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Still Risk of Further Downside in Precious Metals and Miners - David Brady (May 29, 2020)

Stacks of i kilo gold and silver bars with one each displayed in a slanting position

May 29, 2020


No major changes in premiums in the past week from either a dollar or percentage basis relative to the paper spot price. Inventory levels in coins remain unchanged, and bars of 10 oz. or greater still remain virtually non-existent. Silver premiums remain significantly higher than those for Gold.

The minimum premiums based on several major dealers worldwide and their change from a week ago:

The original blowout in premiums, which began in March, was triggered by a surge in demand the Friday before Powell had his ‘whatever it takes’ moment, then two days later when he also slashed the Fed Funds rate by 100 basis points on a Sunday. It was compounded by a shock on the supply side, due to the temporary closure of several refineries and miners because of the risk of COVID-19. Refineries have only partially reopened, and mines are slow to do so also. While the Fed continues to ramp up its printing press, imagine what could happen to physical Gold and Silver supply and prices if we do get a second wave of the virus.



Gold fell as forecast last week to a low of 1685 but short of my initial target of 1653. We have since seen a bounce to 1744, a little higher than expected, but there is still the risk of a positively divergent lower low yet. 1776 is resistance on the upside.


Silver also fell as forecast last week, but like Gold, it stopped short of my initial target at the 200-day moving average at ~17, reaching a low of 17.19. This may be sufficient for the low to be in place, but we would need at least a new higher high above the recent peak of 18.17 to suggest that is the case.

Yet Silver remains significantly overbought and bullish. While I, too, remain extremely bullish Silver beyond the very short-term, the risk of further downside remains for now, to 17 or 16.25 below there.


SILJ dropped to 10.40 this week, short of my initial target of 10, and then rebounded to 11.57 yesterday before falling back. It looks like a classic A wave decline followed by a B wave rally, with C now potentially under way. What makes this even more interesting is that the targets on the downside are for where the size of wave C = A and C = 1.618*A are approximately 10 and 9. The same support levels I provided last week.

In summary, despite the strong recoveries in Gold, Silver, and SILJ, the risk remains to the downside in all of them. I am content to wait and see if we break the recent peaks in each or we get another chance to buy the dip at even lower lows ahead. Should the latter occur, much of the overbought and bullish conditions that signaled this decline will have been erased, setting us up perfectly for the rally to follow.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*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.