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Precious Metals Projections

Volatility in September | Precious Metals Projections

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In today’s episode, Craig Hemke and Chris Vermeulen discuss the ever-shifting landscape of the financial markets. They delve into key assets like energy, crude oil, clean energy, and copper, shedding light on potential investment opportunities and the impact of rising interest rates on equities. While gold remains resilient and holds its safe haven status amid market turbulence, the discussion underscores the importance of understanding market dynamics and highlights potential trends that could shape the coming months. Watch or listen to the latest “Precious Metals Projections” now. 

Craig: Well, hello again to everyone, from Sprott Money News and sprottmoney.com. It is now September of 2023. I say this every month. I'm like, where does the time go? It's time for your monthly "Precious Metals Projections" from Sprott Money. I'm your host, Craig Hemke, and joining us is our usual guest, Chris Vermeulen, of thetechnicaltraders.com. Chris is here to walk through the charts, give us an unbiased, objective view of where he thinks things are headed in the month ahead. Chris, good to see you, my friend.

Chris: Good to see you, Craig.

Craig: I tell you, folks that follow along with these every month, they get a real good heads up as to where things are headed. Like I said, you do a great job of objectively looking at the markets, finding the best asset now, the worst asset now. All of that we'll discuss again today. But before we get started, as Chris has put up, you wanna make sure you remember that all of this is brought to you by Sprott Money and sprottmoney.com. Go to that website. It's not just for Canadian investors. American investors, U.S. investors can go there as well. You'll find great deals on precious metals, find great deals on storing that precious metal, and of course, you can actually talk to a human being too. You can see the phone number right on that page, 888-861-0775. Keep in mind when you're looking for precious metal. At least if anything, give them a like, or a subscribe in whichever channel you're watching this. That helps them to spread the word, and that helps all of us.

Chris, let's spread the word on the markets. Man, we are now into those kind of, I guess we'll call it seasonal months of volatility, September and October. Let's go right into your wheelhouse. What, as September begins, are the best assets now, and what appears to be the worst asset now?

Chris: Yeah, sure. If we take a look at our kind of best asset list here, at the top of the list is, really, energy, we've definitely been energy-heavy. Other than the marijuana, the MJ ETF, which has had this massive pop and rally... It is a pretty volatile ETF. I kind of ignore things that have huge spikes based around news. Before it had that spike, this ETF was at the bottom of the list. It was, like, one of the worst assets now. So, we're gonna just kind of ignore that space for now.

But when we look at the rest of where the money has been flowing, for months, it has been into the energy space. We've seen energy stocks, like the oil and gas exploration, we've seen the oil HOLDRs, XLE, which is just the more broad-based energy ETF, they've all been moving up and to the right, and leading the way. And that's because we've seen crude oil put in a pretty big rally, it's trying to push higher, and really, we're seeing, you know, this space here is definitely coming to life. And it's one of those commodities that actually can do very well, just, kind of before the market kind of potentially rolls over into a bigger decline. We actually saw... Let me just flip back to oil here really quick. Let's go to the oil futures, and take a look at the monthly chart, because I think what actually stands out in this space here is a very similar pattern to what we saw in 2007, 2008.

So, we saw a rally up in oil, it consolidated, and then we had this blow-off move just before the stock market went into a major, kind of, decline. And it ended up pulling back down. You can't see it. There's a wick that came down here. It found support in this area, and then we had a massive market correction, a financial correction, was this lower half. Well, last year, we saw crude oil have a huge blow-off move. We had this consolidation before that, and we're right down, testing this level again. So, this level that we're at right here is very similar. It's hard to see it, but there's a wick, lower wick in there. We're in this consolidation phase. And we tend to see energies, and even gold, do very well or hold their value, just before the market goes potentially off a cliff, which, oil would eventually go back down and sell off. So, it is very interesting, this scenario that we have, and how also gold is holding up near the highs, because they're the two commodities that do well or hold value, you know, just months before the market kind of goes off a cliff. So. it's gonna be a very interesting end of the year, I think, going forward.

Craig: Well, and I'm glad you brought up crude oil, because it is, you know, obviously it's an, energy is the biggest input and driver of global inflation, not just domestic inflation. And it's been doing like crazy, as your chart shows, from $65 to $85, over the last couple of months. You know, that pullback you mentioned, I don't know how much of that is attributed to the Biden administration dumping crude oil out of the U.S. Strategic Petroleum Reserve, and so if that supply, temporary supply, goes away, what happens? But let's watch that chart. Obviously you've shown pretty critical support at around $65. What would be a resistance level, that, if broken, could send things to the upside?

