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Precious Metals Projections

Too Soon for a Santa Claus Rally?

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Too Soon for a Santa Claus Rally?

Whether you like it or not, the holiday season is already in full swing. But after Fed chair Powell played the Grinch at the FOMC meeting last week, risk assets fell. Has the Fed inflicted enough losses on markets to start easing? Host Craig Hemke and analyst Chris Vermeulen of the Technical Traders break down all the charts you need to get into the holiday spirit. 

In this edition of the Precious Metals Projections, you’ll hear:

  • Why there’s potential for a nice rally ahead of the holidays
  • What to look for to signal higher silver prices
  • Plus: is there anything to recommend gold?

To view Chris’s full thoughts on this month’s gold and silver charts, plus many more, watch here:

Craig: Welcome back to your "Sprott Money Precious Metals Projections," for the month of November, 2022. Certainly looks to be an interesting month, and we're gonna try to look ahead and see what we can expect. I'm your host, Craig Hemke, and joining us as usual is Chris Vermeulen of thetechnicaltraders.com. Chris, good to see you. Christopher: Yeah. Good to see you too. Craig: My gosh, it's November. Hard to believe. I don't know. Is there any Christmas music playing on the radio yet where you live, Chris? Christopher: I haven't heard any, but we put a Christmas tree up in my son's bedroom, and one up in my daughter's bedroom already, and we put some little gifts under it. They love Christmas. So do I. And we leave early. We go away for the holiday season, so we're sparking it up early. Craig: Sleigh bells ringing. You put the Halloween stuff away, and you get the Christmas stuff out. Well, that's a little bit of what they're doing at Sprott Money too. As soon as we flipped into November, here came one of the most anticipated events of the year, "The Sprott Money Holiday Gift Guide." It is, for now, available for U.S. customers only, but that doesn't mean that anybody else in Canada or around the world can't access great prices as well. And again, at a time like this, when everybody's talking about inflation, and wondering how the economy works, what a great time to give your kids, your grandkids, and anyone you care about, maybe, some sound money. Get them started to understand what sound money is. Nothing like holding physical metal in your hand to begin that awakening. So, check out the holiday gift guide. Just go to sprottmoney.com. You'll find all the deals, or of course, you can always just give them a call at 888-861-0775, and they will set you up with whatever you have in mind for all those special people in your life. Chris, you're a special person in my life, my friend. Christopher: Thanks. Craig: And after that day, we're recording this on Thursday the 3rd, Wednesday brought about the latest FOMC meeting, which was a complete rug pull by Chairman Powell. They put out what I call the Fed lines, which made it seem kind of bullish, and all risk assets rallied. And then Powell started talking during his press conference, and completely reversed course, as if the Fed lines never even came out, and all risk assets began to fall. Let's start with the stock market. You've got it pulled up there. It was back in April. April, when former head of the New York Fed, Bill Dudley gave an interview to Bloomberg and said that the Fed is not gonna rest until they inflict, "inflict" was the word he used, losses on stock and bond investors, and prices, as you can...the S&P has fallen, you know, what, 10% since then, maybe 15%, to where it is now. I don't know if that's enough of loss infliction for them to ease or not. But let's just talk about the chart. What do you see in this chart, and what are you expecting into year-end? Christopher: Yeah, I mean, seasonality-wise, we just had October, and we typically see bonds and we see the stock market actually put in a bottom in late October. And we have seen that. When we look at the charts, obviously, the stock market put a low in. Bonds put a low in as well. And I'm hoping we're gonna see a holiday rally. Typically, we're gonna see that move up, that Santa Claus rally. The Fed definitely shook things up the previous session there. And we saw a gap lower in the stock market today, which was kind of some carryover from the panic selling that we saw from the Fed. And the Fed did induce a ton of panic. I think, for some reason, it caught a lot of people off guard. I kind of thought it was in line with what they were talking about. They're talking about slowing in the future, but they're not stopping the train right now, but it seemed to really definitely spook people. But, you know, I like to look at a couple different ways to look at the market. So, this is the futures, the regular S&P 500. I like to also look at the regular trading hours only. Like, if we look at the SPY, it gives you an idea of how the price action has been unfolding today, which is, it shows a gap down, and then it shows how the market kind of flushed out early in the morning, as a wave of panic selling hit, and now we're starting to see buyers step back in. And with any luck, this is really just a little bull