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Precious Metals Projections

Precious Metals Projections With Craig Hemke and Chris Vermeulen

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On this episode of "Precious Metals Projections" Craig Hemke and Chris Vermeulen analyze the intricate web of August's market trends. They discuss how the ongoing rate adjustments by the Fed could prolong the bond market's struggle, potentially causing panic among bondholders, as well as bond market sell-off impacting portfolios, potential stock market sell-offs in tech sectors, and uncertainty around gold's response to changing scenarios. 



Craig: Hello again from Sprott Money News, sprottmoney.com. Welcome to the month of August 2023. Oh, my goodness. Dog days of summer, wrapping up summer 2023. Getting ready for the back third of the year, which is gonna be volatile and interesting, no doubt about that. First up here in August is your monthly "Precious Metals Projections" call, with our friend Chris Vermeulen of thetechnicaltraders.com. Let's get after it, Chris. Nice to see you, my friend.

Chris: Hey, good to see you, Craig. Thanks for having me on the show.

Craig: Hey, again, just a reminder, before we get going, this is all comes to you courtesy of Sprott Money. Give them a like or a subscribe on whatever channel you're watching, please, but also, keep in mind, the biggest sale of the year at Sprott Money, as Chris has put on the screen here, the Sprott Money summer sale. Began last month and continues, as you can see, until August the 25th. Great deals on all sorts of bullion products at Sprott Money. And the great deals, obviously, will continue as the year goes along, too. So, check out the web page. Also, you might just give them a call. The number's right there at the top of the page, 888-861-0775.

Chris, it has been an interesting month, as we were just discussing. A lot has changed, but a lot hasn't changed since the last time we spoke. But you pick up on the subtleties of things, and one of the things I wanna make sure we cover is the bond market. Massive selloff in bonds, particularly last week, as July ended and August began. Long end of the curve, primarily. The short end isn't doing much. But the long end is really starting to back up. That 10-year note got up near 4.20%. The long bond got up over 4.30%. You can see this in that TLT ETF, which I know a lot of active traders use as a proxy for the bond market. So, let's take a look at it. Chris, what do you see?

Chris: Yeah. I mean, the bond market's definitely been struggling, and if the Fed's gonna keep raising rates, or holding them, the bond market is gonna struggle for a while. And there's really been this threshold level, right down near these lows here, that bonds have been kind of bouncing on. The futures market has been bouncing on this even closer, and we started to break down last week. We started to break this level, and we're coming down to these 2022 lows, which, I mean, you know, for the average investor, you know, the average investor's got, you know, 40% to 70% of their portfolio in bonds, if they're with, like, an advisor-style style strategy, with the buy and hold. And we're coming back down to these 2022 lows, that is a pretty severe level.

So, when we see bonds sell off like in the past two weeks, like we have, this is putting a lot more pressure on the average investor. You know, the stock market's doing pretty well and holding up, but the bond market is just gutting the portfolio of the average person who's just holding bonds, and we're back down to these threshold levels, where the bond investors are seeing a lot of damage to their portfolio and they're starting to panic, I think. We can see some volume, big selling volume going on in the bond market, in the ETF here. And, you know, I think bonds are gonna have a tremendous move eventually, when rates start to go down, but when is that gonna happen, I'm not sure. But look at the selloff in the bond market. It is just floundering, and it could continue to hit new multi-year lows, potentially, over the next couple weeks, for, you know, depending on what happens here, so it's definitely a powerhouse in terms of what investors' portfolios are doing. This has got a lot of weight. It's a pretty boring asset to follow, but man, it's a heavy weight in a lot of portfolios, and it does a lot more damage than people think.

Craig: Yeah. You know, higher interest rates playing heck with the economy, the balance sheet of the U.S. government, all that sort of stuff. I if I put on my Chris Vermeulen mask for a minute, I would look a lot better, that's for sure. But I'm also gonna point out what you would say. You'd say, "Hey, look at these bear flags on this chart." If you pull that baby out, you'd say, "Oh, there's a little bear flag in late 2021, and then down, and then another little mini flag. And then that's all this is, is a flag, too." Chris, hey, look. I don't know if U.S. can afford higher rates, but who knows if they'll get a chance to bounce. That level, that double bottom, from last year, man, if that gets taken out, how much further could TLT go down? I mean, can you extend this chart back even further?

