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Precious Metals Projections

Precious Metals Projections | July 2023 | Gold and Silver Price Analysis | The Bond Market | S&P 500

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Get ready for an insightful discussion as host Craig Hemke and Chris Vermeulen examine various aspects in this month's edition of Precious Metals Projections.

They delve into the bond market, interest rates, S&P 500 charts, and conclude by analyzing Gold and Silver charts, providing future price projections as well.

Stay informed and navigate the ever-changing market of investing in precious metals. Watch the new episode of Precious Metals Projections on our YouTube channel now:



Craig: Hello again from Sprott Money News at sprottmoney.com. We are now officially in the second half of 2023. It's the month of July, and we kick off the month with your "Precious Metals Projections" with our old friend, Chris Vermeulen of thetechnicaltraders.com. Chris, nice to see you.

Chris: You too, Craig. Thanks for having me.

Craig: Hey, these months just fly by, don't they? [crosstalk 00:00:29.854]

Chris: They sure do.

Craig: For crying out loud, and here we are, it's now July. And before we get started, July is an important month at Sprott Money, so we wanna make sure everybody knows this. The biggest sale of the year is the Sprott Money Summer Sale, and it kicks off on July the 17th. So, circle your calendars. That baby's gonna kick off, that's a week from Monday, July the 17th. You're gonna wanna make sure you stop by Sprott Money. They have some great deals for you on precious metals, all the time, but particularly during that summer sale. Flag the site, put it in your calendar, make sure you check them out, and when you do, go to the site, sprottmoney.com, or, of course, you see that phone number right on there. 888-861-0775.

Chris, it'll be interesting to see where prices are by July the 17th. As we record this, it is the first Friday of July, the 7th, and the big news today was the unemployment report in the U.S., coming in a little weaker than expected, some downward revisions to the prior months, and gold has responded by going up. Tell you what, though, an interesting development that I'd love to get your thoughts on is the bond market. Last I checked, rates weren't moving much, and the 10-year note is up over 4%, these higher nominal rates having an impact on gold prices. In your work as a technical analyst, Chris, what do you see, what do you track, and where do you see bond prices and interest rates headed?

Chris: Yeah. I mean, I've been talking quite a bit about bonds in my morning reports, because it's kind of a silent asset. You don't hear much about it really, at all. Everything's about AI and technology and the Nasdaq, and people are kind of ignoring the bond market. And really, the bond market has been trading sideways, I mean, pretty much all year. But it is now starting a downward slide. As we can see here, if we look at this daily chart, we can see it's got a pretty bearish price action. When you look at the daily, we've got a move down, we've got a bear flag formation, and it is starting to break down, and it's got quite a bit of downside potential to go down and test those 2022 lows, which applied a lot of pressure on investors.

I mean, we've already seen bonds start to move down. They're right at kind of a last level of support, or are they gonna bounce and hold here? If they break down, I mean, where bonds are as of today, we could see, you know, another 5%, 6%, 7% pullback in the bond market. And, I mean, while most people are ignoring bonds, the problem is most investors hold a crapload of bonds in their portfolio, whether it's 40%, 60%, 70%, 80% bonds, this move of only 6%, 7% to the downside is gonna do a lot of damage to portfolios. And I remember when we saw the bond market way down here, in 2022, this is where investors were starting to really panic. So, another drop down to those levels is gonna start to spook and cause a lot of panic among investor accounts, because this move, this one asset is gonna do a lot more damage than most people realize. So...

Craig: And Chris, explain to people what we're looking at here. The TLT is an ETF that tracks bond prices, and again, as bond prices fall, interest rates are rising. So the TLT goes down as interest rates rise. Is that right?

Chris: Yeah. So, for example, if we take a look, you know, since the COVID peak, bonds are down, like, over 40%. Very, very painful for most investors. And they really just have another kind of bearish formation. Who knows how high rates are gonna go, but more or less, the market put in a pretty significant top, and then it just went into a series of these bear flags. It has another high-momentum move, another bear flag, it's got another move down. You could argue this here is another pause or bear flag. So it's definitely a bearish-looking chart. And if you look from COVID, it's been going down, and if we flip to the 10-year yield, the interest rate here, we can see it's a flip opposite. You know, it put in a bottom while bonds put in a top, and interest rates are, they have the opposite, a very bullish chart pattern. We've got, you know, rally, a bull flag, we've got a rally, a bull flag, another big rally, and a big bull flag.

