The precious metals market is very clearly in a secular uptrend and prices look poised for further significant upside into the end of the year. My technical view is that in the short term prices have gotten a bit extended and that a pull back/consolidation is due (and healthy) to build the base for the next leg higher.
As I stated in my last post from July 8th: “I have always viewed the $1800 price level in gold as more significant than the $1910 blow-off top in 2011. The price level at $1800 was the multi-month, triple tested resistance level that precipitated the six-year base. If price holds, the breakout above this level is secular and very bullish.”
This past week December gold futures eclipsed $2000 and the front month August contract peaked just shy of the 127.2 Fibonacci extension. When this level breaks and holds, my text target is $2260 at the 161.8 Fibonacci extension. However, with the 14-period RSI in extreme overbought conditions, eclipsing 86 for the highest on record, and with bullish sentiment frothing, the timing seems ripe for a pullback (even if just a modest one).
For a more granular view, the August front month contract has been trading in this channel since February, and is also now approaching the upper bound. A logical place for a reentry to add to longs would be a small consolidation to rising support.
The level to watch in silver is $26 (the July high was 26.27). The $26 level was triple tested support in 2011-2012 and is now acting as resistance. This is also the 38.2 Fibonacci retracement from the peak in 2011 to the the 2015 low. The risk/reward favors a long position above $26 or on a retest of the $19.80 breakout level. Price could get choppy in between as the market digests the recent moves. When price breaks out above $26, the next key targets are $33 and $35 (the 61.8% Fibonacci retracement).
The US Dollar supports the metals thesis, acting as the inverse of metals price action. Big picture, in July, the US Dollar broke down from its 12-year rising channel (and diamond top pattern) and all technical indications look bearish.
However, in the short term, price is likely to push back to at least 94.60 as the dollar works off extreme oversold conditions and historic bearishness to retest prior support.
We are looking for further metals strength and dollar weakness as we head into the fall. As always, we welcome any feedback and comments.
Silver has been a shining star in the metals complex since the March low of $11.60, outperforming all other metals on its run to $18.90/oz. The upside leadership was a welcome sign for precious metals bulls, as silver tends to be a bellwether for bullish appetite in the space.
It has been over a month since my last entry on the markets, and aside from a few Twitter posts, most of my analysis has been confined to my desktop. The impact of the coronavirus on the retail precious metals market has been historic, with dueling supply and demand shocks, and as president of Texas Precious Metals, my time has been consumed by day-to-day operations. I finally have a bit of a respite this afternoon to share a few thoughts on the metals markets.
Back in November, I identified a 5-wave pattern setting up with two bull wedges that created a series of highly favorable long setups (see chart above). The big sell-off with the COVID debacle was concerning, but as we can see from the chart, horizontal support held and the bounce higher was strong and swift. It is possible (as some suggest) that Wave 5 is now completed, but I continue to think gold is pushing for all-time-highs based on price action and consolidation.
Also encouraging is the fact that gold is sitting right at the anchored VWAP (volume weighted average price) from the March 31st lows. (I used TrendSpider for this chart.)
Zooming out to the monthly chart, the big selloff in March produced a long-legged doji that retraced the move to the 50% Fib retracement level (1450). Since that time, gold has rallied higher and seems to be pushing for a test of all time highs of $1910 (monthly close of $1830).
Silver is also coiling for a move, sitting at both horizontal support and rising channel support. From a risk/reward standpoint, a long entry here with a stop below 14.60 is favorable. The upside should target ~18.80.
Lastly, just a quick comment on the S&P 500. The bearish case is that we have witnessed the beginning of 5 waves down, with wave 1 culminating in March and an A-B-C correction into April and early May. There is a head and shoulders top just below the 61.8% fibonacci retracement and a break of rising channel support would target 2620. The bulls would gain the upper hand if channel support holds and we break above 2940-2950 to the upside. A big rally to 3300 would likely ensue.
As always, we look forward to your feedback. Be safe out there!
Dear TPM Clients,
As you all know, the effects of coronavirus (COVID-19) have accelerated what is now a precipitous decline in equities. Access to liquidity in the markets has become an issue, and all asset classes are being affected - including precious metals. This historic turn of events has created a demand shock in the physical precious metals industry. Following years of slow to moderate sales following the Greek crisis in 2015, the entire industry has been cautious to build large inventories. This includes the United States Mint, which experienced a terrible production decline of Silver American Eagles, down to only 14.9M ounces minted in 2019.
The sell off in markets accelerated by coronavirus and the global reaction to curtail the pandemic has left no prisoners, as nearly all asset classes are selling off in a flight to liquidity. As large institutions face margin calls, they are forced to close positions or raise cash by selling anything and everything that is liquid. Gold and silver - the “safe haven” assets - are no exception. I would remind readers that in the global financial crisis gold fell 27% and silver fell 55% in nominal terms. Gold outperformed equities on a relative basis, but silver actually underperformed.
The last two weeks have been extremely volatile in the markets, and for the first time in a long time my friends and family have called to inquire about “what is going on in the markets?” Coronavirus contagion fears, coinciding with all-time highs in the markets, has been the scapegoat for a rapid, deflationary decline across nearly all markets except bonds, which resiliently continued to fetch a bid. Even the US Dollar, traditionally a safe haven in deflationary swoons, declined.
Here is how I see the markets:
Price action in gold has traded in a narrow window over the past few weeks, winding into a tight coil as it begins to consolidate for another leg higher. The wave counts suggests that gold is in the early stages of a Wave 5. In the chart above, the key near term level to watch to the downside is $1540. This level served as resistance in September 2019, and has been support for the last month. This level also roughly coincides with rising support from the uptrend channel that commenced in August 2018.