Chris: Yeah, we could go back in time, and look at where some levels are.

Craig: Okay.

Chris: I mean, we're going way back in time here. We could, probably looking somewhere down around $88. Right now, it's at $95. So, that's a pretty big haircut in terms of the bond market. It would probably be some capitulation low. It'd probably be, like, a big spike down, and sharp reversal, but, yeah, there's still quite a bit of downside potential. We can even look at this more recent price action, and use, like, a Fibonacci extension, which is what I really like to look at. We can, you go from the high, you take the selloff to the low, and then you go up to this high, and you can carry that forward, and that'll give you an idea of where price could go. Right now, it's trading at around $96, $95. It could fall, you know, another almost 15%, which brings us down to about $81, if that was to actually continue this current move here.

So, that's a lot of pain, a big selloff in the bond market. I mean, I don't know what that will bring the whole bond market, TLT down from the highs. It's probably gonna be somewhere in the 60% level. Yeah, be a 50%, 55% selloff in the bond market, which is probably one of the biggest ones we've ever seen.

Craig: Yeah. Good heavens. That level of TLT would correspond to something north of 5% in the 10-year note, and certainly the long bond, that would take mortgage rates up over 8%. Oh, wow. What's that..? All right. One last look at this chart. Zoom in again [crosstalk 00:06:19]

Chris: And those interest rates you just said, though, those are kind of the norm. It's just, we've...

Craig: Well, yeah. Yeah.

Chris: We've just been brought into this false belief that zero or low interest rates is the normal, but it's not. I mean, going up to 5%, 6%, 7% is kind of the average, so there's no reason why it actually can't go there. When you look at the 10-year note, I mean, this is a very strong bull flag pattern, looking like the yields could continue to rally, and take off. And I think that's gonna shock a lot of people, and the market is good at doing that. So, it's gonna do what most people don't expect, and people don't expect, and they definitely don't want, you know, 5%, 5.5% interest rates. But the market loves to do things that people don't want it to do.

Craig: Yeah. Yeah. Well, and again, I just, the impact that would have on bank balance sheets, pension fund balance sheets, insurance company, all these, you know, institutions that own bonds at 1%, 1.5% coupons. You can pretend that they're okay by saying you're gonna hold them to maturity, but we've already saw what happened back in March. So, folks need to be aware, if rates start to spike again, you just never know what headlines you're gonna wake up to the next day.

Chris, I'm gonna have you do one thing. Just go back to that TLT chart, that double bottom that we saw, back in, what is that, March of this year? That one there.

Chris: Yeah, this was October of 2022.

Craig: Oh, that's right. Yeah, that's right. That's October. I'm sorry. I'm getting the other way around. October of last year. What are those levels there, so that people know what to watch?

Chris: That's down around $91, $92 a share, so...

Craig: Okay. There you go. Let's keep an eye on it.

Chris: We're in striking distance. We're technically only a day or two away, potentially.

Craig: Yeah. So, all right. So, there's chart number one for everybody to keep an eye on here in August, and as we even head into September. Chris, like I said, some things have changed, some haven't, as we've gone through the last 30 days. What have you noticed in your work? Again I wanna remind everybody, Chris doesn't follow the precious metals. He follows everything, always looking for the best asset and the worst asset now. What are you seeing in those categories?

Chris: Yeah. So, we have seen quite a bit of change since you and I talked about a month ago. And, for example, at the top, this is my hot list here, on the left-hand side, and the best assets are near the top. The ones that are struggling end up down near the bottom. And when you and I talked last, we had almost all the ARK ETFs up near the top. We had the ARKW, we had the ARKQ, the ARKK. We even have the AI ETF right up at the top. And now they're, like, halfway down, and in the lower quadrant of the list, and they're just really starting to struggle. If we look at the ARKK, which is kind of the highest-traded one, you can see it's pulled back pretty sharply, and it's down to the 50-day moving average, which it might find some support here, but we're definitely seeing the leading stocks really take a back seat here. When you, last, when you and I talked, all these were flying high. Now we're seeing growth stocks, tech stocks, AI, selling off the most, and we're starting to see some pretty heavy volume over the last several sessions. Actually, if we go back and look at the QQQ, for example, and say I just pull up a 10-minute chart, the intraday chart shows a pretty good picture of what's going on with the volume. It's... Let me stretch it up a little bit here.

