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Monthly Wrap Up

Technical Background That Gold Has Never Had Before

Michael Oliver

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Watch Craig Hemke and Michael Oliver wrap up the volatile month of June in the precious metals market. From discussing price movements to analyzing market trends and offering insights into trading strategies, this episode covers it all. Topics Discussed:

  • Stock Market Bubble and Fed Reaction: Michael highlighted that the current stock market bubble, might break soon, and, when the bubbles break, and they always break, the Fed panics. The Fed has to pivot because addressing unemployment is one of its mandates. As a result, as soon as we see the stock market start to break, that's going to yank the Fed back into its normal policy mode, because they'll have to panic.

  • Gold and Silver Market Trends: Oliver also discussed the ongoing bullish trend for gold, which started in early 2016. He noted that despite a recent plateau, gold's long-term momentum remains strong, predicting a significant upward movement. Silver, which showed a deeper pullback, is also expected to rebound strongly.

  • Commercial Real Estate and Market Vulnerability: Oliver pointed out vulnerabilities in the commercial real estate sector, suggesting that any further decline could lead to broader market disruptions. He cautioned that if the commercial real estate market starts to decline and the banks follow, alarm bells will ring again, especially for the Federal Reserve.

Watch the full video below today!

 


Craig: Hello again from Sprott Money, sprottmoney.com. Guess what? It is time to wrap up the month of June, which means we're not only wrapping up the month, we're wrapping up the quarter, wrapping up the first half of the year. Yeah, we are already halfway done with 2024. They say time speeds up as you get older. I think we all probably agree with that. So, anyway, we're ready to wrap up the month of June. I'm your host, Craig Hemke. Joining us, to wrap up the month of June, is my friend Michael Oliver of Momentum Structural Analysis, somebody that Eric Sprott always speaks very highly of, him, and his work, so it's always good to hear from him directly. Michael, thank you for joining me.

Michael: Good to be back, Craig.

Craig: As we get going, just a reminder. Again, Sprott Money is your company that provides all this great information. You always wanna keep them in mind whenever you're in the market. And, for now, the great kind of refer-a-friend program continues, where, if you refer a friend to Sprott Money, and they actually buy themselves some physical metal, you can save some big buck on your next order. So, go to sprottmoney.com to get the details, and of course, it's never a bad time to be adding physical metal. We're gonna be talking about the metals with Michael here in just a second. But Michael, just, two things real quick. Tell everybody a little bit about yourself, what your business is, and then we'll start to wrap up the month.

Michael: Well, since 1992, I got out of futures brokerage in the '70s and '80s, and started research, technical research of a methodology I developed back in the 1980. And so, '92, that is 32 years, okay? And mostly, we've sold our research to institutions, banks, hedge funds, mutual funds. And in 2000...late '15, we opened up to retail subscribers. But what we cover are all four major asset categories. So, in other words, we don't just focus on gold and silver, for example, or on the stock market. We also look at the bond markets, foreign exchange, and right now, I can pound the table and say, in my experience, I've never seen such connectivity, what one does can impact the other. It's not always that way. And right now, our...we saw what was gonna happen to gold and silver, starting in March, April, where they exploded up out of their range-bound situation, but the stock markets are our focus right now, because it's got some interesting stuff going on that I think will contribute to gold and silver.

Craig: And that will make for a very interesting back half of the year, I'm sure. Again, and Michael, I know you do have a service designed specifically for the metals. So, if someone is interested in the metals, the mining shares, again, olivermsa.com for more details. Michael, we're wrapping up, again, like I said, the first half of the year. This month has been an interesting month, though, with the Fed meeting, some, again, dialing in of rate cut expectations, things like that. What kind of macro things have caught your eye here in June?

