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“Critical Tipping Point” for Dollar, Precious Metals, Stocks - Precious Metals Projections, October 2021

Precious Metals Projections with Chris Vermeulen

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Expect a volatile thirty-one days as we dive into the month of October, but should you really be scared? Host Craig Hemke and analyst Chris Vermeulen of the Technical Traders break down all the gold and silver charts you need to separate the tricks from the treats.

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

  • Signs a deeper market correction could be coming
  • Levels to watch in gold and silver
  • Plus: Long-term projections for natural gas 

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

Craig: Welcome back to your Sprott Money News Precious Metals Projections, our monthly podcast we put together with Chris Vermeulen of The Technical Traders. We're now into October of 2021. It's time to check in with Chris again. Chris, nice to see you, my friend.

Chris: Yeah. Thanks for having me back, Craig.

Craig: Hey, it's fun we do this every month. It's actually fun to go back and look at what we talked about last month and the month before that. Look, this is all free information that Sprott Money puts out. Whether it's videos like this, some of the other stuff that I do, like, you know, The Monthly Wrap-Up, the Ask The Expert, all of that's free but that doesn't mean that it comes without a cost. So please be sure to support Sprott Money, whether that's by just simply liking or subscribing to whatever channel you're watching this on, or, you know, heck, prices are getting pretty low. If you're in the market for physical metal or a place to store it, make sure you go to sprottmoney.com as well, or just give them a call. They got friendly people waiting to just stand by waiting to help you. And that number, 888-861-0775.

I know a friendly guy who's on standby waiting to help. His name is Chris Vermeulen. Chris, you know, as we dive in this month, you know, we talk a lot about the Dollar Index and kind of what a scam it is because all the Dollar Index does is values the dollar against all the other equally worthless fiat, you know. And if the Fed is going to print them just as fast as the ECBs printing euro and the Bank of England's printing pounds and the rest, then relative to each other, they all decline the same. And then, oh, look, the dollar is stable, but I digress.

A lot of the trading machines and the algorithms are written to either buy or sell precious metals futures intraday based on movements in the dollar. So we better start there. What do you see in the Dollar Index these days?

Chris: Sure. Let me, yeah, let me pull my chart up here. Let's take a look. The Dollar Index definitely...let me just get this chart. You should see my chart there.

So particularly with the U.S. Dollar Index, this is the weekly chart and it's pretty small on here, but if we were to just zoom in a little bit, you can see here we've got a big potential double bottom here in the U.S Dollar Index, and right now we're flirting around this 94 level on the chart, and it's a real critical kind of pivot zone on this level between the peak of this W formation, this W bottom, and this kind of consolidation through here. If the dollar does break to the upside, we're going to see a fairly significant run.

Typically, the depth of the W, so you take these lows to the top of the middle part here, that's usually the breakout momentum to the upside. So we could see a pretty big run to 98 a dollar going forward, and that would probably put a lot of pressure on metals and commodities going forward, but we're still flirting through a lot of congestion through here. It hasn't really fully broken out. Once we get above these highs here, that'll be a real clean break and we can see a very swift run, but right now we're really trying to see if the dollar is going to reverse and sell-off here and then we see precious metals actually put in a significant bottom, or is the dollar going to start to break and run as fear in this market continues to climb?

Typically, when we see panic in the stock market, people liquidate a lot of assets and they move to the dollar, and that's what we saw last week. A lot of fear, the dollar had a strong run-up last week, and so we just really need to see how this tipping point, the dollar's at resistance, precious metals are at support, which way are things going to break here? Are they going to bounce or break out depending on the asset class? It's going to be pretty interesting.

Craig: Yeah. You know, a lot of it depends on whether the Fed can actually follow through with trimming their QE and, you know, playing that whole game as we get into the end of the year and beginning of next year. We don't have to go back too far. God, I mean, you and I both remember 2013 and 2014, the Fed was doing a trillion dollars of QE3, but then all of a sudden they talked about tapering and all that jazz. And so, all of a sudden a few less dollars being printed than there were euro and the dollar index went from 80 to 100. So, and we know that wasn't any fun in the commodity markets.

Chris: No.

Craig: So let's talk about you've got the stock market there. Again, it has been a pretty steady climb really since QE restarted back in March or April of 2020, consistently bouncing off those moving averages. Well, why? Why not?

