Close to the Low in Gold and Silver? - Weekly Wrap Up

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Craig: Well, happy Friday from Sprott Money News at sprottmoney.com. It's Friday, November the 20th, 2020, and it's time for your weekly wrap-up. I'm your host, Craig Hemke. Eric is still out this week, so joining us this week is former money manager and fellow Sprott Money contributor, David Brady. David is, you're probably familiar with him, he's a great follow on Twitter, and he writes something every single week for Sprott Money that you should be sure to check and read whenever you get a chance. David, thank you so much for joining us. Really appreciate it.

David: Good morning, Craig. It's great to be here with you again.

Craig: And hey, before we get started, just a reminder to all our listeners that we really appreciate you taking the time to listen to the "Weekly Wrap-up," whether Eric is here or not. These "Weekly Wrap-up" podcasts are available on different channels like YouTube, SoundCloud, Buzzsprout, Facebook, Twitter, you name it. So please don't forget to subscribe, and then give us a like as well if you find these things insightful. One more thing. Since Eric hasn't been around for a few weeks, we've fallen behind on some of the individual mining stock discussion. And we probably won't get into a lot of that today, either. However, in Eric's place for this month's "Ask the Experts" segment, which we'll record next week, we've invited in Brent Cook. Brent Cook, of course, renowned mining analyst, with his website explorationinsights.com. We'll try to run as many names past him as we can in the time provided. So, if you have any questions for Brent, please email them to us at the word "submissions," that's submissions@sprottmoney.com. And when Brent and I record next week, we'll try to get to as many of them as possible for you. To begin with this, week though, with David Brady, David, I wanna talk a little bit about what you most recently wrote. Again, you're pretty good about posting something every week at sprottmoney.com. You had some great stuff this week. Please tell everybody a little bit about what your current thinking is, a little bit about that latest article.

David: Sure. My main point in that article is I believe now that we're close to the low in gold and silver. And the article covers it all in detail, but I'll try and give a brief synopsis. The main drivers of the markets these days, in my opinion, are obviously the macro factors. And what are they? The presidency and the uncertainty around who will be president. I know the mainstream media has named Biden as president-elect, but it isn't official yet. And Trump is still working on the legal side of things with Sidney Powell, so we'll see how that plays out. Markets hate uncertainty, so until that's resolved, we could see some more volatility going forward and some more pressure on the metals. The other aspect of that is the stimulus. I've said, since July, that stimulus is the primary driver of basically all the markets right now. The Fed and the other central banks have taken over. And how do we know this? Just look at what happened once they started rolling out that $3 trillion in additional fiscal and monetary stimulus from April through to June, what happened to stocks, the dollar, which went in the opposite direction, and gold and silver and the miners.

And then I said in July that I was concerned that, first of all, the feds scale back that stimulus, and then everyone expected that they would extend the benefits to those being made unemployed, and almost all Americans. In July, August timeframe, I said that actually there's a risk that they could expire given the deadlock between the Republicans and the Democrats ahead of the elections, and Pelosi is not gonna hand Trump a massive rally in the stock market ahead of those elections. And that's exactly what played out. And what's happened to, you know, stocks have come back now since before the election, on the basis that Biden would win and just spend bucket loads of stimulus, even more so than what you saw from March to June. But we didn't get that. We didn't get the expiration extended, we didn't get those benefits extended. And look what happened to gold and silver since then, it's come off. Saying that, we have still have this uncertainty with regard to the election, and we need that to be ironed out before we can get new stimulus.

On top of that, you've got a potentially a Republican senate, which may not delay stimulus any further, but could certainly affect the size of the stimulus. With that all said, I believe new stimulus is inevitable, and I believe it's going to be massive. And here's why. Because if they don't roll out a significant stimulus package, at least the same size as April to June, or a lot higher, these markets will collapse. And, because these markets are being totally... Look what's happening to the economy.

These markets do not match what's going in the economy to any extent. The economy is in meltdown due to these lockdowns, so the only thing that's propping up the markets is liquidity. And liquidity is all that matters to the markets. You can have everybody unemployed, but if the Fed and the other central banks are printing money on steroids, and that's been mirrored by fiscal spending at the government level, then you're going to see markets go up. Because, you know, what makes a stock go up? Somebody comes out and buys it, and then it goes up higher, and then somebody else buys it. Well, if you're creating new money out of thin air, and that money is going into the market, it's obvious what happens. It just keeps going up, regardless of what happens anywhere else. So, my point being, getting back to gold and silver, I believe that that stimulus is inevitable. It's just a question of when. The alternative is what I call the everything collapse. And based on history, they're never going to allow that to happen.