Michael: Well, first off, I've said this before in some interviews, and I'll say it again. In fact, the Mises Institute, which I've affiliated with somewhat, had a one-pager in "The Wall Street Journal" a couple days ago, about "Who Needs the Fed?" It was, like, a huge... It was an intellectual article, attacking the notion of a centralized, government-run central bank. Anyway, I think in five years, you won't have a Fed. And Fed is almost always behind the ball. They create situations with their monetary boom-bust policies which create, quite often, stock market boom-bust attributes. And the last one, though, you know, where they went berserk on QEs for years, created the "biggest bull market in stock market history," in the U.S. We went up from about 8-fold advance in the S&P 500, over a span of 12, 13, 14 years, and about a 17-fold increase in the NASDAQ 100.

Now, you go back and look at the 1929 bull, or look at the mid-'70s bull, or look at the .com bull peak, or the real estate peak in 2007, no stock market bull trend matched the duration and the percentage gain. And if you look at money supply growth over the last decade or so compared to prior, it's more. You look at the Fed funds rate, effectively zero, except for two years of the last dozen, you know, okay, you understand why. Hey, no wonder there's a stock market bubble. You know, they blew air into it.

Well, the problem is, when the bubbles break, and they always break, the Fed panics. The Fed has to go back the other way, okay, because that's one of their priorities. Remember, unemployment is one of their other mandates. And so, as soon as you see the stock market start to break, that's gonna yank the Fed back into their normal policy mode, because they'll have to panic. And the other major central banks, like ECB and BOJ, they're already, you know, inclined that way. I think ECB's already cut rates. So, the whole group will shift back to that again. Once they get a little prick from the stock market, and I think they're gonna get a prick, and I think the bubble's gonna exhibit busting behavior, especially in Q3 of this year, meaning the next three months. Not Q4, you know, the October notion of the October crashes in '87 and '29. No. I think if you're gonna get some sharp, sudden surprise down, which I don't think will be a surprise to us, but to a lot of folks, it will be, you're gonna get it in the next three months. And we measure the technical factors that might spark that event. And I think they're there, they're very ripe, and it won't take much of a sneeze, starting next week, next quarter, to start to generate that breakage.

Craig: Well, let's go into that in greater detail, if you don't mind, Michael. I know we, you and I went through this on my TF Metals Report site last week, and connected the dots, as you see this. And again, I'd ask you to kind of frame this in your, from your momentum perspective, because that's obviously part of your proprietary model, and the unique way that you look at the markets, just not straight price action, candles on a chart, moving average kind of stuff. Because, again, if, like you said, a sharp roll-over in the stock market will be the kind of thing that would prompt the Fed to emergency rate cuts, that sort of thing. And that's not priced into the precious metals at this point, so you can see how this trickles down, everyone. Michael, give everybody a little bit of a rundown on this upcoming quarter, and some of the concerns you have for stocks.

Michael: Well, a lot of analysts know this, and it's bleeding obvious that the market's very narrow, the stock market. It's narrower than it's ever been in terms of what's leading the market. And, you know, it's a handful of stocks, and one sector out of a dozen that's really doing it. If you look at certain sectors of the stock market, like banking, one we're particularly interested in is commercial real estate or REITs ETF's like RWR, VNQ, which don't show the housing market, they show commercial, more commercial real estate. That's lame. It's in the middle of its range of the last three or four years, not anywhere near its high. And there's some other sectors as well. One in particular, consumer discretionary. That used to be a hot leading sector. From 2009 through 2022, it led the market. In fact, it outperformed the S&P, and you wanted to be long that. Well, you know, at the front end of that ETF, for example, is Amazon. Twenty-four percent of the entire ETF is Amazon. So, you got one of your big fat leaders in the front of that ETF, and yet that ETF, when you look at a chart of that, XLY, and compare it to, like, a monthly chart of the S&P, they're in different universes. XLY is not near its high. It looks very anemic. In fact, even with Amazon's leadership, it still looks anemic. Something's wrong there.

