Volatile Times Good for Gold and Silver - Weekly Wrap Up

Man: You're listening to the "Weekly Wrap Up" on the "Sprott Money News."

Craig: Happy Friday from "Sprott Money News," it's sprottmoney.com. It's Friday the 13th of November, 2020. And it's time for your "Weekly Wrap Up." I'm your host Craig Hemke. And joining us this week as a special guest pinch-hitting for Eric is Chris Vermeulen of the Technical Traders. Eric is taking a little break to spend some time with his family again this week. So it's good to have Chris stepping in as Eric often studies "Chris's analysis" of the precious metals and many of these weekly wrap-ups in the past. We're happy to have him join us today, Chris, thank you so much for stepping in.

Chris: Hey, thanks for having me. I'm humbled to be on the show, Craig.

Craig: It's great to have you. And again, thank you very much for doing it. And before we get started, just to remind you, if you'd like and subscribe to our "Sprott Money" podcast we'd really appreciate you giving us a like, and hitting that subscribe button anywhere you follow these podcasts. Also please don't forget to check out sprottmoney.com for all of our products and services and all of the specials, always great pricing, always great possibilities for storing your metal as well. Go to sprottmoney.com or just give us a call at (888) 861-0775. Chris, before we get started, like I said, Eric often mentions you and your service, tell everybody a little bit about the Technical Traders and what you do there.

Chris: Sure. Well at the Technical Traders, we focus on analyzing the charts. I mean, we look into the fundamentals a little bit, but the key is we focus on analyzing the charts, the big trends, the big cycles, all the way from big macro, you know, bull market, bear market cycles that can last 5, 10 years, all the way down to short, you know, intraday analysis so we can kind of pinpoint turning points in the markets for gold/silver miners, the index, bonds. And so we actively trade around these cycles.

We've got an investing service where we kind of inform you when to be a long equities, when to be trimming back, when to be out of the equities market or in bonds, and the same for gold/silver miners and other key assets. So we just break it down into bite-size, into timeframes that break up for investors, swing traders, maybe position traders who want to hold for two, three, four months. So we break the market up into these big cycles and you can trade these cycles that fits your personality. And we use a strategy called BAN which stands for best asset now.

And so we go out and when there's a new buy signal on the stock market or we're in a commodity, we can hone in with the BAN strategy and find the top-performing index or sector or the stock within the leading sector to find that one...you know, a couple rocket ship plays that you can get in that are gonna skyrocket in value. So that's what we do. We find the trends, we find the leaders, we move into them and we try and catch as much of the gains as we can, limiting our downside risk with protective stops and layering out of positions, taking partial profits. So pretty straightforward in terms of what we do, a lot of work goes into it, it's a lot of fun. And definitely these markets really since 2018, when you look at these broadening market megaphone pattern in the stock market, we are in some serious volatile times.

Craig: That's for sure. And again, as I often tell people at my site, you need all the help you can get to navigate through these things. And again, the Technical Traders doesn't just simply focus on precious metals, there are times precious metals catch your attention but it's all market, stock market as well, right?

Chris: For sure, yeah. The indexes to me are actually the most important part to know, you really want to know which direction the SP 500 is going. To me, that's ground zero because if you know the stock market trend is up, risk is on, I like to compare a lot of intermarket analysis, comparing high-yield bonds with and bonds, you know, wood and utilities and gold and you compare all these different things, even the Aussie dollar and the Japanese yen. You compare all these together and get a feel, is everyone moving to risk-on or risk-off?

And when you get the feeling of when you need to belong stocks, it tells you, "Okay, well, maybe I don't want to be that aggressive in metals or bonds right now, or utilities, I want to be focusing on, you know, growth stocks." And then vice versa when we see people moving to risk-off, that's when we want to start looking at utilities, metals, miners, things like that. So if you know where the big money's going, you know when to move in and out of the precious metals space with some pretty good accuracy.

