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Ask The Expert

The Precious Metals Projections for Gold and Silver Starts Here

PMP with Chris Vermeulen

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It’s a brand new year, and with it comes a brand new feature from Sprott Money: The Precious Metals Projections. Each month, host Craig Hemke will sit down with Chris Vermeulen of the Technical Traders to break down all the gold and silver charts you need to understand the weeks ahead.

In this inaugural edition of The Monthly Metals Forecast, you’ll hear:

  • Which trends you should be watching (depending on your time frame)
  • Why silver is risky right now
  • Plus: How markets are like mosquito lamps

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

Craig: Well, welcome back to Sprott Money News and sprottmoney.com. I'm your regular host, Craig Hemke, and joining us this month for a brand new segment that we're debuting is Chris Vermeulen with the Technical Traders. Many of you are familiar with Chris, he's a sometime co-host for the "Weekly Wrap-Up." And we had this idea that maybe to bring some extra value to all of our Sprott Money customers, we begin a monthly segment of having Chris give us some of his charts that he's watching and give us some ideas of where he thinks things are going in the month ahead. So, we're going to get this started here in February of 2021. And with that, I want to welcome in Chris Vermeulen. Chris, thanks for doing this with us.

Chris: Yeah, this should be great to talk technicals and look at what to expect in February for metals and miners.

Craig: And that's what we thought we'd do today. We just look at some of the main charts, gold, silver, the gold miners, and the silver miners. And perhaps in the future, we'll take some feedback from all of you through that regular email address, which is submissions, the word submissions@sprottmoney.com. And if you've got some specific things you'd like Chris to take a look at, maybe we can do that in the months ahead. Also, please keep in mind, this has been a crazy couple of days in the bullion industry, no doubt about that. sprottmoney.com is your preferred online bullion dealer and also your online dealer for bullion storage too. It's an interesting time, no doubt about it. And everybody's scrambling to acquire new inventory. But as inventory builds back, the need for physical metal is going to continue. So, always keep sprottmoney.com in mind, or just give us a call at 888-861-0775.

All right, Chris, I'm going to turn it over to you with your charts. Why don't we start with gold? It has been frustrating for many people because we've been in this kind of sideways consolidation, maybe a bull flag on the weekly chart for about five months now. You know, the financial conditions look good, lower interest rates, lower real interest rates, excessive debt and deficit spending and debt monetization, everything looks good, but yet price is yet to really break out and move back toward last year's highs. What do you see on the chart and can you give us some idea of maybe a timeline when things might finally start improving?

Chris: Yeah. So, I'm going to flip through three different timeframes here. So, right now, we're looking at the monthly, then we're going to look at the weekly, and then we're going to go down to the daily chart, because depending on the timeframe, the type of trader or investor you are, you're going to need to be focusing on these trends, and the trends vary on the timeframe. Now, obviously, this huge multi-year cycle that we're seeing, where we are right now in the gold precious metals cycle is something I think very similar to this right over here back in 2009, where we went through a correction in base and then it started to break out and had a great big run. Now, that box is very equivalent to kind of what we've seen right here. More or less, we kind of have broken out of this base. We're having a first major multi-month pullback, and I think we're looking at a lot higher prices when you look at this in terms of the monthly chart. Now, if we just zoom in a little bit more, this is still potentially a complex correction. Well, the long-term trend points to the upside. A lot of times what we see when the market corrects is an A, B, C correction, meaning we see price sell-off and then it rallies up and then it comes down and makes a lower low. And it's the A, B, C wave when you break this low right across there, it's gonna flush the market out and create a really incredible opportunity long-term for gold. It's actually a very bullish sign if gold will move down to these levels. Now, either way, whether it moves down to this level or not, this is a massive bull flag pointing to much higher prices.