Normally, XLY is considered a risk-on sector, meaning it's the one you wanna be in when you're going up, okay? You take the risk, make the money, okay? And the consumer staples, which is opposite to consumer discretionary, that's the day-to-day stuff that consumers have to buy. But consumer discretionary reflects the exuberance of the consumer. Well, how come XLY looks so bad, even on a price chart? So, we're watching certain segments of the market, not just the market itself, like the S&P or the NASDAQ 100, for signs of momentum trend breakage. And what do we mean by that? There's a lot of momentum indicators out there on your computer screen. You have RSI, MACD, you push the button, it's free. It's part of your program, you know. They're what we call wet noodle indicators. In fact, they look like noodles, you know, okay? Sometimes they're reasonably good. Sometimes they're very lagged. Sometimes they're meaningless, particularly in a dynamic market, where you think you're overbought, and they ram it to you for another four weeks of overbought.

Craig: Yeah. Yeah.

Michael: And in a normal trading market, they might be okay. But in this environment we're starting to get into, I think referring to that stuff won't work. What we look at are momentum structures. Just like you'd look at a price chart, you know, you draw a line under multiple lows that are ascending, uptrend line, or a flat floor, you know, that's a structure. Okay, we do the same thing with momentum oscillators, which often do not look like the price chart. And so, it was the case, for example, and I'm not gonna argue we're gonna crash in the third quarter. I'm just gonna argue there's probably a sharp initial downside in the market. But back then, if you looked at the price action in 1929, August, September, even into early October, and the same thing at '87... And in fact, I caught that one. That's one of the reasons I developed Momentum Structural Analysis. The '87 crash looked absolutely copacetic, prior to the crash. Because you looked at the price chart and thought, "Oh, it's just a little pullback. No big deal." When you looked at momentum, you were breaking the bridge over the River Kwai. I mean, you were blowing the structure out, but on price, it, well, it's just a little dip. And you suddenly went from a little dip to a 35% crash within a week and a half, in late October.

And momentum explained it. Price didn't. We have similar structures right now, set in most of the indices and sectors of the stock market, such that when you go back, like, to the last pivotal price low, which was in what, October of 2022, that's when the '22 sell-offs ended, was in October. You turned up since then. So, what are we talking, a year and three-quarters of upside? Okay? And the S&P's made new highs, NASDAQ 100's made new highs. Some sectors have. Many sectors haven't. But you've got a momentum structure that's been built during that time, not just the price action that you... It's really, you can't define it very well with a good trend line. It's sort of curved. In other words, it's not...you can't find a multi-point trendline, in most cases, on the price charts, but on momentum, you can see a structure, that a blind man could feel. Okay, it's just a perfectly clear, in-your-face structure. The problem is when we get into next quarter, those structures are vulnerable for breakage, because the numbers underlying the momentum structure, meaning the, like, the three-quarter moving average, is gonna move up, hence the relationship between current price and the three-quarter average is gonna narrow, because the mean by which you're measuring is jumping up.

And the problem is, you can't narrow it much, because you're gonna break these structures. And one of the areas we're particularly looking at, which most people aren't now, because, you know, our Secretary of Treasury, Yellen, said, "Oh, no problem with commercial real estate. It's 'manageable.'" The terms that Bernanke used in 2007 about mortgages.

Craig: Right.

Michael: When we looked at the commercial real estate market, it has rebounded halfway, halfway back to its highs of 2022. Very anemic, and sideways, but comfy. You know it's not breaking down. So, it's nobody's scared. The fear has gone away from it. But the structure is right at it. You can't drop a couple percent in that sector, starting next quarter, and you're gonna blow these structures. In which case, all of a sudden, the sleepy, once-alarming sector, banks will be related to this as well, starts to break its major trend structures. And, so you can watch the few tech leaders all you want to. If that commercial real estate market starts to break, and the banks follow, the alarm bells start going off again, especially for the Federal Reserve.

