News

In a stark reversal from the collapse of nearly every market just six months ago, the winds of inflation have pushed the sails of those same markets back to new (or near) all-time highs. The rebound from Covid has been a V-shaped recovery, not an L-shaped, W-shaped, U-shaped, or some-other-letter shaped recovery. The move in asset prices should not be conflated with an underlying economic return to normalcy - far from it. The rebound is simply a commentary on price.

Let’s start with my favorite markets - precious metals:

GOLD

Gold punched in new all-time highs in early August and remains in a strong uptrend. Price now appears to be correcting, which is healthy as the market looks to be building a base for another run higher. I expect price to push up to 2230 and then 2300, but I am not ruling out a significant pullback first. Downside support levels come in around 1900 and 1800. The latter level is the more significant support area in my opinion.

The defining characteristic of the move this year has been volatility. In the long term chart of volatility below, we see that gold volatility broke out to 10 year highs, retested the breakout, and now remains elevated. I expect more volatility ahead.

GDX

Similar to gold, the gold miners recently broke down and appear to have put in a lower high in recent days. This looks to me like another leg down - the C-wave of and A-B-C correction - is in the offing. Once again, I think this is healthy, as miners work off overbought conditions to set up another run higher.

SILVER

Silver, like gold, remains in a strong uptrend, but the market is now showing some signs of exhaustion. The danger here is that silver can plummet through key support levels around $26, $23, and $20 and still remain in a strong uptrend. I would like to see silver consolidate above $26, but a big shakeout is not out of the question.

Similar to gold, silver’s price has been characterized by volatility. Not only did volatility break out of a decade long channel, but it hit levels never before recorded. I expect volatility to remain high.

S&P 500

Despite every conceivable reason to be bearish equities, from disease to rioting to murder hornets, the S&P500 just hit all-time highs this week. In my opinion, a clean breakout would be very bullish, and my thesis posted earlier this year for the S&P500 to hit 4600 long term would be back on track.

COPPER

Dr. Copper seems ready to support the bullish case for equities. Price just broker out today above 3.00, which has acted as horizontal support/resistance numerous times over the last several years, but more importantly coincides with 10-year falling resistance. A breakout here is not insignificant.

COPX

The global copper miner ETF, COPX, also seems to support this copper breakout. It, too, is now nipping out above 10-year falling resistance.

LUMBER

The commodity boom doesn’t stop there. Lumber, which was decimated in March, has not only recovered the entirety of the decline, but is now trading at all-time highs and seems poised for a run to the 261.8 Fibonacci extension at 895.

HOMEBUILDERS

If lumber prices are spiking, we would expect homebuilders to be doing well also. Sure enough, homebuilders (XHB) have also recovered the entirety of the decline and have also pushed to all-time highs.

Another home construction ETF, the ITB, is also at all-time highs, having recovered entirely from the March swoon. Housing is on fire right now all over the country.

MORTGAGE BACKED SECURITIES

Adding further fuel to the fire of the housing market has been ever lower mortgage rates. The Mortgage-backed Security ETF, MBB, is sitting on the throwback to the 2015 highs and looking to break out of a bull flag. A breakout implies lower rates ahead and supports the moves in lumber and the homebuilders, and generally support much higher home prices.

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.

GOLD

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.

SILVER

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).

US DOLLAR

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.

Precious metals prices broke out this morning above key resistance levels in the mining sector as well as the underlying futures market for the raw metal.

SILVER

In my post from June 10th, I mentioned 18.90 as a key initial target for silver. This level at sub-$19 has been an importance resistance level in silver for four years, getting rejected each time except for the false breakout in September. The breakout here is meaningful. The 14-day RSI (Relative Strength Index) is still not overbought and price looks like it has some room to run. The next target is $21, which represents the 161.8 Fibonacci extensions from the February/March high/lows.

Pan American Silver (PAAS), one of the leading silver mining stocks, also broke out this morning with a gap up above the 127.2 fibonacci Extension from the February/March high/lows. This move follows a multi-week basing period and targets just under $36 on this initial thrust, which is the 161.8 fibonacci extension.

GOLD

I have always viewed this $1800 price level in #gold as more significant than the $1910 blowoff top in 2011. The price level at $1800 was the multi-month, triple-tested resistance level that precipitated the 6-year base. If price holds, the breakout above this level is secular and very bullish, in my opinion, with the initial target at $2,000/ounce, or the 127.2 fib extension.

GDX

The Van Eck Gold Miners ETF had breakout and successful retest of the $32 level, broke out of the bull flag and is now taking out the May peak. My target is $42, which is the 161.8 extension from the Feb/March high/lows.

GDXJ

The Van Eck Junior Gold Miners ETF has been the laggard, but it is finally finally retesting the 2016 peak. Price has some room to run here and a bullish breakout/retest would be a great setup to add to long positions. The RSI hasn't been overbought on the daily chart since July 2019. Now would be a good time to show some strength.

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.

I anticipated the bullish price action in silver on the breakout from $14.50. The most recent run to $18.90 encountered sellers for the second time since March, and since that time price has been consolidating in a falling wedge. The breakout of this wedge this morning on the 4hr chart looks promising for another run to $18.90, but price needs to definitively clear $18.18, which has been a strong area of selling action for the last few months.

Big picture, price is uptrending in a channel, and until the channel breaks, the trend remains up. Recently, price retested rising support from the March low and bounced nicely. Bulls want to see this hold. Bears need to push price down through 17.65, which, if successful, could usher in a drop to back to the 16.20 area.

I have my Fibonacci levels marked as follows, with a break of $18.90 setting up a run to $23+.

Big picture, the silver weekly chart is a confirmed breakout and successful retest of the falling trend line dating back to 2012. The breakdown in March appears to be a failed breakdown, and from “failed moves come fast moves.” price has also recaptured the 200 week moving average and seems poised for a run higher as we head into a stronger seasonal period in the fall.

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.

GOLD

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

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.

S&P500

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.