So, you know, as the rates go up, bonds go down, and this is where most investors really got caught off guard. I mean, you know, we've been in this falling interest rate cycle for, like, 40 years, things turned around, they broke out of a bottom. And you do not wanna be holding bonds when interest rates are rising. There will be a time when TLT, when holding bonds is gonna be an awesome play. But there's still probably a lot more pressure to be applied, or at least is they're gonna linger down at these lows for a long time, I think.

Craig: How far back can you stretch that chart, Chris? Because I'd be curious to see, you know, this trend of lower interest rates have been going on for 40 years?

Chris: Yeah. So, this is a monthly chart. It goes back to, you know, it peaked out in 1981.

Craig: Oh, boy.

Chris: And of course, it's been down, and then it put in this final bottom and has got a very strong bullish pattern. I mean, I don't think rates are gonna skyrocket way up here, but the charts are still pointing to higher bond rates. And they might continue to flounder up here for a very long time before they even roll down. So, again, this is a monthly chart. When you look at this, we could easily fit in, like, here's 12 months, we could fit in another 12 bars. And, you know, that's another year of bonds struggling and not coming back. So, this is a slow-moving, but a massive 40-year cycle of falling rates, and now we're into a rising-rate environment.

Craig: It makes you wonder where it goes from here. You know, I wanted you to mention this, because a lot of folks that watch us, [inaudible 00:06:22.438] have diversified portfolios, like you said, stocks and fixed income. A lot of folks don't know how to hedge their fixed income. Because, again, as rates rise, bond prices fall. Well, that TLT is a way that you can work with a financial advisor, perhaps, and come up with a way to hedge your portfolio, your fixed-income portfolio, against losses. I don't know, who knows if the losses will continue. But boy, that trend, 40 years downward, I guess it can only go down so far before it heads back up. That has significant implications across many markets, doesn't it?

Chris: It does, yeah. And things can always go lower than you expect, too, right? I mean, I don't think bonds could go a whole lot lower. But, I mean, we've seen, you know, 16% 17% interest rates. I don't see that happening again. But who can't say that the rates stay where they are for a while, and then eventually still, if inflation stays high, who says the Fed won't start raising it up to 7%, 8% a few years from now, which means bonds could be making lower lows from where they are.

And, you know, that's the nice thing about being a technical analyst like I am, is, I don't buy into the Fed. I don't buy into news or predictions. All I do is I follow the price trends. And so, if something is trending down, we're either not invested in it, or we're benefiting from falling prices. If it's going up, we're gonna be potentially long, if it's the best asset at any given time. So, that's, I mean, I take a very different take than a passive investor who just diversifies and spreads their money out everywhere. We only wanna hold assets that are going up. If they're not, we'd rather sit in cash and earn interest than watch our money, you know, kind of a chatter back and forth with the volatility and not go anywhere.

Craig: Let's stick with this theme for a second. You know, years and years and years ago, I was a stockbroker. And the adage that we had back then was that at some point, bonds become attractive versus equities, you know, where you can, you know, you're getting 5% on a Treasury note, well, heck, that's pretty good competition against owning stocks, you know, when rates get high enough that money begins to flow out of equities and into bonds. And we're getting close to that point, maybe. What do you see in some of the equity charts, whether it's the SPY or the Nasdaq? And are they starting to look a little fragile here? Is there anything on your mind?

Chris: Yeah, they are starting to look fragile. If we... A really close-up view of the market, if we look at the S&P 500, so, this is the 30-minute chart of the SPY, which is the S&P 500 index ETF, and it's only regular trading hours, so 9:30 to 4 o'clock. And what I find really interesting, and I was talking to, you know, subscribers the other day, saying, "Listen, we got this big move up right into a resistance, into a previous high, we had a massive gap up, and it's created this what is called, like, an exhaustion island, meaning, think of it like a floating island out into the water, there's this body of water here, there's nothing connecting it to the price chart."