Chris: Yeah, I think resistance's gonna be somewhere up around $93, $94. You can see there's a couple monthly wicks up here. We had a bar trading through there. We had a wick low, and then we had another bar over here. So, that $93, $94 could become a pretty major resistance area on the chart. And if it gets rejected there, it could very quickly, you know, start to roll over and sell off, going forward.

Craig: Very, very interesting. How about a worst asset right now, Chris?

Chris: Yeah, let's...

Craig: Please don't tell me it's the GDX.

Chris: Let's go down here. It's actually the solar space, or clean energy, TAN or PBW. They're kind of in that space. They have just kind of fallen off. I mean, they're doing the exact opposite of crude oil. Crude oil has rallied. Clean energy has sold off. Crude oil is poking to new multi-month highs. This clean energy space is poking to new multi-month lows. So, it, they're like an inverse play on each other, and it's definitely just not finding a bid. I don't know if there was some new...what's going on there, but there's definitely, no one is interested in this space. Volume is pretty light. It's just, there's no interest, and selling just keeps kind of unwinding, and driving the price down.

Craig: As I sit here, people, if they can see my face, I'm just like, wow. I mean, I track the precious metals every, just all-consuming. I had no idea that TAN... Is that the TAN? Oh, my [inaudible 00:06:29]

Chris: Yeah, that's the solar ETF.

Craig: Weren't we told that, you know, that was the future?

Chris: Uh-huh.

Craig: Well, yeah. Okay. Let me give you one more. Can you pull up a chart of copper? Is that handy?. Because, you know, I mean, I, you know, I've written for, you know, at Sprott Money, I write an article every week. And David Brady writes an article every week, and back earlier this year, I was writing about copper about once a month. You had Goldman Sachs talking about above-ground copper supplies maybe being extinguished, going extinct, as soon as August or September. Well, last time I looked, it's now September. And I don't know, maybe copper is being impacted by this lack of interest in, you know, that you see, this retail equity, or investor interest in things like that TAN. What do you see in that chart of copper?

Chris: Yeah, it looks like it's kind of, it feels as though it's topped out. I mean, it was moving up here. It really has a pretty clear level through here, and you could say it consolidated, and then it broke down and then it found resistance. And this, you know, this might be just a consolidation. If this lower level's broken, you know, we could be going right back down to $3.37. You know, if copper's going down, it could mean things are slowing. Housing could be slowing. It's a huge consumer of copper. It's a good idea of what's going on with kind of the economy, so it's gonna be interesting to see how this goes. But it, to me, it's turned a corner. It's not in an uptrend anymore. It is really, at best, in a sideways consolidation, in a fairly big range there. But the bias, to me, looks more like it's to the downside.

Craig: Well, and we'll file that away, because long-term, there's a pretty good correlation between copper and silver. Let me just check two other things, while we have the time, Chris. The TLT is an ETF most people are familiar with, tracking bond yields. When yields are going up, the TLT goes down. And boy oh boy, as yields have gone up over the last year and a half, you could see what's happening to TLT. Now, here we sit. Ten-year notes pushing toward 4.25%. Nobody knows what the heck the Fed's gonna do next. I'm intrigued because the massive short position of hedge funds in bond futures... They're guessing that bond prices are gonna go down further and rates will go up. What does this chart show you? What are you watching here?

Chris: Yeah. I mean, I, honestly, I think bonds are gonna keep going lower. I think we're gonna see, yields, we're gonna see, rates, potentially actually either hold their ground or go slightly higher. And, you know, this is a perfectly inverse chart of the 10-year yield. You know, bonds have come down, tested last year's lows. It's really just had a technical bounce. It really hit a very, very significant low. I think bargain hunters were down there, saying, "Hey, if it tags that low, I wanna buy some," and it's gonna create a bounce. It's created that bounce, and since then, it's really just kind of lost... Let me just rescale this here. It's lost some of that momentum. It bounced up, and now it's just kind of in free-fall mode. I feel like it's going to actually break down and sell off, in a pretty big way. I think we're gonna go lower. And if we look at that 10-year yield, like you just mentioned, you know, it's got, obviously, the exact opposite, a double top, almost identical chart pattern. And to me, I feel like we're gonna actually see yields trade sideways in a range here, for a little while, potentially. But the bias is to the upside, and if it does break, we could go to 5%, 5.5% interest rates, which I think will shock and throw a lot of people off-guard. That means bonds are gonna break the 2022 lows, they're gonna go into a waterfall sell-off, and it is gonna apply maximum pain to investors who have that kind of buy-and-hold portfolio, who have, like, you know, 40-plus percent of their portfolio in bonds. They're gonna see another potentially 5%, 8%, 10% haircut in the bond market, and that is gonna hurt a lot of portfolios.

