Technical Scoop: Potential Stagflation, Commodity Friend, Gold Corrects

Excerpt from this week's: Technical Scoop: Potential Stagflation, Commodity Friend, Gold Corrects

Source: www.stockcharts.com

Gold finally took a pause, falling 2.8% this past week. A correction was overdue, given the persistently high readings of RSI, well over 70. It was thanks to the higher-than-expected PCE prices over calling the fear component for gold. Nonetheless, it leaves the uptrend intact unless we were to break under $2,300. Then we’d shift to a slightly deeper correction and for maybe a bit longer. Still, a more significant sell signal would not come until we are under $2,150. After that there is further support down to $2,025/$2,040. Not that we expect to get that low, but knowing where the key points are helps with decision-making.

Silver took a hit, down 5.5%, platinum dropped 2.3%, and of the key near precious metals palladium fell a sharp 6.6%. However, copper rose to new 52-week highs, gaining 1.6%. Copper has been getting some attention lately, particularly with the attempted takeover of Anglo American by BHP. BHP is the world’s largest metals company with a market cap of about $143 billion. Anglo American is the 13^th largest with a market cap of $44 billion. No wonder they thought the $39 billion offer from BHP was insufficient. If successful, it would create a metals behemoth, particularly in copper. Copper demand is rising and there just isn’t enough of the metal around. The focus now is on the large metal companies, but later it shifts to the junior market as companies need or want to add resources.

The gold stocks rose this past week despite the fall in the metals. The Gold Bugs Index (HUI) gained 2.4% while the TSX Gold Index (TGD) was up 2.0%. The gold stocks leading is a positive development and keeps our thoughts of higher gold/silver prices intact. Regaining $2,400 would set our sights on $2,500. Above $2,420 new highs are clearly possible. We saw forecasts this week for gold $8,000 from analyst AG Thorson. However, that is over the period to 2030. He’s basing it on the big breakout from the long 12-year consolidation period before the breakout that led to the 2005–2011 run-up from $450 to over $1,900. A similar run today could take gold from under $2,000 to potentially $8,500. But not overnight.  (https://www.gold-eagle.com/article/gold-forecast-bull-run-gold-miners-just-starting)

Source: www.stockcharts.com

A run of that nature would certainly lift silver and gold stocks as well. After a long, frustrating period of consolidation, gold bugs may soon have their moment in the limelight. It’s early as well. Could we be wrong? It happens, but we’d have to break back under $1,700 to really confirm that. Given today’s conditions, that is not likely to happen. Got gold

Source: www.stockcharts.com

Silver, after jumping 36% from that low in February 2024 took a pause this past week, falling 5.5%. Seems like a lot, but when placed against the 36% gain it is only 15% of the gain. It’s important to note that, so far, $26.50 is holding. We’d be more concerned if we broke back under that level. Silver is now up 13.1% in 2024. The run-up from the February low unfolded in five waves, suggesting to us that we could be making a primary up move. It’s no surprise that $30 is resistance as that was the high back in February 2021 ($30.35). Our expectations of $39/$40 targets remain, once we get past the February 2024 high. The breakout over $26/$26.50 suggests that target. We also have the interesting-looking head and shoulders reversal pattern that favours the move to our noted targets. With gold prices trading at record levels, a lot people will shift their focus to silver, the poor man’s gold, as an alternative. Unlike gold, silver remains a long way from its highs of 2011 near $49. On an inflation-adjusted basis, the high was actually seen in 1980, which could imply a price of $145 to $160 on an inflation-adjusted basis. The charts suggest that higher silver prices are ahead. A break over $30 should set us on our way.

Source: www.stockcharts.com

We found this chart of platinum rather compelling. There is a potentially fascinating bottom pattern forming. Another breakout over $1,000 could do it. At one time, platinum traded over double gold prices. Now it’s way below. Platinum getting back to par with gold is not beyond impossible. If we successfully break out over $1,000 and make new highs above $1,031, then the potential to rise to over $1,200 is there. We can’t say the pattern is finished just yet, but given we are down near support it is probably low-risk entry at these levels. The indicators are not making new lows supporting platinum. A rise is a matter of when, not if. Platinum, sometimes is mistakenly known as white gold. White gold is gold 75% mixed with palladium 25%, but platinum’s lustrous colour mistakes it for white gold. Nonetheless, calling it white gold is not wrong, either, due to its white colour. The metal is rare, rarer than gold. Platinum is heavily used in industry but also exists as jewelry. Platinum coins are also rare.

Source: www.stockcharts.com

Gold stocks were up this past week, despite both gold and silver having a down week. We view that as positive. The TSX Gold Index (TGD) was up about 2% while the Gold Bugs Index (HUI) gained 2.4%. Both remain below recent highs. Initially, the gold stocks plunged along with gold and silver on their big down day (corrective, as we noted), but recovered well afterward. Gold stocks remain cheap, under-owned, and unloved, despite the recent rise. The huge reversal pattern on the TGD still looks compelling and once we break above 330, we could be on our way to potential targets up to 450 to 500. That would be new all-time highs for the TGD. Support came in at 300 this past week so we now need to hold above that level. Under 275 would mean it’s all over and we’re headed to testing the lows. The head and shoulders pattern, while compelling, is still awkward as we don’t normally see the right shoulder below the left shoulder. Nonetheless, it looks good. It breaks down completely under 240. The pullback has helped work off any overbought indicators. But until we successfully clear 330, the risk remains mildly to the downside.

Read the full report: Technical Scoop: Potential Stagflation, Commodity Friend, Gold Corrects

Copyright David Chapman 2024

Disclaimer

David Chapman is not a registered advisory service and is not an exempt market dealer (EMD) nor a licensed financial advisor. He does not and cannot give individualised market advice. David Chapman has worked in the financial industry for over 40 years including large financial corporations, banks, and investment dealers.  The information in this newsletter is intended only for informational and educational purposes. It should not be construed as an offer, a solicitation of an offer or sale of any security.  Every effort is made to provide accurate and complete information. However, we cannot guarantee that there will be no errors. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this commentary and expressly disclaim liability for errors and omissions in the contents of this commentary.  David Chapman will always use his best efforts to ensure the accuracy and timeliness of all information. The reader assumes all risk when trading in securities and David Chapman advises consulting a licensed professional financial advisor or portfolio manager such as Enriched Investing Incorporated before proceeding with any trade or idea presented in this newsletter. David Chapman may own shares in companies mentioned in this newsletter. Before making an investment, prospective investors should review each security’s offering documents which summarize the objectives, fees, expenses and associated risks.  David Chapman shares his ideas and opinions for informational and educational purposes only and expects the reader to perform due diligence before considering a position in any security. That includes consulting with your own licensed professional financial advisor such as Enriched Investing Incorporated.   Performance is not guaranteed, values change frequently, and past performance may not be repeated.