Craig: Right.

David: Now, I'm not gonna go into all the other details. It's covered all in my article with regard to the technical analysis. And even though I know you're not a huge fan of it, Craig, but the Elliott Wave analysis, I will mention briefly. The Wave 2 drop into March, that $250 dump in gold happened in a matter of days. And then that preceded the Wave 3 rally to new record highs. Well, in Elliott Wave terms, what happens when you get such a short, brief, violent drop in a Wave 2 correction? The next correction, which is called a Wave 4, typically is a long, drawn-out, tiresome affair. And that's exactly what's happened.

Craig: Yeah.

David: We've been... since the August peak, we've just been going sideways to down. And it's, as I say, excruciatingly slow grind lower. So, why is that a good thing? If that is true, what happens next is Wave 5. And in the metals space, Wave 5s tend to be bigger than Wave 3s. And I've said since July, I expect after we get this pullback as of July, which has transpired, that the next rally is going to be bigger than the one that we had since the March lows. It's going to explode higher, and silver even more so. So, I'll leave that there. Read the article. There's plenty of information in there, but I think we're coming towards the bottom. We could get one last flush down, and I've given the support levels to watch. But once that has been established, the bottom has been established, and we won't know until we break some resistance on the way back up, the turn, I call it, then we're off to the races.

Craig: And it's another great article, David. And I should point out there are several tremendous writers that post information to sprottmoney.com on a weekly basis, so it should be something you check almost every day, not just for metals deals, but also for insight and analysis. David, I wanna go from there to address one of the questions that came in this week, and that's about this hammering that gold and silver keep taking every time there's vaccine news. And we were ready to roll two weeks ago. We'd broken the 50-day moving average, we were breaking out, two weeks ago today. And then we got the first Pfizer news, and we dropped 110 bucks the following Monday. The Moderna news this week maybe cost us $30, but then we'd made most of that back, and then even the AstraZeneca then finally, that news yesterday didn't have much reaction at all. The question was if there's a vaccine coming, why should we own any precious metal or gold stocks at all? You wanna take a run at that one?

David: Yeah, sure. Two comments on this. One, with regard to fundamental news, you have to be very careful with the egg and chicken situation, and the cart and the horse. Basically, what I mean by this is, is the market moving because of the news of the vaccine, or was the market moving anyway, and the vaccine is being used as an excuse? And that's a very important question, because the reason why I don't think that the vaccine is actually what's moving gold and silver lower is in that article I just posted, I looked at what's happening with respect to gold and, of course, silver and the miners as well, relative to other assets where gold is either almost always perfectly correlated, or perfectly inversely correlated to those. So, for example, the Dixie. The Dixie has been trading in a range of $92 to $94.50.

Craig: Let's help everybody for a second there. The dollar index. Sorry about that, David.

David: Yes. No worries. Sorry, I just assume everybody knows this stuff. Yes. The dollar index has been trading within a range of $92 to $94.50 for months now, and yet gold is going lower. Usually, they move inversely towards each other, so if dollar is going sideways, shouldn't gold go sideways? No. Yes, it should, but it's not doing that. Looking at that in isolation, does it mean anything? No. But then you look at what's happening with real rates. The same thing, we're seeing real rates go sideways within a range, but gold's going lower. When real rates go up, gold goes down. When real rates fall, gold goes up. But that's not happening. Real rates are going sideways, but gold is falling. The S&P. There's been a very close relationship between gold and the S&P since the March lows. Why? It's obvious. If you again consider the macro factors as the primary driver of markets, when they printed all that money, stocks took off, and so did gold and silver. So, they're correlated. But what's happened now is you're seeing the S&P has just hit new all-time highs, and yet gold and silver going the opposite direction.