I mean, the Fed's printing $120 billion a month. Most of that flowing through the primary dealer banks. It just takes a little bit of that cash, goes into the stock market, gets levered 10, 20 times, and hey, by the dip, if the Fed is going to start, you know, pulling the punchbowl away, well, then maybe. And now look, look at that chart you got there, Chris. It sure looks like maybe it's starting to roll over.

Chris: Yeah, we're right at a real critical tipping point for the stock market. When you take a look at this type of pullback, pretty much through September, we had this three-wave correction. Well, interestingly enough, last September we had the exact same three-wave correction. So it's going to be interesting to see how this market goes.

Last week, I had a cycle low in the stock market so we'll see if that cycle bottoms and if we actually get traction through October or at least the first half of October, or is this market going to break down and bleed out and really pick up speed, which is what could happen just like over here when we saw, you know, the first initial claps. If this bottom area doesn't hold, which is similar to where we are right now, we could see a much deeper market correction going forward.

So we're really just hanging on by a thread, the U.S. equities market, the NASDAQ, the Russell, the Dow, S&P 500, just hanging onto a thread. Things could get really ugly, or we could have a very sharp rebound over the next 5 or 10 trading sessions. So this is a pretty critical pivot point I think for a lot of assets, the dollar, metals, stocks, and so there's a big move brewing really between all of these things.

Craig: What do you make of the amount of time that the cash S&P has spent below its 50-day? Because you know, that 50-day line on there, it just keeps bouncing maybe a day or two below. Now, we've been below for a couple of weeks.

Chris: Yeah. We've definitely broken below it, and we came back up and we kind of just stayed above it for a little bit. We kind of got stuck at this pink line, which is the 20-day moving average, and we've rolled back over. We're pushing down to some new multi-week lows. It's not good when you're stuck under the 50-day this much, when you kind of just get your head above the water, and then it gets sold back down. So definitely the fact that the 50 is sloping down, the 20-day is sloping down, it's also below the 50 day. It's telling us, hey, there's some momentum to this downside. The trend is flipping down and we'll see if it can find some traction, but overall it's definitely not looking good short-term here for the equities market.

Craig: Yeah. You know, and some people think, well, that's good for gold. It gets a safe haven bid but at the same time, man, we don't want to get into some kind of global margin call, you know, liquidation, just dump whatever you can to raise cash environment either.

I mean, let's play this out a little bit. Where would you see some support? Is the 200-day moving average down there somewhere or is there an obvious spot on the chart where you would look for a bounce?

Chris: If we were to look at the 200-day moving average, let me just throw it in here real quick. Let's take a look. Two hundred day moving average, it's way down here, 4133. Let's take a look at Fibonacci extension. Let's just use the momentum that we saw in this first sell-off, down to this week low, this rebound back up and we carry that forward.

You know, we're looking at 4215 on the S&P 500 cash index. So not a whole lot lower from where we are. As of you and I speaking right now, it's only about a percent and a half down from where we are, and we'd still hold above this 200-day moving average.

So I think a lot of this downward momentum should be starting to stall out here, but we're definitely seeing a lot of sectors are trending lower. They've gone into a topping phase. Some of them are starting kind of their own little bear markets, so we're definitely seeing weakness. We're not seeing a lot of sectors hold this market up at all really. Most sectors are breaking down, which is not a good sign.

Craig: Yeah. So we'll see. You know, the next Fed meeting is when that'll be. We'll probably record our November projections before we get to that next Fed meeting in early November. So it's going to be a volatile month and everybody knows, you know, October's full of interesting market history. Let's turn our attention to gold and silver.

I remember last month, Chris, we talked, we discussed the daily chart of COMEX gold, and we noticed back in March, price had come down and double-bottomed in early March and late March at about 1680 or so. And you mentioned last month, you said, well, you know, it kind of did this little arch and came back down and double-bottomed. Wouldn't surprise you if we didn't do that again off of the 1680 lows from early August. Gosh, it's certainly kind of playing out that way.

What if we instead drew a line at 1720? You can sure see that same kind of arch pattern playing out. In fact, I'll tell everybody, I had a little fun count in the candles myself back on Friday at my site. There's 16 days that we put in that arch in March.

Chris: All back over here.