Craig: Yeah. Well, if anything, that's an excellent warning for people not to just, you know, sell in May and go away, take the summer off kind of thing. Pay attention. If you're exposed to equities, your 401(k), you know, your self-directed IRA, whatever, you've got general equities in there, be paying attention, and watch these signals as we get into the summertime, because like Michael said, he's not talking fourth quarter, he's talking third quarter as his concern. So, that, okay, let's segue that, then, into a precious metal discussion here in the back half of this podcast, Michael. I know you think they are kind of on the launchpad, this pullback that we're currently in at the end of the second quarter, has been productive in a sense, but it has not dampened your enthusiasm. So, tell us where you think we are for gold and silver.

Michael: Well, first off, again, our assessment, the gold bull...we're flexible on gold, long-term. We primarily look at long-term trends, sometimes intermediate. But we got bearish on gold, for example, in 2012. So, you know, we're fair and balanced, okay? After it peaked in '11, three months later, we said, "That's it." It never could get back to its high again. It just labored in 2012, and finally crashed in '13. Then, in, excuse me, in February of 2016, coming up off of its low, at $1050, actually, $1046, at $1140, in February of 2016, annual momentum said green light again, bull trend has begun. Okay. Nothing on annual momentum has argued since then that that trend is over. It's been ongoing, despite the three and a half years that gold spent capped off, at just above $2000, and silver in downward staircase, and miners in a downward corrective staircase, for three and a half years. That pause did not break the dynamic of the annual momentum positive trend for gold. It just paused it. Okay.

The action in March in gold, coming up through about, through the price highs, actually, the price was fairly coincidental then, annual momentum of gold broke out through a secondary structure, saying, okay, the doldrums are over. We're back into a resumed strong mode. One that should be more dynamic, because at the end of prior bull markets, and there've been a couple in the last 50 years, where gold's gone up eight, ten-fold in a matter of 10 years, mid 1970s to 1980, 2000 to 2011. Okay. Well, if we went up the same dimensions that we went up back then, you know, gold would be $8000, $9000, an eight-fold move. I mean, those moves are eight and ten-fold moves, okay. But usually, most of that move occurs in the last year of the bull trend. Most of the dynamics occurs then, where it suddenly unleashes. And right now, we argue you've got the fundamental and technical background that gold has never had before, the dynamics of which should drive it, should explain why that kind of dynamics will unfold. Yes, we've paused, okay. Now, gold made a high in April, above $2400. Gold made a high in May, above $2400. Gold's high this month, just above $2400. So, you had three months in a row up there with highs within a percent or so of each other. Hardly a dynamic top. You know what I mean? A spike top. Like, in [inaudible 00:16:25] 2020, when you hit your high, and it, you dropped. 2011, when you hit your high, you dropped. You didn't come back to it again, okay.

So, we're getting a, really, a lateral movement in gold. Right now, as we do the interview, gold's, like, $2310. Okay, so it's 3%, 4% off its, the $2400 level. It's just, it's sideways, boring-looking thing. Silver, meanwhile, did something different. Now, right now, it looks like silver's had a deeper pullback than gold. And yeah, over the last four or five weeks, it has, since the May high. But silver in May vastly took out its April high, unlike gold, which plateaued, okay. Silver went on further. We suspect, based on shorter-term momentum trend dynamics, that this pullback you're getting right now in silver, and as we're speaking, it's down under $29, okay, was under $29 a week or so ago as well, we think you're probably very near the low, if not at the low, and it won't take, like, a $1 upturn, from current price levels, to really explode it up out of the hole again. You don't have to go back to $32.5 to make the point. You get up around the upper $29s next week, you're gonna resurge, it's gonna resurge again.

So, that's, we've got some charts that show that point there. But when you look at, like, the daily action of gold since, let's say, April or May, you see this sort of sideways. On momentum, you see a very clear multi-point downtrend structure, something that if you break out above is a buy signal. You can't find that line on the price charts. Price charts are [inaudible 00:18:02] slop. So, the price charts leave you confused. You know, where is it resuming, you know? Momentum says, you know, above, next week, probably about 40 bucks above where you're trading right now, you're gonna break out again, and resume, okay.