And if we were to just gauge this recent move, we can take it from this previous low here to this high using a Fibonacci extension target, and it gives us the next upside target that I think we could hit in the next 12 months, which is roughly $2,300, $2,400 an ounce in gold right up here at this one, which is 100% measured move based on this momentum on the monthly chart. So, it's very bullish on this monthly chart long-term, but there's going to be some volatility in there. And when we zoom down to the weekly chart, we can get a better feel of this type of price action that's unfolding. More or less, we're still consolidating in a downtrend, we're under the 20-week moving average, we're above the 50-week. So, we're still holding up in some key levels here. But if you look at this chart pattern, this red bar down, I'll see if I can zoom in a little bit more here, and then this bear flag formation. It's showing that we should have another big red bar or two to the downside, which could bring us down quite a bit lower. The daily chart's going to give us a bit better view of the short-term bearishness in this pattern. And if we just look at this daily chart, this may be a little noisy for a lot of people, but this pattern here where we've got this big sell-off, and then we've got this bear flag, which is a continuation pattern, the second half of this move should resolve to the downside and work itself down to break this low that we drew on the weekly chart and the monthly chart over here.

So, this is going to be a measured move that gold could go all the way down to actually $1,742, and it would actually be a very, very bullish pullback still. So, I'm really excited to see if it does that because it's a great opportunity. But as an investor and a short-term trader, you've gotta be prepared that gold could really break loose here any day now. A two or three-day move, we could be down at that level. So, long-term, very bullish on gold, short-term, very bearish on gold. So, that's the way that you really need to look at the market's long-term, short-term, figure out your type of trading style because this is where a lot of people get confused when I show this analysis, they're like, "Well, you're bullish, but now you just gave us a sell signal." So, it really varies if you're an investor or if you are a swing trader type of play. Does that make sense?

Craig: Sure does. Let's use that as a segue to silver. Because I'm looking at that chart and I'm thinking, yeah, I can see where that could come down and maybe double bottom even near those lows from at the end of November when we got washed out. Silver to me has been leading gold, has been ahead of gold. You know, it's more of a commodity, and commodities are breaking out and rallying and it's kinda caught in a in-between a monetary metal and an industrial metal. So, silver has been kind of leading gold and I look at that silver chart and I see it did double bottom at $22 before it broke out and broke out of its bull flag. So, I'm wondering is as you show that gold chart, Chris, if maybe that silver chart could lead by example.

Chris: It could. I mean, gold broke out, you know, two years ago. Started a bull market. Silver really broke out not all that long ago. So, silver could definitely lead the way, and when you look at this silver chart from a monthly basis, it actually looks very, very bullish in terms of it's at a very clean breakout on the monthly chart. It had its first pullback, and then all this Reddit talk pushed it up. I'm not a fan of huge moves on news manipulation somewhere where a group of people are talking about it, it's a media play. It's not a real authentic move. So, you kind of have to discount this big move which we'll be able to zoom in on the daily chart in a second here. But this pattern on the silver chart, if we were to throw a Fibonacci extension from, we can go from this breakout zone, play a very conservative level to the high down to this low that we saw, we're looking at $33 potentially in silver going to the upside. And if we were to take the full-out washout low and the high, we're looking around $40 an ounce for silver if this monthly pattern plays out. Now, it looks like it wants to go higher, but the fact that we know this bar is on news, it's on a group of people pushing it, it's kind of a media hype kind of move, I don't really see that new high actually counting as a new high. So, I still think silver might consolidate here. You have no idea how big the movement behind this kind of Reddit movement is in terms of the power, how much silver they're going to keep buying and stockpiling. And, you know, we've seen this massive move. So, I like silver. I think the chart pattern looks very explosive. I think it could do something very similar to 2010, which I've talked about many times that we're in this stage here where silver could just go absolutely parabolic and explode.