Craig: All right. Chris, we had a number of people this week write in wanting to get Eric's opinion and we're gonna get yours instead. On just a macro picture, the big picture, you know, we got the U.S. election is behind us, it certainly seems at this point though I guess nothing is set in stone yet, but it seems that we're gonna have a Biden presidency and perhaps a Republican senate and a Democrat house. A lot of the fiscal picture vaccine news regardless is gonna continue into 2021 because we're still a long ways from getting COVID under control even with the positive vaccine news this week. We've had a great year, obviously, COMEX Gold began the year at 1520, and as we speak this morning, we're up around 1890, so we've had a very good year. As we turn the calendar over into 2021 in just the big picture, what are your thoughts?

Chris: So I did a big report on showing the supercycle analysis of the stock market and gold and silver looking forward and really, I kind of broke it down into bite-size. When you look at the big macro picture, we do have a lot of mixed signals. I mean, we're seeing the fed, just money, the stimulus is pumping the stock market up, it's keeping things going, but we're really in a recession, I mean, things aren't really that good. COVID is creeping up, it's not really creeping up, it's running behind us and catching up very quickly but the stock market seems to be ignoring it because we had this crazy vaccine news that created a massive spike and pop on Monday, which really shattered a lot of chart patterns and gives a lot of mixed signals from that big move.

So there's a lot of really big things at play here, some very bullish, some very bearish, you know, a new presidential cycle is usually bullish, we should see things really take off. But we're in this really awkward time, and I mean, the market always has a lot of conflicting information, but it seems like we've got more than normal and they're all really big things that are pulling like the yin and yang, I mean, it's constantly fighting price.

If I had to step back and kind of look back at what the analysis is pointing to, it is showing that precious metals in minors should do really well I think going into the year-end potentially over the next two to five months. If they can break from this consolidation pattern, I think we could see a massive move in the precious metal sector and I think the stock market might actually struggle and trade in this big sideways range that we've seen since kind of September, the September high, we might struggle.

So I think if we were to look back, I think metals are in a good scenario, the vaccine news was very negative for metals but that was a news-based move, quick emotions. And I think that the story for metals is still very strong and especially with COVID continuing to rise, eventually, we're probably gonna see closures and plant shutting down, mint shutting down, there's gonna be this big rush for metals and so they should do really well. So I'm kind of neutral on the stock market and more bullish on metals at this point looking forward the next three to six months.

Craig: I agree with you, my friend, for what it's worth. There's certainly no shortage of debt and debt that needs to be monetized in the months ahead regardless of how quickly the vaccine may come along. Even just yesterday, I saw U.S. commerce secretary Wilbur Ross said we should expect a $3 trillion to $4 trillion U.S. deficit in this next fiscal year, well, that money has got to come from somewhere, doesn't it, Chris?

Chris: It does. And it blows my mind how much money, I mean, it's just going into debt but they've got to keep the economy going because everyone is broke and no one has money. And if they stop just making this free money to keep the game going, everyone is gonna lose, it's gonna get really ugly. So, I mean, they kind of have to do it unless we all want to experience a really kind of terrible economy, right? I mean, it'll get ugly. As much as I don't like...it's not really like they're cheating or I don't like them just pumping, you know, kind of gaming the system, it's not really fair, you should let you know things go to its own equilibrium. But the truth is if they do, things are gonna get ugly, there is gonna be violence going up, obviously metals would go through the roof, gunstocks would go through the roof. But it's a tough game, like do we all want to suffer through it or do we just keep printing money and get used to crazy deficits?

Craig: Like you said the big picture remains unchanged. We get ups and downs, right? And big rushes and consolidation phases but the big picture continues to look strong. So with that, let's shift to just three quick charts, if you don't mind looking at them and telling us all what you think. Let's start with COMEX Gold. You're probably looking at the December contract, it finally broke out of what looked like a downtrend and actually got above its 50-day moving average last Thursday and Friday, and everything looked great until Monday. What do you see on that chart right now? What are your thoughts here in the short and intermediate-term?

Chris: So it got really exciting last Friday when the stock market closed and we saw, you know, all the metals close above that key level, they're all breaking out of like a bull flag pattern. Gold closed above it, closed above the 50-day, which is a very important level. You really only want to belong something if it's kind of above the 50-day, that's a pretty big long-term trend in a safe haven kind of or safe level. And so we closed above there. On a daily chart, it was a breakout for short-term traders, on the weekly chart, it was great for long-term investors saying, "Hey, this is a new multi-month trend that's taking place."

