I'm gonna try to do this quickly and just make notes on a bunch of charts regarding where things stand.
First, silver. I posted this on Twitter earlier and said, all the smash after #silversqueeze has done is make a bigger cup and handle. As GV pointed out, its a cup and handle in another cup and handle. Price is currently just above 26, which is half way between the low at 22 and the highs at 30. Nothing to see here. Still looks great. In the event of a selloff from here, I would say the most we will likely see down is to around 24.
If silver was a standalone asset, that'd be it. But we have to look at Gold as well. As I had mentioned in my article last week, I wanted to see gold start moving with silver, pushing above the 1900 level. Additionally I was concerned about the fact that the GDX has barely budged while we were seeing strong moves in silver, and absolutely insane moves in silver miners. GDX was just dragging along very close to it's lows. That kind of divergence between gold and silver miners I have never seen before on this kind of scale, but in the past, on less extreme scales, it has usually meant a fake out.
Sure enough, we came right back down. And as silver started lower, gold joined in. This is why I put a little more weight into Gold when analyzing both of their moves. Gold has a tendency to be more precise in timing and price than silver. For instance we can see, silver bottomed in Sept. Gold bottomed Nov 30 and Silver double bottomed, but actually hit 15c lower in Sept than in Nov. Silver also has a tendency to push above or below support, resistance and Fib retracements, making the chart a little more messy than gold, which usually respects those levels a bit more.
Looking to the gold chart, we are now inches from a double bottom at that 1760 area. This was a downside level I had warned was a risk in an interview I did with Palisades Gold Radio 2 weeks ago. (For anyone panicking about their portfolios right now, I suggest listening to it as there is some helpful stuff on how to make it through these corrections until pay day.) For now it looks like a double bottom, but keep a few things in mind. I have seen COUNTLESS plunge/reversals. Stop hunts. Gold gets down to 1760, pushes just below to 1757. A wave of stop loss orders are triggered sending it down another 2-3%. Then, by the end of the day, or within 2 to 3 days, it reverses and comes right back. If a quick 2-3% below 1760 were to occur, we would be sitting around 1710, within inches of the next major support level at and 61% Fib at 1700. This level was also the "Covid Plunge Resistance" point. We hit 1700 before the March crash, struggled, crashed to 1450, then came back and struggled again at 1700. Resistance becomes support.
The point is, this is almost over. Even in the worst case of the double bottom breaking and a plunge lower, we are likely within a few days of the cheapest you will see gold all year, so don't panic.
Looking to the GDX now, we can also see a double bottom, so far. And we also have perfect evidence of what I keep saying about "watch the miners". The GDX didn't budge at all over the last few weeks despite the massive moves in silver and silver miners. This was a clue that they were "calling bullshit" for lack of a better term.
We are sitting right at the 38% Fib retracement for the entire all time low and high of the GDX. (I'll show the weekly zoomed out version next to get the big picture here) The downtrend line has been holding us back now in this incredibly long consolidation that has now gone on for 5 months. We need to get above that line and above the previous highs near 39 and Fib retracement near 40. We can see the June lows just below us at around 31.50, which is about 7% down from here. Again, I would not be surprised if we see a "stop hunt" plunge and reversal here in a short time that targets just below this Fib line to the June lows. If we have a similar move in gold that breaks below 1760, I would imagine the GDX stops dropping and turns higher BEFORE the metals. That is what to look for to give us an indication the lows are in.
Another point I wanna add on the GDX chart. It looks like crap. Yeah I know, many have been saying it. It almost looks obviously bearish. The thing with sentiment is, its not a precise indicator for timing. In the very short term, the crowd is usually right. In the medium to long term, the contrarian is right. Real money isn't made in the short term though, which is why I am a contrarian investor. If this GDX chart looks like it is "obviously" gonna drop, guess what? Everyone else in the world is looking at the same thing you are and coming to the same conclusion. Which is why I said, we could get a quick drop, some obvious stop hunting by the vultures looking to push us around a bit. But past more than a few days I don't see much further weakness here. Why? Because were in a bull market. Because the miners are incredibly undervalued compared to the metals and any other fundamental earnings or cash flow metric. Because we have been consolidating for nearly 6 months. Because despite that undervaluation, we've already declined 25% in that 6 months. If you are looking at this chart and thinking bearish thoughts about gold miners, like buying puts or shorting for a quick buck, the risk/reward is absolutely not in your favor.
Quickly I want to add 2 more charts for correlations with Gold. They are not perfect, but are often looked at as headwinds for gold rallies. First up, I'm putting the Euro, which I am using as an inverse proxy to the dollar index. (For the same reason with gold vs silver, I like to look at the Euro vs the actual USDX). The Euro broke above a 12 yr downtrend in July, retested the trend line twice then headed to major resistance at the 38% retracement of the highs and lows of the last 20 yrs in the Euro near 1.25. We have now pulled back to test the 23% retracement of the move higher from the march lows, which is also right at the summer-fall consolidation highs. While we can see, this correlation is not perfect, Gold and Silver topped out when the Euro broke above the 12 yr downtrend in Aug then continued for 4 months. But a rising dollar can be a headwind for the PMs, and it looks like the rally (decline in Euro) is nearing an end. Even if we were to test a lower level here, we can see there has been little correlation for almost 6 months, so it may not be meaningful for metals.
Additionally here are 10 yr notes. You can see we have been declining in lockstep with gold since Aug and are now at the lowest "post covid crash" levels, indicating 10 yr interest rates are at their highest levels. Again, testing the 23% retracement of the move from the lows in Oct 2018, to the recent highs. This also looks to be testing a strong support level that is likely done correcting. This has correlated much closer to gold since they both made their lows in 2018, so a bottom here in 10 yr notes is certainly a tail wind for the metals.
Finally, I will share with you my Gold cycle chart, for the purposes of timing. Since 2006, it has nailed every major cycle low in gold within a reasonable time frame. It is certainly not always to the day, but waves higher and lower in markets are like tides in the ocean; They usually follow a similar rhythm and timing. We are right on a major cycle low. The exact bottom date for the cycle is Jan 3. Our Nov 30th low was 1 month early. Our current move is 1 month late. Regardless of what price was, buying dips in this 2 month time frame will reward you. Just like it has in every other cycle low for over 15 years.
So in conclusion, we are right there. We could see a reversal very soon that sends us much higher. If a further plunge were to occur, it will likely be short lived capitulation. This is not something to worry about nor is it something to trade. It can be very fast and then it's over. If you think you can get clever and sell and jump in at lower prices later, you will lose your positions. Money isn't made buying and selling, money is made waiting, so sit tight.
Hold on, don't panic. Turn off the computer if you need to and walk away. We're almost there.
-Jonathan Mergott