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Is Silver & Gold Mirroring 1999 to 2011 Again?

Our research team continues to dig into underlying patterns and set up in the global markets to assist skilled technical traders in understanding the current Covid-19 virus event and other key technical data.  Recently, we’ve authored a number of detailed research articles that we believe helped prepare traders for the events of the past 30 to 90+ days.  If you missed them, please take a moment to review some of our critical market research posts:

February 24, 2020: HAS THE EQUITIES WATERFALL EVENT STARTED OR A BUYING OPPORTUNITY?

January 31, 2020: A COMBINATION TOPPING PATTERN IS SETTING UP

December 20, 2019: WHO SAID TRADERS AND INVESTOR ARE EMOTIONAL RIGHT NOW?

Today, we are writing about a pattern our research team is seeing in the Gold/Silver ratio which is correlated to the price movement of Gold.  What does this mean and how can we profit from this setup?  Let’s get started trying to explain this chart pattern/setup.

GOLD:SILVER RATIO CHART FROM A NEW ANGLE

This first chart highlights the pattern we have identified and how we believe a similar pattern is setting up again in the current market.  The setup of the pattern is explained in the text below, but quickly scroll down and look at the first chart and the pink shaded areas “A” to get an idea of what we are talking about.

PRIOR TO “A” PATTERN SETUP

_ After a moderate price decline in Gold (1996 through 2001), a bottom sets up as the price of Gold begins to base near support.

_  The Gold/Silver ratio (BLUE), falls throughout this pattern setup as both Gold and Silver prices decline somewhat in unison.

THE SETUP “A”

_  Gold prices begin to rally moderately while pushing the Gold/Silver ratio higher over an extended period of time (from 1999 to 2003: about 4 years).

_ The Gold/Silver ratio peaks and begins to decline in mid-2003 as the price of Gold continues to rally at a bit more accelerated rate.

_ Gold prices begin a parabolic upside price advance in early 2006 after the Gold/Silver ratio collapses about 18% to 20% from the peak level near 82.50.

We believe a similar type of pattern is setting up right now in the metals market and we believe both Gold and Silver will engage in a price advance over the next 10+ months that may be similar to the post-A set up in mid-2003.  If you are familiar with what happened in the metals market at that time, Silver began to advance at a faster rate than the price of Gold advanced.  This is what caused the Gold/Silver ratio to begin to collapse.

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SILVER MONTHLY CHART FROM 1993 TO 2004

This Silver chart from 1993 to 2004 clearly shows how the price of Silver was reacting throughout the setup prior to “A” and after “A” in the chart (above).  Silver began a moderate price advance in 1993 from a level near $3.50 and advanced to a level near $7.50 in 1998.  Then, it began a downside price move to reach new lows in 2002.  At that point, the markets changed.  Gold and Silver began to advance almost in unison with Gold still advancing slightly more than Silver until early/mid-2003.  Once Silver broke dramatically higher, in late 2003-04, the Gold/Silver ratio started breaking downward instead of upward.  This is the pattern we are seeing in the metals market right now.

We believe the recent rotation in the metals market and the dramatic price divergence between Gold and Silver are setting up another similar type of pattern that could prompt both Silver and Gold to rally upward from current levels by at least 200%.

CURRENT SILVER MONTHLY CHART

The extremely deep price retracement on this Monthly Silver chart (below) highlights what we believe is a deep washout low price rotation that is setting up the “disconnect” as we have tried to explain in the Gold/Silver ratio chart and historical Silver chart (above).  Yes, Gold also moved dramatically lower over the past 2+ weeks illustrating the shock to the markets that took place as the Covid-19 virus event disrupted the US and global markets.  But our researchers believe this dramatic washout low in Silver is setting up a much bigger pattern, longer-term than most people understand.

Recently, news that global precious metals suppliers have received a tremendous surge of orders for the physical stock over the past 2+ weeks (source: https://www.msn.com).  In fact, many global suppliers and mints are simply “out of stock” at the moment.  This surge in demand changes the dynamics of the market and how we look at the washout low in Silver.

If demand continues to surge, which we have no reason to doubt at this stage of the Covid-19 virus event, and Silver begins to rally as it did in 2002~2005, then the Gold/Silver ratio will begin to collapse just as it did in 2003~2007 (see the first chart – Post “A”).  This means the demand for metals is skyrocketing and Silver has suddenly become a more “in demand” physical metal than Gold.

You want a reality check on how to trade gold, silver and the stock market in this type of market condition be sure to check this out.

CURRENT GOLD WEEKLY CHART

We believe the next phase of price action in Gold is a move above $1990 as demand for metals continues to surge.  This would represent a 100% Fibonacci price expansion of the last price rally from the lows set in September 2018 (near $1168).  It would also represent a rally from the current level of at least +22.50% in Gold.  Subsequently, if Silver begins to rally at a greater rate than Gold over this same span of time, Silver could rally to levels above $22 representing a +53% price rally according to our Adaptive Fibonacci Price Modeling system (the CYAN target on the chart above).

Pay attention to the Gold/Silver ratio and the price of Silver compared to Gold over the next 30 to 60+ days.  If our research is correct, the current low price of Silver will be a distant memory in less than 60 days and a tandem price advance in both Gold and Silver will propel the metals much higher.  How much higher?  From 2003 to the peak in 2011, Gold rallied 450% (from $350 to over $1900).  Over that same span of time, Silver rallied 1024% (from $4.50 to just under $50).