Craig: Yeah. That's 16 days. Exactly eight days up to the inflection point and then eight days down. And then if we do it that same arch in August through September, it's 18 days up to the inflection point and 18 days down. Pretty remarkable. What a symmetry, but anyway, that's enough about me. What do you think?

Chris: Yeah. Well, we've definitely come back. You and I talked about it. You and I were talking on one of these days right in here because we just had done the August...we were a little late I think in the August projection meeting here. We talked about how it could take a month or a little bit longer and it could come back down, and here we are back down at this level. And the question was, is it going to find support around where these wicks are or is it going to go all the way back down to these, you know, the spike low that we saw on that one big sell-off day?

So that's the big question, is where's the gold-headed from here? Is this a new kind of double bottom, and maybe it's going to get some traction or are we going to go all the way back down for some sell-off and some dip now?

When we look at it, I kind of almost feel like it may want to come all the way back down there because if we take a look at silver, silver's already kind of done that. Silver has already come down and broke below, and then we really broke below this $22 level.

I mean, when you draw a line across this chart, 22 is a pretty significant level. We broke below it for a one day, closed back above it, and, you know, it's already done that double dip and it's already broken down and silver can sometimes be a little bit of foreshadowing of what's gonna happen. And same if we look at gold miners, I find they're a little bit actually more of a leading indicator. Gold miners continue to make lower lows. So they usually happen first, then you see gold follow suit. So I think there still might be a little bit more pain in the precious metals sector.

If we do see the stock market sell-off and we see some big, broad market panic selling, that'll send the dollar higher. Typically people liquidate, we find people move the U.S. dollar to sit as a cash kind of reserve temporarily, and a rising dollar could put some pressure on metals and we get those margin calls. It doesn't take much for a margin call for most people's trading accounts.

Most people are always over-leveraged. A lot of them are using leveraged ETFs, which they don't understand the margin requirements for two times or three times, which is the ridiculous margin requirements. And so, it's super easy for people to get a margin call on just a 1% or 2% down day in the market or a pullback. It doesn't take much. So that's kind of the bias I have is still, you know, bearish to neutral on precious metals here.

Craig: Yeah. And in sticking with silver, Chris, that 22 level obviously a key level to watch. Maybe ransom stops last week, got a back above on the weekly close, but it still, man, you're right. If the dollar pops, well, you know, what's going to happen next.

So let's just, I mean just eyeball the thing from 37,000 feet. Is there a downside level? I've been kind of watching maybe something below 20 for a spike down, but on the bright side, is there a level moving back up where you go, oh, okay, maybe the worst is over for a while?

Chris: Yeah, I guess for the downside, I mean, I think we may have kind of almost reached it. Just based on this last big drop and this bear flag in this move, I pretty much think, you know, we actually have done that full measured move almost. Yeah, we're pretty much there for silver. Pretty much came down there.

Now, you know, for a new upward move to happen, I would want to see a couple of previous, a couple of highs be broken. So if we were to rally up and then pull back and trade sideways and then say rally up from there, if we can break two previous highs, that's gonna create two kinds of resistance breakouts. I consider that a momentum move to the upside.

Once we've broken through two ceilings, we now have upward momentum, and then any pause or pullback at that point can likely be bought and we should start a new uptrend but it's going to take, you know, this kind of formation. It's going to take time to kind of create this pattern. So that would be kind of ideally what I'm looking for.

Probably there'll be some high-end here, and then when we break and close above 25, that'll be that second standout high. And then any pause or pullback really could be bought at that point because we'll be making a series of higher lows, we'll be making a series of higher highs, and we're off to the races.

Craig: And to the downside, if we give it 22 gives way?

Chris: You have 22 gives way. I mean we've already hit this measured move, so it's hard to grab a close pattern. We could potentially grab these highs over here, down to this final kind of drop here, and then over to this one, expecting that this here is kind of the halfway point. And then we could drop all the way down to around 1870. And if I was to just draw that on the chart, you can see that would be the sell-off, you've got the bear flag, and then you've got that second half of that sell-off. So 1870, 19 is kind of in a level that I've been telling subscribers. I'm like, that could be the next major support level down there.