And lastly, Bitcoin. Bitcoin has just exploded higher recently. Gold and silver are actually relatively correlated towards Bitcoin, because the same factors affect Bitcoin as affect gold and silver. Now, you can debate the merits of which one you want to invest in, but in terms of what drives both of them, they're similar factors. And yet, Bitcoin is like a rocket right now, taking off, and gold and silver is, like, slowly grinding its way lower. None of this makes sense. Why is gold and silver...why is the correlation between it and those other market classes broken down? Is it because of the vaccine? No. Because if the vaccine was the primary driver, why isn't it affecting the other? I mean, yes, it should boost stocks, but Bitcoin? I don't see how it benefits Bitcoin to a great extent. At the same time, it's at the expense of gold and silver. It just doesn't make sense. But the other point I'll make on this with regard to the vaccine is, if the argument is that the economy is gonna take off and safe-haven flow was going into gold and silver, taper off as a result, therefore, they go down, the risk of further shutdowns to miners and refineries curtailing supply and physical go away. And in fact, the opposite occurs. We get greater physical supply, therefore, the price goes down.

I mean, that may have some merit, but the problem with these vaccines is they're not gonna be coming out for another 6 to 12 months, despite all the euphoria. And in the interim, who knows what may happen. And we don't even know how many people are willing to take it yet. So, when you factor in that, in the short term, yes, it may be putting pressure on gold and silver. But beyond that, if there... The good news with regard to the vaccine is now fully priced in, in my opinion. So, what happens if there's a snag? What happens if they come clean on the fact that this vaccine isn't going to be available for some time, or the trials that show 95% effectiveness of the vaccine, "Oops, we were wrong. We found some side effects that we have to deal with."?

What do you think's gonna happen then? Gold and silver explodes higher. And this all is talking about, with respect to your question, Craig, the vaccine, my two cents is the primary driver of gold and silver, as we saw since March, is not the vaccine or lack thereof, it's stimulus.

Craig: Right.

David: And when the Fed and the other central banks, in particular, the Fed, and the government, and the U.S. Treasury spends their $2 trillion of cash on who knows what, a helicopter drop, when that money cascades onto the economy, not onto the Federal Reserve's balance sheet in terms of bank reserves, what do you think happens to inflation? Meanwhile, you've got the economy going down the toilet.

Now, the nearest reference I have for that is the 1970s, called stagflation. But you could get hyperstagflation, as I call it. And if anybody goes back and look at what happened to gold and silver from 1974 to 1980, when gold went up 24x and silver went to 36x, you can only imagine what they're gonna do if that plays out. So, for me, stimulus is everything. If we get massive amounts of liquidity, whether it's from a Biden administration or a Trump administration, and they have to issue debt up the wazoo to pay for all this, and then the Fed steps in, because nobody else wants the debt, to buy it all by printing money out of thin air, it's not rocket science that tangible assets like gold and silver, hard assets, are just gonna take off. So, we can talk about the vaccines, but for me, that's not the primary driver of gold.

Craig: All right, David. In our remaining time, let's take another stab at another question that came in ostensibly for Eric this week, but I think you can address it pretty well. There have been a lot of the major investment houses' research firms have come out lately with pretty bullish price forecasts for the precious metals. Specifically, silver, on the idea that you get a little green new deal stuff, solar panels, electric cars, all this kind of jazz that, where silver is not only a monetary metal but an industrial metal, and an inflation hedge. Some of these targets, $40, $50, things like that. What do you make of silver specifically, as we flip into 2021?

David: Well, let me just say this up front. You're asking the right guy, because I love silver. If it's a choice between gold and silver, I choose both, but I'm more heavily weighted towards silver, because if you look back, as I mentioned, in 1974 to 1980, or the bull market from 2001 to 2011, silver always outperforms gold in a bull market. And the main reason for that, it's called "poor man's gold" for a reason, because when the average Joe wakes up to what's happening and they wanna get ahold of some precious metals, and they walk into their bank or they go to Sprott Money, and they say, "Hey, I've got, like, $2,000. I wanna buy some precious metals. What can I get?" "Oh, that won't even buy you, $2,000 Canadian, that won't even buy you one ounce of gold." "What can I buy?" "Oh, well, I can give you 50 ounces of silver." "Oh, I'll take the silver." So, the demand for silver explodes. So, I believe silver will outperform gold going forward once we hit bottom here and we take off again.

With regard to the bank forecasts, this is where maybe you're asking the wrong guy. I treat them with a grain of salt. They're totally unreliable. I'll use Goldman Sachs, for example. Back when we were down at $1045 in gold, back in December 2015, and I'd been buying ahead of this, they said, "Oh, we're going sub-1000." And here we are, we've breached $2,000. They were completely wrong. And it was only when we went above $1,300 did they dump that forecast. So, you have to take what they say with a grain of salt, because they can say one thing and they do another. They could tell you, like, we saw this in the subprime crisis back in 2007, 2008 with some of these banks. I won't name names, but they were saying that the housing market is doing just fine while they were buying CDSs, credit default swaps, on the mortgage-backed securities. So, I don't know what else to say. I just...