Craig: Well, and that's where I guess what I'm getting at. You know, a long time ago, in a galaxy far, far away, when I first got my Series 7 stockbroker license, you know, it was thought, the thought was higher interest rates were a competition for equities, you know? And so, as, you know, if you could start getting 5% and 6% in a treasury, or just walk into your bank and get a CD at a level like that, well, what do I wanna take the risk in the stock market for? But, you know, the equities, we've talked about this all year long, is almost not driven by fear, but fear of missing out. I wonder if, I mean, are there some technical levels in, say, the S&P 500, that you wanna watch? Because I watched the S&P come down, break its 50-day moving average last month, get back above, but now it's flirting with going back down. I mean, are you concerned about equities in general, should interest rates continue higher?

Chris: Yeah, I think if interest rates go higher...I think interest rates are definitely putting a headwind for some stocks. I think investors are just starting to really actually realize, that, we're so used to, like, no interest rates, they're realizing, "Oh my gosh. I can get 4% in a savings account. I can get 5%, 5 and potentially a little bit, in a different type of investment, with almost no downside risk." So, it's just starting to, I think, really pick up, that we can sit on the sidelines and actually collect a fairly decent return, and avoid some of this. Now, the thing is, this year has been such a strong rally that people feel like they...they kind of have FOMO. They're like, "Well, I don't wanna miss out on the next bull market phase," so people are feeling like they're missing out, so they might wanna stay into the equities market, but definitely a lot more talk of people wanting to move to safety, with a 5% interest rate. You know, we saw a big move up here. It was, you know, a multi-wave move, and then we went into a pretty big consolidation, for that phase, and really, this has been another one of those moves, and this could be a consolidation that takes a little while. It could drag out for another month or so.

But the bias is still to the upside. I mean, it had a little bit of downward, kind of, reset. We definitely saw a lot of...we saw the VIX move up fairly significantly during this pull-back. We saw a lot of people pile into the put, the options market. The put/call ratio closed above 1 multiple days, like, four or five days in a row. When everybody has... And we saw panic selling, through the stock exchange volume as well. So, when everybody's panic selling, and then suddenly, we see them all betting using leverage to bet on falling prices, it actually is usually a short-term market bottom. And we've seen a very strong bounce right from that threshold. We hit that, I was telling my followers. I'm like, "Listen. Everything right now is telling us everybody just dumped their position. They're all betting, buying put options, betting on lower pricing. This is probably a market bottom." They're literally, you know, doing the wrong thing right at a very emotional pivot point. And we've seen a strong bounce. Over the last couple days, we had a bit of a pullback, but overall, this should still be a standout low. This market should go higher. I don't think it's rolled over yet. I think there's more upside. And the stock market might actually go back up to test the 2022 highs. I wouldn't be surprised if we go up for a double top.

Craig: What is that, 4800 or something on the S&P, if I remember? The most recent high [crosstalk 00:13:42]

Chris: Yeah. Yeah, if we zoom back, you can see it's right up here, 48, just over 4800.

Craig: Yeah. Okay. So, we'll watch for that. What, on the downside, do you think could turn fear of missing out into just regular old fear?

Chris: Yeah, I think if we start to break these lows right over here, around 4350, somewhere in that range, I mean, then we're clearly making a series of lower highs, lower lows, which is the definition of a downtrend. That will definitely kind of kick us into a full-on downtrend, and the bias will be to the downside. I wouldn't be surprised if the market found some support somewhere around 4100, 4200. Just looking at the chart, it's a pretty clear range, if we were to just kind of draw a box across here. You can see there's a lot of volume that traded through highs, and a consolidation, so that would be a spot where it'll probably settle out, if it was to break down, but that's a pretty decent collapse from where we are. We're looking at a 7%, 8% drop in price, which is more than enough to really spook a lot of investors, and potentially change the major trend here.