market trying to buck people off this trend. And I'm hoping we're gonna see this continue to carry higher, and head into December for a fairly decent rally. I think there's potential for a 6% to 8% rally in the stock market, in the S&P 500. So, there's some good upside potential, but I think if we see that, after that, it could be lights out. I think come January 2023, the markets, I think, are gonna have a lot more pain to the downside. I think we're far from this bear market being over, and the Fed is doing a lot more damage, but it takes a long time for the damage to kind of unfold and cycle through the markets, and what investors are doing. So, I am looking for the market to continue to bounce, start to rally up quite a bit here going into the end of the year, but that's all it is at this point. Craig: Yeah. When they talk about inflicting losses, you just wonder if it's not gonna take more pain before they finally relent. As you look at that chart, it looks a little bit like some of the metals charts. We'll get to those in a minute. You could see a double bottom there, back in the S&P, it looked like, if you go back a little further. As it as it moves higher though, would you wanna see it take out...I mean, if you're gonna get an extended rally, you gotta make, I would imagine, a higher high over that 390 level that you've got there, but then even move up into the 4s before you'd start thinking, "Oh, okay." Christopher: Yeah. So, I mean, we've got some higher highs here. We've got a low, you know...I'm sorry, a higher low. We've got another higher low. At this point, this could be one. We've also broken this previous high, and we've pierced this consolidation. So, in reality, what I call this is an impulse wave. We've got a strong move up, that breaks through two resistance areas, and then that pullback and pause is usually an opportunity before it actually takes that second half of that run to the upside. So, I mean, in a way, it's already shifted momentum, the SP 500, to the upside. Now, the NASDAQ's a different story. It's much more bearish. It hasn't got the traction yet. Growth stocks are not finding a bid, and they're not able to hold up. But when we look at the more generic stocks, like the SP 500, to me, they've actually kind of shifted to the upside. They've just had a reaction pullback to news. And usually whenever we have a big move on news, like Fed, usually that move is taken back within a day or two. So, here we are, the first day after the Fed, this morning, we had the shock, and more, you know, panic selling hit at the opening bell, which is why it opened lower and then sold down. So, hopefully, we're gonna see the market regain and get back to where it was pre-Fed announcement, and then it could just keep on trucking higher. So, you know, the bigger long-term trend here definitely is still kind of pointing to lower prices. You look at these major significant highs right across here. Obviously, we've got some room to run to get to those levels, but the major peaks are still lower. So are the troughs here. We're still making lower lows, consistently down, so definitely, a big mixed market. The bull market seems to be over, but we are in kind of a time here where the markets might come back to life for a little bit of a bounce. Craig: All at the same time, excuse me, just kind of consolidating and trying to turn. It makes me think of silver though, because silver has had such a tough time over the last, well, decades. But anyway, over the last six or seven months, going back to April. But, you know, it led gold down. It led the miners down, and, you know, you might think maybe it would lead things back up, and if you, you know, if you kind of... With that S&P chart in mind, silver coming down the way it has come down has tried to kind of consolidate, and not break any lower over the last 90, 100 days or so. Yeah. Exactly. What do you see there? What would you look for there to think, okay, this looks like, you know, based off of all the demand things we hear about, that we might actually start seeing some higher silver prices? Christopher: Yeah. I mean, it's a pretty messy chart. You know, we've seen a very similar kind of price action back over here. It was trying to build a base, and round out, and it did kind of pop and break out, but then we fizzled into, you know, all the way back down to lower lows. So, we're doing the same thing. It's consolidating. I got a feeling, you know, if the stock market does rally, I think we're gonna see stocks...I mean, precious metals, silver, miners, I think we're gonna see them actually move up, and they might poke to some nominal new highs. And the big question will be can it actually hold it, versus just, like, have, like, a surge of everybody going, "Oh, it's broken out," and chase it and drive it up, and then it really just fizzles out because it was really just a momentum run of a bunch of people going in the same direction. So, it is definitely trying to build a base. There's a couple different levels here. If I just clean this chart up and we zoom in a little bit, we can get a bit closer look at some different levels. So, this is gonna be a fairly significant level, I think somewhere right across here. We've kind of got consolidation right