And I told them, I said, "Listen, this market, if it has high momentum, it is gonna have an explosive move to the upside, or we're gonna see a very sharp kind of reversion to the mean, come back down, and fill that gap." And we ended up having that just this week. We saw that huge gap down, you know, this big gap, and now price is trying to stabilize. So, gaps in the indexes almost always get filled. So, if there's this big gap here, price naturally, usually within a few days, is gonna come back down and fill that price gap from where it closed. And it did that yesterday, or whatever day that was. That was the 6th of this month. And now we got this big gap, where price closed way up here. So, the stock market technically needs to rally up to fill this gap. Because the stock market is very efficient. It doesn't wanna skip price, because there's all kinds of standing orders filling in those gaps, and it wants to run up and fill all those orders. Doesn't matter if it's a gap up or gap down. So, I would expect over the next few days, we could see the stock market rally back up and fill that gap.

And what's interesting is this week, we obviously have some big news. We had a huge wave of panic selling on the market, which created this huge move to the downside. And typically, when there's big panic selling, the market is gonna bounce and rebound. And we're starting to see that rebound now, and we're starting to see a wave of this red indicator spiking up, which is telling us that everyone's piling in and investing again. They kind of have FOMO. They have fear that they're gonna miss out on the next rally. And that usually, you know, can end up creating a short-term pullback. So, I wouldn't be surprised, you know, we see this market consolidate for a bit, but eventually go up and fill this market. But again, we're seeing money, definitely fear in the markets, and money is definitely flowing into gold as a little bit of a defensive play here.

Craig: Is there a level on the SPY that you'd watch on a, say, a daily or a weekly chart that would indicate that... I mean, we just had quite a run from those lows last fall. I mean, is there a level you'd watch that'd make you think, "Okay, this thing's starting to roll over, that's getting some competition from those higher nominal rates?"

Chris: Yeah. I mean, the markets, I feel like it's running out of steam. It's pretty much had its move to the upside. I mean, I like to use Fibonacci extensions. We can take an idea using Fibonacci of where upward momentum should be. And if you take a look at this most recent chart here, the stock market rallied up, it then consolidated, and then it came up to the 168. And if you follow any of my work, the 168 is a very critical level. If price pauses, or pulls back a little bit from the 0.618 level, like it did here, it almost always goes up and hits that 100% measured move. And so, we hit that, and then the market had a sharp pullback, and then we had a gap back up to this level.

So, we're definitely in an exhaustion zone. The question is, is this momentum gonna be strong enough to carry it forward? I mean, cycle analysis and different things are starting to show signs that this market is starting to run out of steam. It might have a nominal new high, and then pull back sharply and chop around. Usually, in the late stages, when the market starts to get a little tired is when we tend to see defensive sectors come into play: utilities, consumer staples, precious metals, or miners. And we are seeing that. We're seeing miners actually pop up, with a little bit of fear off the news this week.

So, it's definitely, we're in that kind of exhaustion phase. And the question is, is the market gonna roll over or not? We're long the indexes. We're still bullish. We've pulled off a lot of profits. We have just a small position left, because it's reached these thresholds and our targets. But we're still long the markets. I mean, the trend is up. Even though it's showing signs of weakness, you don't just get out of it because you think it's getting tired. The market has a great way of going way further than you ever anticipated.

Craig: That's for sure. I've learned that over the years too. All right, my friend, let's wrap up with the precious metals. Both [inaudible 00:13:28.962] are down over the last couple of months. And it's been no fun, obviously, as rates have risen, and the dollar has kind of stabilized and moved a little higher. However, both metals have found, I guess, some support near their respective 200-day moving averages. What do you think? Are you kind of neutral? Are you a little bearish, a little bullish? What's your opinion? Let's start with gold.

Chris: Yeah. If we take a look, I'll just throw the, make this the 200-day exponential moving average here. If we take a look at the daily chart of gold, you can see, in the longer grand scheme of things, I mean, we've got a rally, we've got a pullback, we've got a rally, we've got a pullback, gold, while it is in a short-term downtrend, is still in a major kind of longer-term overall uptrend. It's above this 200-day moving average. It still has a series of higher lows. It still has a series of significant higher highs. So, that is the definition of an uptrend. So, from a bigger point of view, gold, you could say here, is down at a support level, and it's still in a longer-term uptrend.