Craig: All right. Well, unwittingly, you walked right into my trap, to talk about gold, as our final chart. Because you mentioned, downtrends, and lower highs, and lower lows. You can clearly see that on the short-term chart, going back to the last price peak on about May the 5th. Bear flags, which is a term you taught me to use. They're all there, over the last four months or so. Levels to watch now? Where might we find some support? Where might that trend of lower lows finally be halted, and maybe we can start making some higher lows and higher highs?

Chris: Yeah. I mean, gold's been holding its ground. It's really just treading sideways in a range. I think the key thing with gold, which, to me, gold is a very different asset. It's almost kind of its own, compared to gold and silver, for example...sorry, from silver and miners. Like, when we look at the monthly chart of gold, gold is testing and holding its value up near all-time highs. If we look at silver, it's the complete opposite. It is trading way down here, down 50 or so percent. Gold miners are down, like, you know, 50, 60-plus percent. So, gold is definitely the overall global safe haven play, so, you know, the reason we're seeing gold hold up, I think, is because the whole world sees weakness, the whole world is nervous, and they naturally think, a lot of them think, "Gold," you know, it's simply because it moves slower, "I'd much rather store my value in a precious metal that doesn't move 5% to 8% a day. We want stability." And that's what a lot of people do. That's why gold is kind of, I think, holding its value very well, even though we've had a very strong rally in the dollar index.

But to go to your view here, if we look at the shorter-term chart, where are the support and resistance areas? I mean, I think we're looking somewhere around that kind of $1920, just under $2000. Two thousand is naturally gonna be a very strong pivot area. Generally, whole numbers, so, $2000, $3000, like, all those major, huge numbers are always gonna act as a support or resistance area, because people just see it as a whole number. But we also have $2100, or $1900. So, price is usually gonna ping-pong around those, almost like an apartment building. If you're above, you know, that level, then it acts as a floor. If you're below it, it's gonna be a resistance area. And we're ping-ponging around between more or less $1900 and kind of $2000, and gold's doing very well. I mean, it's holding up, and I think it could actually have a push higher. I think we could go back up and flirt back up with these highs, even.

But overall, if we look at gold miners on the same kind of timeframe, gold miners are definitely making a series of lower highs, lower lows. It's just not finding the bid, and the big problem is, when we have panic selling in the stock market, we saw some panic selling last week, and what happens is it pulls even defensive sectors down. Gold miners, silver, gold itself, all pulled back with panic selling, and that's what a lot of people need to realize. Even though gold's holding up well, if we go into a recession, if the stock market has a bigger correction, unfortunately, during a bear market in a stage four decline type of scenario, it's almost always panic selling by the end of the week. It's always more selling than anything else, and naturally, it's gonna pull everything down, so, again, I think if the markets roll over here later this year, we start a big sell-off, nothing is really gonna be immune. I think gold will pull back to the lower end of its range, which is actually a very bullish thing. You and I have touched on this many times. If we zoom back on the chart, gold could very easily pull back down into the $1800 or even lower, and it's still within this multi-year consolidation, that, once this ends, I mean, it should be off to the races, and really take off, and hit that $3000-plus mark, but I think there's still gonna be some weakness ahead for gold and silver and miners.

Craig: All right, Chris. Tell everybody about where they can find you.

Chris: Sure. Yeah. If they want, they can visit my website at thetechnicaltraders.com, and I share my ETF trades on the markets, and commodities and sectors there. You can just follow my trades. You can even have them auto-traded if you really want a hands-free environment. And I kind of do this, you know, every morning with subscribers. I share video, we go through the charts on a more granular, close-up level. We talk about yesterday, pre-market today, how it affects our positions, and, yeah. So, if you're interested in learning technical analysis and trading, copying the trades that I actually put on in my account, you can do that at thetechnicaltraders.com.

Craig: And I can go to that beach, or get on that sailboat?

Chris: Yeah. Yeah, no kidding.

Craig: Oh. Sounds good to me. All right, brother. Thank you so much. I look forward to this every month, and I would imagine the people that watch us every month, they look forward to it as well, because you provide such great information. And again, please thank Sprott Money on the way out. They're the ones that foot the bill for this, sprottmoney.com. Buy some physical precious metal. Maybe even store it there. Give them a call. 888-861-0775. Chris, all the best. We'll see how that seasonal volatility is shaping up when we speak again in October.

Chris: Yep. Thanks, Craig. Always a pleasure. Take care.

Craig: And from all of us at Sprott Money and sprottmoney.com, thanks for watching. We'll have more content for you later on 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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