Craig: Right.

David: I don't take... They're unreliable. I don't give them any credibility. If they say up, more often than not, it means we're going lower. And that's my two cents on it, but I'll just leave it there.

Craig: One last question, David. A lot of folks listen to these "Weekly Wrap Up" podcasts because Eric and I so often discuss the mining shares. It has been, just like the consolidation for the precious metals, it has been rather counterintuitive long-range consolidation in the shares as well. But as I look at the weekly chart, a longer-term weekly chart of an aggregate like the GDX, man, you can see a cup, a handle, a breakout, and now a bull flag on that chart. Just for everybody listening here, what will you be watching as we go into December and into the first quarter that will signal to you that the consolidation has finally ended?

David: That's a great question. So, specifically... I'll start with broadly. Broadly, signs of resolution on the presidency in the U.S., a reopening of discussions with regard to new stimulus, I think both of those factors will be supportive of precious metals and miners. More specifically, from a technical perspective, and you mentioned the bull flag, I see that we could get a break, we could hit the bottom of that bull flag in gold, which is in my recent article, or we could go below there. My primary target, going way back to July for this pullback was $1,800. We could even go below. That's where the 200-day moving average is, by the way. You've got 70 and 50 support below there, and $1670, which is critical to this bull market. But my point is we could still see lower lows yet, but I do believe we're getting close to the bottom. But when you see the turn up and you see us break former support, now resistance, which, you've seen $1850 has been a big, big level for gold. When you break a level on the downside and you go lower, and this goes for any market, when you're coming back up, the resistance level's not exactly at $1850. Tap out about 10 ticks. It's $1860.

If we go through $1860 and then get confirmation above $1900, the recent peak, and even more importantly, $1966, which is the peak of the fake breakout of the bull flag to the upside, we get above those levels, I think gold is gone. And silver, $26.14. I forecast that top. There's a whole bunch of resistance points based on moving averages, trend lines, Elliott Wave, Fibonacci levels, they were all in that area, and it held. And then we dumped again. If we take that out, I mean, it won't be just $30 we get through. We could take $40 on the upside. So, specifically, don't try and catch a falling knife. Wait for resistance to break on the upside. And the beauty of that is if we go through $1860 on gold and you buy it, say, at $1870, $1880, you can place your stop under $1860 or $1850 again, in the event that it goes back down, and just take your loss. Because the risk-reward to the upside, if that is the bottom and it's taking off, it'll wipe out any losses you incur in the process. I mean, I'm talking about gold going to $2,300, $2,500, maybe beyond.

Craig: Spoken like a seasoned trader, my friend. And that you are. Hey, as we wrap up, I know you have an active presence on Twitter. All kinds of great information you put out every single day through Twitter. Please tell everybody how they can find you and follow you.

David: Yeah. I'm @GlobalProTrader on Twitter. I have a number of impersonators these days, which, as I like to say, I must be doing something right. Imitation is the best form of flattery. But yeah, you can find me @GlobalProTrader, not @GlobalBroTrader2 or GlobalProTradein, on Twitter. And of course, you can find me on Sprott Money in the blog section, where I post an article, just like Craig, every week. And I think the best writers in the space, and this isn't biased, you know me, I'm Irish, I tell it like it is, are on that website. So, I recommend you check my articles out and those of the other experts on there every week. It's great information. And, yeah. I actively respond to comments on Twitter. So, if you have any comments for me or any questions, that's where you can find me.

Craig: Perfect. And again, before we go. As David was just mentioning, be sure to check Sprott Money almost every day. You're gonna find those new insights. You wanna come back next week when we post that interview with Brent Cook. That should be up by middle part of the week, next week, or maybe by Friday. So you wanna be checking for that as well. And then, of course, it is sprottmoney.com where you're always gonna find the best deals on bullion and bullion storage. And during this holiday season, we'll come up with all kinds of special deals from time to time. So, please be sure to check the various options of investments in precious metals at special prices at sprottmoney.com. You can also just feel free to call us at 888-861-0775. David, thank you so much for your time. I really appreciate you stepping in and helping us out.

David: Thanks for having me on, Craig. Always enjoy it.

Craig: My pleasure. And from all of us here at Sprott Money News at sprottmoney.com, thank you for listening. We'll talk to you again next Friday.