across this $20 level. Some previous peaks, it kind of busted through it. We had a couple wicks that came down close to it. Now we're under it. And it's a whole number. Typically, things want to stop at, you know, $10 or $20, as a resistance area. When you're above it, those become support when you settle down into them. So, we've got a little bit of, like, you know, a whole number kind of issue here, where we're stuck under $20. But if it can start closing above it, we might have a push up to $21, which is kind of the next dollar increment. It's also near this previous high. So, it's trying to build a base. It's, you know, nothing too exciting yet, but it's definitely consolidating, and we'll have to see which way it's gonna go. Craig: You know, I look at that and I try to time my next physical buy, you know, and try, "Yeah, heck, if it pulls back a couple dollars, that saves me a couple hundred bucks." Well, anything can happen obviously, but it looks to me like if there're gonna be lower prices, that may still be some months away, you know, if it follows that pattern as before. And in fact, it may be higher prices, you know, before it would break down lower again. I mean, does that kind of confirm what you're seeing? Christopher: Yeah. I think there's potential for silver to rally, you know, potentially up to this $22.2 area. And then, for all we know, maybe it's gonna go down or come back and test these lows. I think there's a lot of time. I think there's a few quarters. I mean, I think we're talking mid-2023, where there's gonna be a bunch of noise in the metals. They're gonna be trying to build a bottoming pattern and a base, and they could be higher, or sharply lower, and back and forth. I think it's gonna be pretty choppy, but I do think, you know, a lot of the downside is done, and it's just a matter of time before they actually finish this bottoming formation and the dollar tops out. I think the dollar still has some more room to go, but once that dollar tops out, I really do think we're gonna see precious metals take off. But I still think we're, like, 3, 6, 9 months away from that. And if we could just hold out long enough, there might be some great opportunities to hopefully pick metals up at a cheaper price. But, I mean, it's really tough, because, you know, silver goes down, but then you're paying these premiums of, like, $10, $20, $30, depending what you're buying. It's just absolutely crazy. As price goes down, the premiums are, like, going up, and, you know, you're almost paying more. So, it is a really weird environment when it comes to trying to get physical, that's for sure. Craig: Topic for a whole other show right there. The dichotomy between the price discovered trading futures contracts and the price discovered trading actual metal. Well, maybe that'll get sorted out here in the months to come. Let's just look at one more chart, because, you know, we could talk about the dollar, but I think the trend remains intact. And we could talk about bond market, but with the Fed continuing to hike... And you're right. Powell didn't say anything different than he said six weeks ago. It's just that they try to spin it in between meetings, and to make a more bullish case. Then he comes out and reiterates the same thing that he said six weeks ago, we're back at Jackson Hole, and everybody freaks out. So, if rates are probably continuing higher as well, all of that has combined to put a pretty good amount of pressure on gold, pretty consistently. And unlike silver, which looks like it's trying to base, looks like it's trying to consolidate, man, I look at that daily chart of gold, especially just over the last, since the first year, and there's nothing to recommend it. There's nothing that says, "Oh, yes. The turn is imminent." I mean, you could say, yeah, we bottomed again at $1620 earlier today, bounced off that level again. That just concerns me that now there's just a whole bunch more stops right below there. Christopher: Yeah, it's just bouncing on that level. It pierced it this morning, but it feels like this is a giant, like, a falling wedge. And when they break, it's usually a pretty quick move to the downside. And the last time you and I talked, we were talking a lot about the monthly chart of gold, and how it had already closed, you know, a month below this key level. Now we're going on month number three below this critical kind of support level for gold. And, I mean, we're in this kind of unwinding phase. I think the dollar rates are gonna keep pressure on gold for a little bit, which is perfectly fine. You know, when you go back... We started a supercycle over here, we ran up, and I think we're gonna see somewhere, you know, 20%, 30%-plus potential correction in gold. This bottom could really fall out here. But the reality is, the last time we had a bear market within a supercycle in commodities, we saw gold pull back 34%. And so, what it's doing right now, to me, is very similar. We're in a supercycle to the upside for commodities and gold, but we're having a bear market in equities, which naturally pulls everything down with it, and it's just temporarily before we see the next huge leg up. And this next big leg up, I think, is gonna be the big one. It's gonna be, like, $2,700 