Now, short term, it is bearish. The trend is clearly down because we have a series of lower highs, a series of lower lows. So, we're at this kind of confluence point here, this area where we need to see how things are gonna go. Either we're gonna get a really strong rally, people are gonna move back into precious metals and miners for potentially a few weeks, a few months. And we could see this maybe go up and test these highs again, if the stock market starts to top out and pull back. Because we have seen money move into these defensive sectors like precious metals when the stock market is on a buy signal. In fact, this is a really good view of the market.

If we take a look at GDX... Now, this chart here, if we go back, if you look at the very bottom of this chart, I've got these red bars, and we got green and then red. The way that this is, when these bars are red, that means we do not wanna hold stocks in the stock market. But, this is GDX chart on the top. When the market is in a bearish phase and moving lower, gold miners have been moving up. As soon as the stock market turned green and became a buy signal to get into stocks, gold miners sold off because everybody wanted to move into technology, into growth. And then, of course, the stock market was out of favor again, and the gold miners took off. And they've been going down ever since money's been piling into tech.

So, there's definitely a big divergence here, or opposite effect going on with the precious metals and the miners, that, when the stock market gives us potentially a sell signal in the next few days or the next week or so, we could very easily see gold miners start to rally up as one of those defensive plays.

Craig: [crosstalk 00:16:20.931]

Chris: The big question here is, how big is that rally? And I think a lot of people might think that it's gonna be off to the moon. The reality is, I actually think it's probably just, at best, gonna come back up to the recent highs that they've had. Maybe they'll hit a nominal new high, but I don't think it's the start of the next major rally. It could be, like, literally the last rally before the stock market goes into a much, much deeper correction. And we just have to let things play out. There's no point in getting ahead of ourselves, guessing what everything is gonna do. We wait for the stock market to reverse, we wait for potentially gold miners to turn into the defensive play that they've been acting over the past year and change, and it could be a really good short-term trade. So...

And gold and silver, I think, will do the same thing. They're all gonna move together. They are all one trade. A lot of people, you know, buy a whole bunch of gold stocks and tons of miners, and they like, "I'm diversified. I got everything in the precious metal space." I'm like, "Well, it's one trade. That is really just one trade. You've just spread yourself over the same asset. If it goes down, all your positions go down." So, I'm not...

Craig: You just described my portfolio. All right, hey [crosstalk 00:17:28.122]

Chris: If you love the space, you can do whatever you want, but [crosstalk 00:17:31.053] from the technical standpoint...

Craig: Yeah. I'm levered. All right. Let's take a look at silver as we wrap up.

Chris: Sure.

Craig: You mentioned the higher highs and higher lows. Again, the same pattern. Silver kind of wiggling around its 200-day moving average, as it did at that most recent low, back there in late February, early March. Here we are again, and every time it dips below that 200-day, it seems to respond and go back up. Will you watch that to see, you know, break down or rally from here. Would that be something to keep an eye on?

Chris: Yeah. Like, to me, the short-term bias here, we got lower highs. We've got, you know, lower lows. It is channeling down. It also has a bear flag. It's moving down. It's got this little bear flag pattern. Technically, the chart is pointing to lower prices. If we look at the high, and this low using Fibonacci extensions, you know, the next downside move for silver, from where it is as of this video, is about a 9% drop, down to about 21 bucks. So, that's what the charts are pointing to. That could be a flush-out. Maybe it just goes down to the 0.618, so $21.77. We have seen this last time, when we broke this, we had a little bear flag at the 20-day moving average, and it had a quick flush down. And then it rebounded with a vengeance. So, maybe we have, like, a flush down, and then it rebounds as that defensive play.

So, I wouldn't be surprised if silver, gold, and miners have one more flush-out. We probably see some type of, you know, wave of panic, and maybe a volume spike or something, and then it reverses and turns around. The market loves to really, you know, create a capitulation move, where it just pushes in the wrong direction, against the majority of people really quickly, get them off the wagon, and then take off without them. So, that's kind of what I think could happen here over the next couple of weeks, a bottom and then a new rally starting.