It has those characteristics. And if the right group of people get in there and hold obviously physical metals to really run those shorts out and keep that constant demand on and lack of supply, we could see that happen. So, let's just drop down to the daily chart, and we can see this recent breakout in this rally. And it's been consolidating for a little while. And the recent price action, obviously, with the Reddit group, we saw, I think this was a 30...how big was this move? From when it got mentioned a 22% move. And then in the next trading session it's down all 11% from the futures high to the futures low here. So, super volatile. You can see it hit this orange line. Now, this orange line was a key resistance zone, it's a Fibonacci extension. Last time it hit it, we saw a big sell-off. We got up, we pierced through it, and we're crashing back down. So, not only was this move on news, but it has also hit a key Fibonacci kind of retracement level where there's going to be resistance. So, I like silver a lot. But it is a real gamble playing any of the stocks or sectors kind of linked to the Reddit group right now because, if you look at the retail sector, it moved 27% in one day to the upside. Just crazy, silver moving 22% in three days, like physical silver. So, these are really high-risk plays. And I know a lot of people are excited about the move in silver and the silver miners, but you've just got to keep in mind that it is a news-based pop, and what goes straight up on news typically comes straight back down because it wasn't an authentic real move.

Craig: And in your mind, would maybe a weekly close up above that orange line somewhere north of $30, would that be the telltale sign that we're ready to move higher?

Chris: Yeah, that would definitely be a stronger sign. You can see here, this is the weekly chart. So, we're back down here at $26. If it can close above wherever an open or close was over here, which would be somewhere around that $28 to this $28.90 level, that would be a very good sign, because that means people are comfortable holding these positions into the weekend and there is actually real supply. It's not just everyone piling in on the hype, cashing out for quick gain, and selling it back off again, which is what's happening at this point. You could argue maybe it's getting manipulated down, but when we see this type of news-based spike, this is the typical price action. It goes straight up, has a huge gap, opens up really high. The SLV ETF, I think, probably shows this way better. It does. So, the market gets run up, it gaps dramatically higher, and then just get sold off through the entire session because of manipulation or because everyone is just pocketing all that free money. Like, it's just like a free trade, right? It's instant, you know, profits and people just lock it in and it drives it down. So, it's not a real authentic move where people are comfortable holding that. They just want to cash out and play another Reddit trade, right?

Craig: Yeah. Right.

Chris: Let's take a look at the gold miners.

Craig: Yes. Please do.

Chris: The SGDM, which is the daily chart, or sorry, the weekly chart of the Sprott miners. I mean, I really like this chart. It's had a very controlled correction moving lower. I think it still has potential all miners to continue to kind of flag lower. When we look at this price action, we've got, you know, a falling channel roughly channel through here, rough channel, and it's just out of favor at this point. I mean, it is settling right down into where price had broken out and then pulled back. So, it's at a nice support zone, but we really do need to see it start to curve up and start to break out. It really needs to break the previous standout high, which would be this one here around 33. That would mean we've got a serious impulse wave that it has enough momentum to break a very significant high that a lot of people would be selling positions at. So, if it gets back to this level, there's going to be a lot of people here. It's a big volume day where they're going to say, get me out at breakeven, there's going to be a lot of people saying I want to short miners when it gets to this potential double top. So, when we can break that high and close above it, that to me is when this momentum has shifted to the upside, and then I think we can really see them take off. But right now, miners, especially gold miners are definitely in a downtrend and they're not favorable. They're actually the bottom of my list in terms of the strongest sectors. They're kind of one of the worst sectors right now, but they're going to come back into play when this momentum shifts.

Craig: Yep. And, Chris, let's finish with the silver miners. With silver doing better, the silver miners at least had some positive performance as of late. If I could ask you to take a look at the daily chart, because we were talking about this on my site, TF Metals Report just yesterday, in that we've had this great four-day rally in the SILJ, but each of those four candles, though price was rising, was red, meaning that you've spiked to the open and then sold off all day and actually closed below where you opened. And I thought, "Well, man, there's no belief in this at all that this is going higher." People are selling into every single rally. Is that the right way to look at that?