I don't have the on balance volume on this chart, but the on balance volume tells you if shares are being bought or sold. And more or less, the on balance volume goes from up here, and goes all the way down to the lower end, meaning there's a lot of selling going on. We can see these huge bouts of selling at the open, at the closes. We had it, on Friday, we had a huge bout of selling, high-volume selloff. So, we're definitely getting some distribution, I think, from maybe some big funds, like, hedge funds, institutions are maybe lightening their load in these leading stocks. The NASDAQ is a good barometer of the leading kind of stocks. So, that's what's really changed. We're seeing the SP500 hold up better. It's performing much nicer over the past couple of weeks, whereas these, the tech and the growth stocks are taking a back seat, and there's some pretty big selling going on behind the scenes.

So, we're losing that upward momentum, and we might start to see this trend reverse. Based on my technicals, we're potentially two, three, four days away from the stock market rally actually giving us a sell signal, to go move into a different asset. You can see here, we've had a beautiful rally, but it is getting to the point here where it needs to find support, or else we're actually gonna be in a confirmed downtrend, and who knows how far this one could be. It could only be a few more percent. It could be 5%, 10%, 15% from here. We just have to kind of follow the markets, using technical analysis, and go from there.

Craig: Well, and I wanna tie that back into what we just discussed on the bond market, Chris. The old man here, 33 years ago, when I passed my Series 7 exam, you know, it was like this pendulum, right? If interest rates went up, the stock market typically went down, because bonds are thought of as being maybe competition for those investments. Why do I wanna fool around with stocks if I can get 5%, you know, in some fixed-income investment? And so, okay, rates are rising, and now all of a sudden, we could potentially be days away from a sell signal in stocks?

Chris: Yeah. I mean, that's totally the case. In fact, we're actually looking at, depending on when and how the market rolls over here, there's a lot of risk. If you look at the NASDAQ, I mean, it came right up through the heart of this major topping phase we saw in 2021. So, it is right up into resistance. It's had this miraculous comeback, and everybody, you know, as of about two weeks ago, was super bullish. Everybody was just piling in. I think it's... Let's just take a look. B-O-T-Z, I think, is the symbol here for... Oh, sorry. B-O-T-Z. BOTZ, for the AI ETF. This is kind of the most-traded one. And actually, if we just zoom back, it's interesting, because it was fairly light volume, even though it was high-volume for the AI space. Suddenly, the masses piled in, and we saw this huge movement.

Craig: Right.

Chris: And this is right where I had a bunch of emails, saying, "We gotta add the AI to the hot list. Get in. Get in." And of course, from there, it pulled back. It put in a, you know, a potential double top. And now it is kind of breaking down, and it could totally unwind. So, we're definitely seeing this phase of, you know, the herd mentality piles in. This is how it always works. The masses pile in, they buy high, then they bail out at the lows. It's just the psychology. It's just the way the markets work. So, it's gonna be pretty interesting to see how things unfold, but overall, I mean, this market is definitely struggling.

Craig: And it's a classic chart, man. That spike, initial top, pullback, and then a kind of a rounded second top, of failing momentum. Boy, that's an eye-opener right there. Yeah, you know what? Maybe August won't be such a boring month after all, Chris. Things start to break down, catch a lot of people by surprise. I'll remind everybody, we get later in this month, attention'll turn to the "Jackson Holedown," as we call it, where Powell will appear, with a whole bunch of other central bankers, out in Jackson Hole, Wyoming. That is, let me think here, two weeks from this coming Friday, I believe. And he will discuss monetary policy, where he wants to take things going forward. That's gonna be a big event. And so, who knows how this will all play out as the month continues. The last thing we should look at is, who else? Who knows how this will play out as it relates to gold? Because, you know, in one case, you know, one hand you can say, "Well, gosh. If nominal rates are spiking and the stock market's rolling over, and gold futures get thrown out with the kitchen sink because they're liquid, uh-oh, we better watch out for some downside." But then at the same time, you think, "Well, if the market starts to break, and that means the Fed's gonna start cutting rates, maybe sooner than expected, well, then maybe gold goes the upside." All right, Chris. There's a couple of fundamental ways it could go. What do you see in the chart?

Chris: Yeah. So, the chart has definitely got a mixed signal here. Obviously, if we actually zoom back a little bit more, we've got this, potentially, this kind of triple top pattern, which is a little scary.

Craig: Quadruple.