Craig: Yeah. Well, we'll continue to stand by. It's not going to zero. We feel pretty good about that. You know, as I always have to tell people to, you know, no uptrend goes to infinity and unless you're in, you know, some stock that goes bankrupt, nothing goes to zero either. So the trends will eventually change, but we got to stay on top of them. You don't want to get wrong footing.

Chris: Yeah. It's not in the clear yet. I mean, metals are still under pressure.

Craig: Last month we took a look at uranium on the way out because that was and still is a rather interesting chart. One of the things I've been keeping my eye on though, too, as we head into winter is natural gas prices, Chris. Man, oh man. You know, even in crude oil has been roaring as well, but gosh, natural gas and, you know, a long cold winter is even fraught with geopolitical tensions as well.

You know, Europe gets almost all a lot of their natural gas, I should say, from Russia. The politicians will always be looking for someone to blame, right? What do you see on that chart, especially, you know, in the short term, I mean, moving up maybe up through six, but what do you see in the longer term is we're not forecasting the weather here obviously and that's going to have a lot to do with it.

Chris: It will, yeah.

Craig: But the chart itself, how does it look?

Chris: Yeah, so the chart's definitely showing a lot of explosive power. I mean really just in the last month or so, we've seen this huge run percentage-wise, sharp pullback. It rallied up to another big spiked high and pulled back, and now, now we're at this really high volatility stage where we'll see a big sell-off, the very next day it's a huge rally, the next day a big sell-off.

So we're definitely in the high volatility, it's kind of like throw a dart at the wall and hope and pray it moves in your favor. Very dangerous. Daytrading wise, this is great. From a day-to-day standpoint, you could take a real big hit at any given point. These are 6%, 8% swings on a daily basis from the high to the lows.

I was talking to subscribers this morning and I like to look for a pattern called three surges to a high. So when you get very aggressive, big rally followed by a very sharp pullback, another rally followed by a sharp pullback, and it's that third surge or spike to a high. Once you get that and it reverses, it can create some serious damage and lead to a very big pullback in the market.

And so, if we were to go and take a look at that 37,000-foot view, look at the monthly chart of natural gas, you can kind of see how we have these cycles in the market. You've got, you know, a cycle here, you've got a cycle out low here, you got another cycle low here. More or less natural gas seems to rally up into this range right across this area. This is kind of like the average minimum. And so we've popped through that, just like we popped through it over here. We kind of popped through it over here, and so we're in one of these cycle highs.

We're already started through here this next cycle, and we've got a bit of that energy crisis, we've got cold weather, so this is really nothing out of the norm. Natural gas has these explosive moves, but as you can see, they kind of take several years to unfold when it comes to this. There seems to be a crisis or some cycle in weather that just kind of come together and they create these magical pops in natural gas.

They are short-lived just like most crisis, it's like a panic phase. Just like in lumber, everybody panics and it just creates these euphoric pops that eventually drop as well. So right now, I mean, it's ended up trending super strong. We've got crisis galore, it seems, but typically once you know about it and everyone starts to know about it, it seems to fade away.

So I don't think there's a whole lot of upside left in natural gas, but these bubbles you never know. I mean, for all, you know, it could spike to 14 like we saw back in 2008. So you don't want to pick a top in a bubble just like trying to pick a top in Bitcoin, something like that. It's painful to try to pick a top.

If you're not in it now, you're better to wait for it to reverse and give a new sell signal, potentially play the downside, but it's volatile right now as we saw on the daily chart. It's just a 6%, 8% swing day to day, and that's just the average. If there's a big move, it'll be a 10% or 15% day easily back to back and it could go against you, so it's dangerous.

Craig: They don't call that the widowmaker for nothing, do they?

Chris: Exactly, yeah. It's a painful commodity to trade sometimes.

Craig: Yeah, no doubt. All right. Hey, and I was gonna end with you there, but you mentioned Bitcoin and that made me think I didn't warn you I wanted to go there, but you know, it had this surge over the pre...when were recording this on the 4th of October, last weekend, it had this surge, and there are a lot of folks I've seen on Twitter that say, oh, watch out, October's always a pretty good month. You know, and a lot of people follow the hash rate, and there I've seen some great charts with Bitcoin with halvings in the past and the like, just from a straight PA perspective, how's it look to you?

Chris: Yeah. So, I think it's in a massive consolidation phase because it had this giant bubble. I think it has the potential to continue to trade sideways for another five or six months within a big range.

