start to outperform? If the stock market crashes, do precious metals and minors actually hold their ground really well? They will be under pressure if the stock market does start to crash and sell-off, but they might hold up really well. And then as soon as this market starts to trade sideways again and consolidate, that's when precious metals can go by leaps and bounds to the upside and become a market leader, which I've been talking about should happen early this year. So we are at a really critical turning point. There's a lot of fear in the stock market today. All last week, there was a lot of fear and you can see that in the VIX, you can see that in the waves of panic selling volume on the New York, and that's the roller coaster ride of being in the stock market.

Craig: Yeah. And it's not over yet. It could still bounce, as you said.

Chris: Oh, for sure. This could be a really good pivot low.

Craig: Yes. But as you also mentioned earlier about history rhyming, this certainly has a lot of the look of late 2018 where the bond market had sold off, the 10-year note had gotten to three and a quarter. Okay. And everybody was thinking that rates were only gonna go higher. In '19 Goldman Sachs, JPMorgan were calling for four more Fed funds rate hikes in 2019. But then the stock market broke, which is showing right there. And over the course of a month, it fell 20%, and that changed everything. So we'll need to watch the stock market pretty closely. And, Chris, your input every month sure does help.

Chris: Wow, I'm glad.

Craig: Well, I very much thank you for this. And I think we all should thank Sprott Money. Again, this is free content that we put out every single month, and I think is extremely valuable, especially as we end in this really volatile year ahead. So, again, please visit sprottmoney.com for all your gold bullion and silver needs, but also visit the Sprott Money storage page. Check out if you need a safe and secure place to store your metal. They can do that too. Always great deals. But, you know, it can just be as simple as supporting Sprott Money through a like or a subscribe on whichever channel you like to watch these podcasts. So, again, just please make sure you keep Sprott Money in mind anytime you're in the market because this type of information, you need as much as you can get when markets are this volatile. So, Chris, thank you so much for your time. I sure look forward to visiting with you again in February because I think the next couple of weeks are gonna be fascinating.

Chris: For sure. Well, thanks for having me on the show, Craig. Always a pleasure.

Craig: It's always a pleasure. You are absolutely right. And everybody here at Sprott Money, thank you for watching, and we'll have another precious metals projection podcast next month.