And then Monday we get the vaccine news and everybody is like, "Hey, we're saved, you know, dump your defensive plays." And everybody pile into the stock market. And of course, we saw gold get hit, you know, the worst when you look at it on the charts, it pulled all the way back down to the September lows, but the reality is it's a news-based move. And I talked about this with subscribers, with the stock market, when you have a big pop on news, a gap to the upside like we saw on Monday on stocks, and then it's based on news and it's a move that pushes something beyond standard deviation so it becomes overbought, we've got to expect some type of pullback. And so that gap completely vanished over the next two days on the stock market because it was just a news-based emotional surge.

And so the flip side for gold is the same story, everyone quickly panicked, they dumped their gold, it got oversold, and now it's starting to bounce back up and it's having a nice recovery today. And still, it's very bullish, I mean, to me gold looks like it's breaking out and it's starting a new multi-month run and we could see a lot of momentum here going into the year-end. Because I think as COVID increases and more talks of stimulus, I mean, it's all good for gold and a lot of people are watching it and starting to get positioned into this, so it should be good. I mean, right now a lot of people are panicking because gold sold off, I mean, that was a pretty ugly red bar on the gold chart but that's pure emotions, that was panic on news.

So I usually negate any spike, any blip or dip on a chart if it's based around news, it usually will buck the trends short term but then quickly recover. So news-based spikes, you can kind of try to ignore them as much as your emotions are screaming on days like that. You need to just be like, "Hey, this is just people overreacting, let the dust settle and it should naturally come back to equilibrium which should be higher prices, you know, over the next two or three weeks."

Craig: Speaking of that 50-day moving average, let's take a look at COMEX Silver, it did in fact, just like gold, close above its 50-day moving average last Friday, so it closed there on a weekly basis. It's threatening to do so again today as we record which, again, given the thrashing of Monday would be pretty impressive to close a second week in a row above the 50-day, at least in my eyes. What do you think of that chart?

Chris: I really like silver, if it can close above the 50 that's a great sign. I don't know if it's gonna do it today or not, it's definitely finding some resistance there, but silver to me has got a really nice pattern that shows some explosive upside. When you look at the charts and you look at the recent rallies and pullbacks, I mean, if we can actually break above the high that we saw on Monday, the big move up and reversal down, really we'll be breaking out into a new run where silver could run about 60% from where we are, which puts that $40 an ounce. So this pattern that silver has formed is incredible, it's a nice move.

And we can see a lot of people starting to get positioned in this using like different plays, like silver stock, so they're moving into the high beta plays based around silver. So I like silver, I think the best play right now is actually the silver miners but we're not in the clear yet. We really need to get back above the 50-day, this is for gold, silver, and the miners, we need to get back up of the 50-day quickly today, Monday type of scenario.

And then we should hopefully continue to see this trend move because if we roll over here next week, we could see silver drop down to around the 2150 area, which has about a 13% drop. And there is potential based on the high we saw in August and the recent sell-off in September, based on that chart pattern we could actually pull back to 1850, which is about a 24% pullback. But keep in mind, those pullbacks are actually still very bullish, those are measured moves. That's where the price cycle is saying if it hits those levels, that should be a critical support zone and it should be at the end of selling and people would definitely be panicking out at 1850 and that's what creates a bottom.

So I'm bullish on these bug [SP] golds. Gold's got the downside of 1810, which is an equivalent type of move on silver, so I think there's still some fear here. Short-term we could see another leg down, not that we want to see it, but the reality is the charts are saying these could pull down to those levels and not to be panicking, these are gonna be very bullish pullbacks to be the ultimate buying opportunities really because the next move up is huge, it's 60% in silver. I don't remember what it was in gold, I think it was like 40% or 38% in gold, and silver miners have a 70% upside move which is incredible, and it could happen really in a very short period of time over a month or two. So it's pretty exciting price action here.

Craig: I probably speak for everybody else, I'd rather just go ahead and start from here rather than pull back further but we'll see.

Chris: Exactly.