Silver has a similar pattern, except this has a downtrend line. It's fairly steep. It already broke out above it, but it's developed what looks like, if you look at the momentum chart, not the price chart, you'll see what most chartists would say, "Oh. That's a head-and-shoulder bottom." And you've defined the neckline such that you get through that neckline on momentum now. I'm talking weekly momentum, plotted in daily bar format. Next week, somewhere about, like I said, a buck above where you are now, we're just below $29, you get in the upper $29s, estimated, you're gonna blow that head-and-shoulder neckline out, and you're gonna restart silver. So, we think we're close to the end of the congestive pullback, and we'll resume the acceleration phase. What is likely to help spark that resumption? Watch the stock market.

Craig: Right.

Michael: Yeah.

Craig: You can see where those dots connect, no doubt about it.

Michael: Yeah.

Craig: And as we get into the next quarter, I would just ask you one last, kind of a traditional TA sense. You know, I was noting on my site last week, you know, we watch the longer-term charts, not only monthly, but quarterly charts. You know, and gold began to break out on the quarterly chart at the end of last year, and then really surged at the first quarter, and now is gonna have another higher high in the second quarter. Silver might be doing that exact same thing on a quarterly... I mean, it could print its highest quarterly close in, like, 12 years, Michael. So...

Michael: Yeah, yeah.

Craig: [crosstalk 00:19:45] kind of get, you would think, some of the more institutional money that might notice that sort of thing too.

Michael: Yeah. And even when you, I suggest to everybody they punch up a monthly close-only chart, and we're just the close of the month. Go back, you know, 10 years on gold, and look at what's happened. And look at the action the last three bars, three dots, three closes. With today's action, let's say, being, the end of this week being the end of the month, okay. And it's a yawn. It's not a dynamic top. It's just, "I'm up here. I've gone to sleep for three months," you know?

Craig: Yep.

Michael: It's not the way you top gold. Okay? And you look at silver. Yeah, back in 2020 and early 2021, it traded over $30. But its peak weekly closes and monthly closes were nowhere near that. In fact, they were down closer in the high $28s, okay.

Craig: Right.

Michael: Now, you look at a monthly silver, connect-the-dot, monthly close-only chart, and you see we were up in the $30, just above $30 last month. Now we're, let's say, either side of $29 right now. And look at that in context of that last three and a half years of action. And you see how insignificant, really, what we've seen over the last few weeks is, in terms of, "Is it over?" No. No. It paused. Okay.

Craig: Mm-hmm. Well, I think that's a great summation of where we are, my friend. And for everybody that's been watching, yeah, don't go to sleep. Don't just go to the beach and check out over the next couple of months. This looks like we're entering into a rather dynamic period, politically, geopolitically, and with the markets.

Michael: Yeah.

Craig: And those things all connect too, so please, keep an eye on things as we head into the back half of the year, everyone. We'll have a full month, again, of information from Sprott Money. You can be reminded every time they post something, by signing up at Sprott Money. You'll get notified there. You can also just like or subscribe whatever channel you're watching all of these podcasts on, so you get a notification too, because it's gonna be another busy month of content here from Sprott Money too. But for now, it's, boy. It's time to wrap up the first half year. Michael Oliver, olivermsa.com, thank you so much for sharing all this information with us. It is very, very helpful.

Michael: Thank you, Craig.

Craig: And from all of us here at Sprott Money, sprottmoney.com, thank you for watching. We will have another one of these "Monthly Wrap Ups" for you at the end of July, but before then, we have the monthly "Precious Metals Projections" articles along the way, "Ask the Expert," everything else that you can imagine, and we will have that for you starting again, all again in July. Have a great rest of your week, great summer, and we'll see you again in 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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