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Precious Metals Power Move

07 August 2020

Precious Metals Commentary

Another amazing week with gold pushing strongly through $2,000 and silver reaching just shy of $30.

Over only 16 trading days the move in gold, as shown in the chart below, is an impressive 14.3% but silver steals the show at 46.7%. Given how volatile the market is, those figures will probably well out-of-date by the time you read this.

gold and silver prices since 17 July

With such big moves the question of course is how long can this run, run and how do you work out support and resistance levels when a market moves into uncharted territory?

This was the question Bron asked Nick in our 360 Monthly Review video recorded yesterday. Nick said he relies on point and figure charts in such situations. In Nick’s Monthly Technical Analysis, also out yesterday, he said that the next resistance level of $2,064 may indicate where a nearby top may form and gold topped out at $2,075.28 today (so far).

Nick says that the next level to watch is $2,115 and he has a longer-term target at $2,395.

For silver Nick says that the parabolic nature of its move spells caution with remaining targets of $28.40 (subsequently reached) and $30.15 left (just 30 cents short of that today).

In terms of local prices, the strength of the Aussie dollar due to strong trade surpluses has mitigated the gains a little with AUD gold up 10.8% and silver 43.4%. With Nick seeing signs our dollar may be rolling over, it shouldn’t be long before Aussie gold breaks $3,000.

For Aussie silver, Nick says that since his nearby targets of A$39 have been overcome the next set of levels are clustered at the A$50-52.50 zone.

Are We There (Bubble Top) Yet?

With such a bit move the natural question is whether the metals are becoming a bubble. We think it is worth noting that gold has been in a bull market since 30 November 2015, when it bottomed out at $1,046.46. It doesn’t look like it will be long before gold gets to $2092.92 – a doubling of that bottom.

Silver also bottomed around the same time, 14 December, at $13.65 (apart from a COVID spike down in March to $11.64) but it has been more of a sideways market from December 2015 to March 2020 at which point it has increased near 2.5 times.

To put those moves in perspective we have charted four previous big moves. In both the 1970s and 2000s decade bulls there were two distinct power moves with big corrections mid-way through. The chart breaks up the decade moves into the initial move and then the final move.

chart of gold bull markets indexed

As you can see, the current 2016-2020 near doubling is not out of the ordinary and seems to be tracing the slow build of the bull market leading into the Global Financial Crisis.
For silver the pattern is similar but note the larger volatility with a times 4 move being reasonable.

chart of silver bull markets indexed

One final statistic before we have to get back to answering phones comes from Pervalle Global, a NYC based global macro fund, who had an article out showing the value of various asset classes globally. I have adjusted their gold value to take into account more accurate private gold stocks and jewellery figures from the World Gold Council to produce the chart below.

global assets pie chart

Private stocks and jewellery only account for 3.2% of total global assets of $468 trillion. It shows that even just a minor reallocation from other asset classes toward gold and silver will have an outside impact on their prices.

If you have a bit of time to spare over the weekend, check out this How March Killed the Gold Paper Trade interview between Bron and Shae Russell (of The Daily Reckoning) at the Sprott Natural Resources Symposium discussing the Australian gold market, impact of COVID on production and the dislocation between Comex futures and London markets.
 
Until next time,

John Feeney and Bron Suchecki
ABC Bullion
 
If you have any questions or feedback about this week’s report, we would love to hear from you. You can contact John Feeney (@JohnFeeney10) and Bron Suchecki (@bronsuchecki) directly on Twitter, otherwise please feel free to send us an email at comms@abcbullion.com.au, or call us during trading hours on 1300 361 261.

Disclaimer
This publication is for educational purposes only and should not be considered either general or personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, and past performance is not necessarily indicative of future performance. Any prices, quotes, or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.