Craig: All right. Everybody likes to send individual names for Eric and we will certainly get back to reviewing those once Eric returns. But for today, we'll just look at the mining shares in general as an aggregate. Let's use that a Sprott mining ETF that you like to use and quote that SGDM is the symbol. What do you see on that chart that has you either bullish or bearish or optimistic or pessimistic?

Chris: Right. So this ETF, it looks very similar to GDX and GDXJ which everyone, I think, knows. The difference is I was speaking with Rick Rule about a month and a half ago, and I was talking to him like, you know, I always trade GDX and GDXJ, I'm like, "What is the main difference between, you know, your Sprott gold miners ETF?"

And so he went into great detail and explained, you know, kind of how it's built? How it's run? And it blew my mind how it's built. And I was like, "Oh, my gosh, this really I think a much better ETF than the GDX or GDXJ." Because in short, the GDXJ has so much money, people keep piling into it because it's like kind of like the number one silver miner or gold miners ETF that there aren't enough assets for them to buy, so GDXJ's like buying GDX. And so you're really getting this mix of a whole bunch of, you know, small caps, but then a ton of heavy weighting of just the big brother ETF GDX.

So what the Sprott one does, is they actually spread the money out into a huge variety of different mining companies and they do a lot of research to find which ones are good potential takeover targets that are gonna get bought out. So you're really getting a much more broad basket of stocks in this ETF. And I think we're gonna be coming into prime time where these companies are gonna be getting bought up left, right and center on potentially this next big rally in gold and silver where the big mining companies are just gonna gobble up these little ones, and that's gonna pull this ETF, you know, rocketing higher going ups going forward, so I really like it.

And the chart pattern on it is very bullish. It's formed a huge bull flag that is pointing to potentially a 71% move in this ETF from today's price. Right now it's trading at $32.65, if this pattern plays out over the next 3 to 5 or 6 months it can run all the way up to around $56, that's 71%, that's a basket of really good kind of hand-selected stocks from what I gather. And you're not heavily weighted in a bunch of big boys stocks when you really want to be in these juniors, these smaller ones, so I really like it. That's why I liked the CTF is it's not the crowded play and it's got that opportunity for these little companies to get bought out and you see their share prices just rocket higher in value and it'll just pull the CTF up when the buyouts start happening.

Craig: And in the meantime watching that bull flag, which is basically a downtrend or a down channel within a larger up move and also that 50-day moving average?

Chris: Fifty-day moving average, same thing. I mean, we saw this ETF breakout of it last Friday, it obviously has reversed and moved back down below that. So it's back into that channel, but we're starting to nestle up with the 200-day moving average, we've nestled down into a long-term support zone. Like the GDX has already pulled this SGDM, has already pulled down to its measured move, meaning it's actually done what it's supposed to do. Gold and silver still haven't done that and nor have GDX or GDXJ, so this one technically is saying, "Hey, I've already done my full correction based on previous price action and I'm ready to go." And that's why I really like it, it's on the 200-day moving average, it's on a major support zone from back in May and June, it's made its move so I really liked this pattern.

And if the miners can break out here and hold above that 50-day and above that sloping down trend line, that resistance trendline, once we can get above that, I think it's gonna be off to the races and become one of the leaders that everyone is gonna be talking about at Christmas time going, "Oh, man, if I only knew to get in, you know, two months ago." So that's what I think that scenario is, so that's what I'm looking at looking for.

Craig: That's a good point. And gosh several years in a row we've really taken off, maybe it's getting through tax-loss selling or the like, but man, that last couple of weeks in December is usually set the stage for 2021, hopefully, we'll see it again. All right. My friend, thank you so much for sitting in for Eric. It has been really some great information. And I want to remind everybody again on your way out, look, we, again, this certainly appears to be a long-term bull market to many of us, that means there's always an opportunity for dips to buy.

As you go along the way, sprottmoney.com should be your first source to check whenever you're in the physical market, always great deals and always great deals on how to store that metal for you as well. All of that information can be found at sprottmoney.com. But you can always just pick up the phone and give us a call (888) 861-0775. Chris Vermeulen, thank you so much for your time, that's been very valuable.

Chris: Hey, anytime, Craig. Take care. Thanks.

Craig: And for all of us at "Sprott Money News" and sprottmoney.com, thank you for listening. Have a great weekend.