Chris: Every time we've got up here, we've seen some pretty big selling. The market's...the gold market, recently, has put in, you know, this rounding formation. You could argue it's a mini head and shoulders. There's a neckline across here. If gold starts to rally just a little bit more, it can get some traction and go back up to '140, '150 very easily. The question is, is it gonna run out of steam there? You know, also, if we step back and look at this longer pattern, we got a rally up, and you could argue this might be a bull flag pattern as well. I think a lot of it's gonna come down to what the Fed is doing with the rates. I think if the rates go up, we're gonna see the stock market, I mean, which, as we just showed, the NASDAQ is right at major, major resistance, the stock market will probably sell off. We'll probably see bonds fall even further, and break down. And gold, I mean, it might find itself as a safe haven play, but typically, when we see mass selling across the board, it can pull gold down with it. And until they start, I think, slashing rates, I think, you know, gold's gonna have a little bit of a headwind.

You know, it's holding up as a defensive play here, but it's definitely not leading the market. It's, you know, it's kind of in no man's land. It's up in the upper quadrant of this massive, multi-year pattern, kind of in a resistance zone. And it's trying to hold this level. The question is, is this here gonna turn into a bear flag, and send it down to the next level around that $1800, $1815 area? So, it's, you know, it's in that area where I just don't wanna touch it at this point. I'm waiting for either a massive, clean breakout to even buy more metals, or for a big reset, to accumulate more metals, but right now, I'd rather focus my money on going somewhere where it's protected, and I don't have to worry about it.

In fact, it's one of the positions I was gonna mention earlier, is where I've been talking with subscribers, is we're looking at going into BIL. It's just the one to three-month T-Bill ETF. You just collect a monthly dividend, you're safely more or less sitting in cash, and when the markets are in this type of condition, where they could go either way, it's a high-risk opportunity, scaling out of positions, moving to cash, and just collecting a monthly dividend cash injection into your brokerage account is a pretty easy play to do. It's easy to follow. You don't have to worry about the stress and the risk. And when a new opportunity pops up, then we can move from that position into something new. But right now, the markets are a real mix-mash. They're on the verge of a big rally, or the verge of a big selloff, and it's just a crapshoot at this phase.

So, we're in positions. We're still long the stock market. We've scaled out of most of our positions, and we might be exiting later this week if the market shows further signs of the trend ending. And if that happens, we could be moving to BIL. The B-I-L ETF, just to safely collect interest in the markets...interest while the markets are kind of figuring out where the next opportunity is.

Craig: Well, and as you know, Chris, it's great to make money on the upside, but the key to wealth accumulation is to avoid losing money, and the big setbacks. I know that's a big part of what you do with The Technical Traders. Tell everybody how people can contact you.

Chris: Yeah, sure. If you wanna follow what I'm doing at the, thetechnicaltraders.com, and I do kind of a morning video report, just like you and I are doing now. A little more in-depth. I show some intraday charts. We go through all the different sectors and asset classes and whatever. Whenever I put a trade on, I share those trades with you, have multiple different strategies, spread out over different timeframes, and the whole strategy we base it on is around asset revesting, which is a term that I kind of coined to kind of name this style of investing. It's like trading and investing. It's not passive investing, but it's not active trading. It's right in between. And so I wanted to kind of name it so that people understand what it is. And the whole key is, is we're only in an asset when it's going up, and we're usually only in one asset class at a time, and if nothing is a safe opportunity, we'll move to cash, like a BIL position, and just continue to collect interest until there is an opportunity. And everything I trade is based around ETFs, and so you can follow my signals at thetechnicaltraders.com.

Craig: Perfect. You know, and I guess we tie that back into gold, too. With that kind of mixed picture, good time to adore the shiny metal that you do own, because it's doing its job. But also, if you do get a pullback, it's a good time to have some dry powder. And I'll just remind everybody, that Sprott Money bullion summer sale continues through the 25th of this month. Keep an eye on prices. Get a little pullback, you might be able to deploy some of that dry powder, and add to your stack. Chris, thank you so much for your time. It's always insightful to visit with you. And gosh, I'm sure curious to see where we are by the time we get to early September.

Chris: No kidding. Yep. Sounds good, Craig. All right. Well, take care.

Craig: And thanks everybody for watching. We'll have more content here on all of the Sprott Money channels for you, later on here this month.

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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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