It could oscillate between 50 or 55 and down 30, but when you look at it, just, you know, based on this pattern where we are right now, I mean, we've got just like we've seen in the past, you get a rally up, you get a bull flag, you get a rally up, bull flag, rally up.

You know, we broke down, we put in this bottoming pattern. It kind of broke above this resistance, and now we can say, hey, this is rallied up. It's just had a pull back. It's starting potentially another rally, and I mean, we can use Fibonacci extension, get an idea for where that upside target is.

It's right back up near those highs, which is typical price action, typical Fibonacci. You know, it'll bring you back up either the 618 or the 100% measured move, typically to the most recent high.

It's just the way the markets move because they kind of bounce. They have balanced moves, just like you showed on what was it? It was gold. It's like eight days up, eight days down last year. This year it's 18 or 17 up, 17 down. Well, these rallies and sell-offs do the same thing percentage-wise.

So you can see, we could go right back to 1637 based on this rally. That's the next upside target that would be potentially. It's naturally going to find resistance there, maybe it puts in a big bull flag, which you could also argue could be a giant cup and handle pattern, which points to dramatically higher prices. You're looking at a $100,000 Bitcoin, right? So it really just depends on the timeframe you're looking at this right now. I mean, it looks like it's kicking back into an uptrend short term on the daily chart.

Craig: Yeah. That top, it gets back up there again, that's going to get a lot of people's attention.

Chris: Oh man, yeah. It's going to. I think a lot of this, if it breaks to those highs, I think there's going to be another euphoric phase really quickly because I think a lot of people missed out on this last big Bitcoin run. And I think a lot of people will just be like, "You know what, I'm getting it on this one," and who knows where it could go, right?

And I kind of feel like it's the same for the stock market, the Russell 2000 in a way. It's been trading sideways, a ton of people missed the mega rally last year in sectors and stocks, and this year has been a really kind of pretty tough grinding year for most sectors in the wrestle, but if we do break to the upside, a lot of people are going to be like, you know what? I am not sitting aside this time. They're going to pile into stocks, pile into Bitcoin on these next breaks, and they're going to recover so quickly that people, they want to get on and ride that train to new highs. So it's going to be a very interesting, I think, six months here where everything's going to move.

Craig: Yeah. It almost seems a fundamental everybody just waiting to see if the Fed is going to be able to do it or not. Whether it's a stock market or Bitcoin, the precious metals, everybody's on this kind of transitory bus waiting to see if it actually does work out that way.

Chris, I tell you, what you do with the technical analysis is an invaluable part of, you know, a balanced level of research that everybody needs to do. You do great work and we've always talked about how Eric Sprott himself is a big fan of yours. So tell everybody a little bit about your site and your service.

Chris: Sure. Yeah, so at thetechnicaltraders.com is where I provide daily pre-market videos. So I go over charts just like you and I did. It's usually 8 to 10 minutes every morning. I cover all the assets and sectors that we're looking at and I just break it down where things should be moving, how our positions are doing.

Usually a bunch of educational things I show and explain how I do some of this technical analysis and why I do it, and pretty much I just trade what I see on the charts and I share it with subscribers. We all trade together and we do monthly mentoring sessions so I can get on and all of us can talk and ask questions and go through the charts and really educational and it really does, it gives you a fully unbiased view of the market and it makes it that much easier to get out of a losing trade. It makes it that much easier to take profit targets when you get to those reasons why you should be taking profits, which is a big part of trading and investing. So that's what I do there.

Craig: Great stuff. Again, please, everybody check it out, thetechnicaltraders.com. And it's time to wrap up for this month for October. Like I said, it's going to be an interesting month, and then we're going to get around to November and maybe the Fed will start making some actual concrete plans, but between now and then we'll just see where we go from here.

Again, Chris Vermeulen, thanks for your time. And, everybody, on your way out, please, don't forget to support Sprott Money. They're the sponsors of all of this great information. You can always just go to sprottmoney.com, check out all the great deals they have on physical metal. And always as always, just pick up the phone, give them a call, 888- 861-0775. Thank you, Chris. Sure was terrific to visit with you again.

Chris: Thanks, Craig. Take care, everyone. Bye-bye.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. We'll have another one of these projections for you in a few weeks.

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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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