If we are right about this pattern setup and the future opportunities it may present, we could see Silver trading above $160 per ounce within 4 to 7 years.  Can you guess where Gold would likely be trading if Silver rallied 1000% from current levels?  Don’t miss this next big move in the metals.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

Visit my ETF Trading Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Virus Curve, Market Crash, and Mortgage Massacre

In this last segment of our multi-part research article, we want to highlight our expectations of the Covid-19 virus event and how the next 6+ months of global market activity may play out.  We’ve covered some of the data points we believe are important and we’ve touched on the collateral damage that may be unknown at this time.  Today, we’ll try to put the bigger picture together for investors to help you understand what we believe may be the 12+ month outcome.

As the global central banks and US Fed attempt to come to the rescue, the reality is that monetary policy works better when consumers are able to actually go out and engage in spending and economic activity.  If the Covid-19 virus event contracts global consumer activity, as it has recently, for an extended period of time (4 to 6+ months), then we have a real issue with how QE efforts and consumer activity translate into any real recovery attempt.

The real risks to the global markets is an extended risk that the Covid-19 virus creates a contracting economic environment for many months/quarters and potentially fosters an environment where extensive collateral damage to corporations, consumer activity, credit/debt markets, and other massive financial risks boil over.

Before you continue, be sure to opt-in to our free market trend signals 
before closing this page, so you don’t miss our next special report!

News is already starting to hit that QE is not helping the deteriorating situation in the Mortgage banking business.  Remember, this is the same segment of the financial industry that started the 2007-08 credit crisis event.  News that mortgage lenders and bankers are already starting to experience margin-calls and have attempted to contract their exposure to the risks in the markets (a bit late) are concerning.  This is a pretty big collateral damage risk for the global markets.

Additionally, as we expected, applications for new mortgages have collapsed to their lowest level since 2009.  Until consumers feel confident in their ability to get out, engage in real economic growth and take on home loans they know are relatively secure in their ability to repay – there is going to be a continued market contraction.  The next phase of this contraction is a price reduction, forced selling/foreclosures and a glut of assets waiting for a bottom.

“Home-purchase applications dropped by 14.6% while

refinancing applications plummeted 33.8%… “

I think the most important aspect of this global virus event is to remember that we will survive it (in some form) and we will live to rebuild after this event completes.  Yet, the reality is that we were not prepared for this event to happen and we don’t know the total scope of this Covid-19 virus event.  We simply don’t know how long it will take to remove the threat of the virus and for societies to reengage in normal economic activity – and that is the key to starting a real recovery.

Hong Kong has recently reported a “third wave” of Covid-19 infections.  I believe we should attempt to learn from places like Hong Kong, where news is moderately accurate and reported via social media and other resources.  If we want to learn what to expect in the US and how the process of containing this virus may play out, we need to start learning from other nations that are ahead of us in the curve.

It appears that any attempt to resume somewhat normal economic activities while the virus is still active spouts a new wave of infections.  This would suggest that the only way to attempt to reengage in any somewhat normal economic activity would be when a vaccine or true medical cure is in place to allow nations to attempt to eradicate the virus as these waves continue. (Source: https://www.marketwatch.com/story/third-wave-hong-kong-thought-it-had-a-handle-on-coronavirus-it-doesnt-2020-03-23 )

The price collapse in 2008-09 represented a -56% decline from top to bottom.  Currently, the S&P has fallen by just over 35%.  We don’t believe the bottom in the US stock market has setup just yet and we do believe there is a greater downside price risk ahead.  We don’t believe the housing market will be able to sustain any of the current price levels for much longer.  We believe the collateral damage of this event is just starting to be known and we believe a greater economic contraction is unfolding not only in the US but throughout the globe.

Skilled traders need to understand the total scope of this event.  We’ve attempted to highlight this risk in this article and in our “Crunching Numbers” research article (PART III).  An economic contraction, like the Covid-19 virus event, could contract global GDP by as much as 8 to 15% over an extended 16 to 36+ month span of time.  Are we concerned about the Real Estate market?  You Bet!  Are we concerned about global markets?  You Bet!  Are we prepared for this as traders? You Bet!  Are the central banks global nations prepared for this? We certainly hope so.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Featured on TD Ameritrade TV – Safe Plays During Slowdowns

Recently I have been asked to talk on multiple TV shows, radio stations, and podcasts during this wild market correction in almost every asset class.

The reason being I think is from some recent articles I posted publically clearly shows how a technical trader can successfully time, trade, and protect capital no matter what happens in the equities, bonds, and commodities market.

In short, I had subscribers move their money into the leading assets in January which were GDXJ (gold miners) and TLT (bonds). I also talked about consumer staples, and utilities as safe havens.

These assets were outperforming the stock market and that is where you want your money to be positioned as you will earn more over time owning leaders that increase in value more than that of the average stock market index.

Spotting the leaders is not really that difficult, but what is tough is knowing what position size you should have in any given trade, where to place profit targets, and where to place stop losses/trailing stops.

As you have likely noticed gold miners GDXJ fell a whopping 57% from the highs if you didn’t have proven strategy then your likely still holding them and have endured one hell of a rollercoaster ride. Subscribers and I exited GDXJ at the high tick the day price reversed for a 9.5% profit because we had a trading strategy and executed our trading plan.

GDXJ had reached our extreme price target using technical analysis which was a clear resistance level for sellers to unload shares and that’s what did, sold our shares as well.

TLT actually had the biggest and best-looking chart out of all other asset classes which is why we focused mainly on that position with our capital. See our trade below as it paints a clear picture.

TLT/Bonds historically show that when they rally 20% in price quickly the instantly reverse and crash. Well, our Fibonacci upside target worked out to be a 20% gain and if that level was reached we would close out any remaining position we had, which we did. During the rally, we scaled out of the position at 5%, 7.5%, 10% gain, and then the last portion once 20% was reached. The next day, TLT reversed and fall 15% over the next two weeks.

TD AMERITRADE TV CLIP

CLICK HERE TO WATCH VIDEO