Chris: Yeah. That's the way I see it too. I mean, it opens higher and it's just getting sold off, lots of profit-taking or people trying to sell it and drive it down, maybe the shorts are stacking up. They're getting more short trying to keep this down. I mean, It's a pretty gnarly-looking chart. I know a lot of people are coming out of the woodwork who I haven't talked to in years asking me about silver and GameStop. And it's just amazing because a couple of days ago when GameStop had maxed out around $518, I actually got a bunch of calls and emails from people I haven't spoken to in a long time saying, "Hey, what do you think of GameStop?" And I just got the same thing really yesterday on silver, they were like, "Where should I buy some silver?" Or, "How can I buy silver?" And it always happens to be right at the top. It was the same with Bitcoin a few years ago when it hit $20,000 for the first time. And so, it's definitely a telltale sign that this market is a media hype, it's not a real authentic move. And right now, it's kind of the dumb money piling in creating these big gaps. And then I think the intelligent traders are taking the quick profits and locking in gains because really it's not a real move, it's just hype. It's a pop. You've got to sell into pops, buy on the dips, right? So, that's the whole strategy here. And when you look at it, the SILJ from the low to the high, it's moved 40% in four trading sessions. And then, of course, it gapped down sharply and it's down, you know, 17% now. As exciting as it sounds, and this is what lures all the, you know, kind of the newbie traders, they get addicted to seeing these gains and they get excited about it.

But this is like, it's like you know those mosquito lamps that every time a mosquito flies, they are attracted to it and they go, zzzz, they get shocked? Well, this is like the same scenario. As soon as you get market volatility, like the COVID crash last year, it like lures all the people in who really don't understand position and money management, they don't understand the risks they're taking, they pile in and then they get slaughtered. And that's the way the market works. It knows how to suck in easy money and then spit them out broke. And that's what silver's doing. You know, GameStop is doing. It's just the way that this market works. So, this type of market is not something that I really want to trade. We were in it, we've locked in some gains, we moved out. This was in early December there, we locked out on that pop, but this is deadly stuff. There's no need to risk your hard-earned money. We're all here to make money, not gamble it, right?

Craig: And I look at that too and I see what looks like kind of an island reversal in early January and another clear one from yesterday with the gap up and then gap right back down. Are we mainly just in a range there between about 13.5 and 16.5 and with falling back where it violates some of those moving averages? Are we looking, you know, for another trip down to 13, 14?

Chris: Yeah, we very easily could be. These island tops, these exhaustion gaps, and then they gapped down again, same as what happened this week. I mean, it's pretty dangerous stuff.

Craig: There's quite a few of them on there.

Chris: Yeah. There is. Silver really moves like this quite often. It's a beast. It can do a lot of damage. If you look at the highs and kind of these recent lows, we're still kind of broad, we're creating a broadening formation, meaning, you're getting more volatility price swing, which means more risk. It's making higher highs, but it's making lower lows. It's a gamble, right? That's the way I see it. The technicals are mixed, high volatility, expanding volatility, and it's just not something to get into. I'd rather get in at a much higher price when things have stabilized, everything is confirming we're in a market, then you can get into these miners and play them to the upside.

Craig: Dude, you know what's not a gamble? Physical metal, right? As you mentioned, the long-term prospects for gold and silver, the fundamental rationale for owning physical metal strengthens by the day. It's just these papers shenanigans in these markets that are enough to drive you bats and can get discouraging if that's where your focus is. And so, again, we want to always encourage people to seriously consider physical precious metal as part of your asset allocation. It's your safe harbor in a storm. No doubt about that. And maybe use some of these dips to acquire some. Sprottmoney.com, again, should be your first source to check any time you're in that market. You can go there to our website, you can also just give us a call at 888-861-0775. Chris, I think this has been tremendous and I hope we get some positive feedback and I hope we can do it again, you know, first week of every month going forward.

Chris: Yeah. Sounds great. Hopefully it helps out. Everyone, send your questions in. It's nice to answer your questions and draw the stuff out on the charts and give some clarity to, you know, what you're concerned about and show you how it works.

Craig: I think that'll be a lot of fun. So, again, as we approach maybe a month from now, feel free to send us your questions. Things you'd like Chris to take a look at. The word submissions@sprottmoney.com. For now, though, I think it's time to sign off. Chris, thank you so much for doing this. It's been really informative and very helpful.

Chris: All right. Anytime. Take care, Craig.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. And hopefully we'll see you again next month.

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