or $3,500 for gold. Who knows where silver will go. Probably pretty darn high. But again, these are monthly charts. These take months and months or years to unfold these patterns, and we are slowly getting closer. We just need this bear market to come to an end, rates to stop, the dollar to top. And, I mean, I think precious metals and miners are gonna become one of the hottest plays again. They've been out of favor really since 2012 or 2013, depending where you're trading them. But, I mean, they're gonna come back from the dead. They're gonna be like the shining star, and people might migrate back from cryptos and get back into, you know, the miners, because, as you know, these miners can rally 500%, 600% in a couple weeks. They can rally thousands of percent over the life of a bull market leg up in the commodity space. So, there's gonna be some amazing opportunities. But again, I think we're six, nine months out from the bottom being formed, the new uptrend actually kicking in and being confirmed. It's not about trying to pick the bottom, it's, we need to see that momentum shift, and the market starts to roll up. That's when things get exciting, because that's every breakout to the upside can be bought, and they just run, and they just scream higher, so the time will come. Every commodity, every asset, every, you know, sector goes through these phases, but they're very rare, and you have to wait. If you're waiting on one specific sector, like precious metals, gosh, you gotta wait a long time for that to happen. But it's finally coming, I think. Craig: And that kinda lines up with the macro picture too. The Fed is certainly taking a lot longer to shift than I ever thought. And I thought 20% downturn in the stock market like we had in the fourth quarter of '18 would do it this time too, and that hasn't been the case. So, they're gonna keep doing their thing. They've told us that. But eventually, they will relent. I mean, no doubt about that. And that's when... Christopher: Yeah. I agree. They're holding a really tough game here. They're trying to hold their ground. They don't wanna give in and be a wuss too early. Yeah. They will eventually though, but I think the stock market could go a lot lower, and the bleeding's gonna get a lot worse, and then they're gonna be like, "Oh, my gosh. We gotta stop this now." But not till we break to new lows, I think, on the stock market. Craig: Yeah. And that, as you said, as you show on this chart, could mean lower gold prices too. There's always a, seems like a collection of stops when you've got a barrier like that. We saw it at $1680. Gold went to $1620 over a period of a couple days. So, there could be more downside if that $1620 level is taken out. But in the end of the day, again, we're following a pattern that I think we know how this is gonna end eventually, and that just gives us more opportunity to accumulate at lower prices ahead of that next move. Chris, it's great stuff as always. Just remind everybody where they can find your work, and what you do for your subscribers on a daily basis to keep them on top of things. Christopher: Sure. Yeah. Well, you guys can follow me at thetechnicaltraders.com, and there I have a few different newsletters. One of them is BAN, which is the best asset now, so we're constantly waiting for new buy signals in the stock market. And when we have those, we move into the best asset, which is the best sector. The precious metals miners, they keep popping up to the top of our hot list, but then they have a couple big down days and they move back down. But there will be a time here when I think we're gonna have a huge move in the miners, and it's gonna be pretty exciting once that kicks into gear. We've also got a more passive kind of investing strategy that you can have. The ETF's traded automatically for you. And every morning, I do a morning video, kinda like what you and I are doing now. We recap what happened yesterday, and this morning in overnight trading, and how it's gonna affect, and what we're expecting things to kind of do today. So, it's a really educational, great way to, you follow the trades that I put on. I focus on ETFs and sectors, commodities. And yeah, so you can follow me at thetechnicaltraders.com. Craig: Great stuff, my friend. I can't believe by the time we do this again, it'll be December. Holy cow. So, we might as well, like you said, start getting up the decorations, putting the tree out, and again, stopping by sprottmoney.com, check out the holiday gift guide. But outside of that, there are always great deals on physical metal, physical metal storage, which is also quite important, especially if you're buying in size. So go by the site, sprottmoney.com, and of course, you can always call them at 888-861-0775. Chris, my friend, always good to visit with you. Let's hope that by the time we get together again in early December, that things will have stabilized and maybe turning higher. Christopher: Sounds good. Well, thanks. We'll catch you soon. Craig: Sounds good. And for all of us here at Sprott Money News and sprottmoney.com, thanks for watching. We'll have another one of these videos for you next 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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