Craig: And you've taught me to watch those flags on that chart. And this would be my personal question. What disqualifies that as a bear flag, and instead is a low? I mean, does it, in that, instead of it just being a flag that then breaks down, is there a level that it can get back above and you go, "Oh, look. Hey, that was a low?"

Chris: Yeah. Typically, what...I like to look at something where we have, like, an impulse move. So, if the market kind of pulls back a little bit from here and meanders around, I would consider this kind of a standout high.

Craig: Got it.

Chris: I would consider this another standout high. Now, depending on how aggressive you are, you'll be like, "Well, those are way too far away. I don't wanna wait that long." But the way I go, from a technical standpoint, is I look for two previous highs to be broken. So, if you've broken one, two, after that, the first pause or pullback can be bought, because it should go a heck of a lot higher. So, that's the way I see it, is you always wanna break two previous highs, and that means it clearly has changed direction. It broke through one ceiling, but it needs to break through two. The first one can be a fluke, or just a shakeout. But if it breaks two resistance levels, obviously the herd is now moving in the opposite direction, driving the price higher.

Obviously, you're not gonna buy down near the low, which everybody always wishes they could do. You're gonna usually wait for the trend to change, and then you get on suit and you catch this low-risk, high-probability play, versus buying it down here and going, "Oh, crap," and then potentially it goes even further, and you end up in this position that's underwater for years. It's, if you don't have an exit plan, or an entry plan, you really get stuck with a lot of crappy positions that don't go anywhere, or just down. So, it's all about managing those positions, knowing when to get out, and being able to pull those triggers, to say, "Okay, I'm wrong. I wish it was going up. I like this asset. But I just need to get out for now. I can always get back in later." But it goes against human, you know, nature, our brain or our kind of emotions of taking a loss.

Craig: Yep, I'm guilty of that, for sure. And you sacrifice a little upside by just waiting for the chart to confirm what your inclination is, you can save yourself a lot of heartache. Chris, you save folks a lot of heartache at thetechnicaltraders.com. Tell everybody a little bit about what you do, how you do it, and where they can find you.

Chris: Sure, yeah. So, at thetechnicaltraders.com, pretty much what you and I just did. I usually run through the charts, every morning, or depending on the newsletter, could be twice a week. I walk through all the different asset classes, we talk about what's moving, where the key levels are. Obviously, if we have positions on ETFs, which are my core focus, then we talk about those positions, where they're potentially headed next. And the whole point is I provide, you know, technical analysis. And my strategies are all focused around protecting your capital first. If you protect your capital, the profits naturally come. If you get rid of the losses, then the only trades you're left with are generally ones going higher.

And I call that asset revesting, which you and I talked about a while ago. I published a new book on asset revesting, which is a very different way about investing your capital so that you're constantly hitting, you know, new high watermarks in your account, pretty much every couple of months, no matter which way the market is going. And that is, this is the core of my investing, you know, since...about 2001 is when I actually started using this strategy, refining it.

If you wanna learn more about it, you know, the book is a great spot to learn about it. Or, of course, you can just go to my website. And if you scroll to the very bottom of the first page, you can opt into our free email list here, and get access to our research and videos. We talk about it as well. So, that's what I do. I provide trading and investing signals for active investors or individuals to follow, or they can even have it auto-traded in their account if they're too busy or don't wanna learn how to follow the markets.

Craig: Great stuff, Chris. And it's just so valuable to hear from you every month. I just greatly appreciate you taking the time to visit with us. And hey, again, a reminder, it's Sprott Money that puts all this stuff out there. So, if you wanna thank them, visit their site, give them a like or a subscribe on whichever channel you've been watching this. And then again, keep in mind, July 17th, Monday, July 17th is the start of that annual summer sale if you're looking for some bargains. Chris, it is always fun to visit with you, always very helpful and insightful. Thank you so much for your time.

Chris: Right. Always a pleasure, Craig. Talk to you guys later.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for watching. Keep checking this channel, though. We've got a lot more to come here in the month of July.

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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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