Technical Scoop: Precious Highs, Cut Babble, Staple Trajectory

Excerpt from this week's: Technical Scoop: Precious Highs, Cut Babble, Staple Trajectory

Source: www.stockcharts.com

Driven by geopolitical concerns, constant central bank buying, talks of rate cuts and falling bond yields, gold once again soared to new all-time highs, closing at $2,537.80 for the front futures. It was good news/bad news as gold made new all-time highs in U.S. dollars, but still fell short in Canadian dollars, euros, pound sterling, Swiss francs, and Japanese yen. But all are close and could see that this coming week. If it’s making new highs in U.S. dollars, the others usually follow. Gold acts as a hedge against currency devaluation. Central banks purchasing gold may indicate a lack of confidence in the U.S. dollar as the world’s reserve currency. No, that will not end tomorrow but it is under pressure. One central bank not purchasing gold is the BofC. The BofC sold all its gold in 2016, somehow believing holding U.S. securities was better. Not surprisingly, gold has been making new all-time highs in Cdn$ as well. The Cdn$ has been weak but remains well above its all-time low of 61.86 seen in 2002. But the high of 110 in 2008 seems a long way off. Currently it is 73.10.

Central bank holdings of gold have gone up, such that nearly an ounce of every 10 ounces produced is bought by central banks. Russia and China lead the way, but India and Turkey are also increasing their holdings. The world’s official gold holdings are 36,089 metric tonnes in May 2024. That’s sizable, given that the total amount of gold mined is estimated at 212,582 metric tonnes. The central bank’s holdings are almost 17% of that. Foreign holdings of U.S. treasuries are up $11 billion over the past year to June 2024, but China’s holdings have fallen $56 billion as they slowly sell off their holdings. Others have picked up the slack.

On the week, gold rose 2.6%, silver led up 4.6%, platinum showed some life, up 3.5%, but is still down 5.9% on the year. Of the near precious metals, palladium gained 5.3% while copper was up 3.8%. The gold stocks enjoyed a strong week with the Gold Bugs Index (HUI) up 8.7% and the TSX Gold Index (TGD) up 7.2%. Stocks leading is quite positive. We’d be concerned if they suddenly started to lag.

Besides geopolitical concerns (Russia/Ukraine, Israel and the Middle East, U.S./China) and central bank buying, gold is responding to potential Fed cuts and reacting to a still growing U.S. economy. Note that gold rises with the stock market, but when the stock market falls gold does not fall as much. A wild card is the U.S. election that could erupt into chaos if results are not accepted after the November 5 election.

Many are saying that gold is in a stealth bull market. The airwaves are still dominated by the Magnificent Seven and other stocks, but some are beginning to recognize gold. If that shifts, gold could make even further upward moves. Suddenly, gold at $3,000 doesn’t seem that far away.

It looks like we have a rising triangle, but we need to firmly break above $2,550 to confirm it. Minimum targets could be $2,700. And while the gold stocks have enjoyed a strong up year so far, recognition from the broader market could truly ignite it higher. It is, after all, a small market with an estimated market cap of only $300 billion, according to some. Tops, it may be $500 billion. Apple is $3.4 trillion, Visa is $522 billion, while Coca Cola is about $300 billion. It is a pretty small market. No wonder it is described as trying to push the contents behind the Hoover Dam through a garden hose. All the gold in the world is worth roughly $16.8 trillion. That’s about the same value as Apple, Microsoft, Nvidia, Google, Amazon, Saudi Aramco, and Meta combined. Just a shift of less than 1% from the broader market to the gold market could send it soaring.

Source: www.stockcharts.com

Finally, silver is showing some leadership. Silver tends to lead in both up and down markets. The trouble is, silver hasn’t been leading the recent rise. It’s still lagging. On the year, silver is up 19.8% but gold is up 22.5%. This past week silver came to life as it gained 4.6% to gold’s record-breaking rise up 2.6%. We’ll take our wins when we get them. We need silver leading every week, even on pullbacks, by not falling as much as gold. The gold/silver ratio is still a lofty 88%, but at least that’s down from a high of 92.2% seen on August 14. However, it’s a long way from breaking down over a multi-year top. We need the ratio to break under 72/74% to see that. Silver lags gold almost everywhere. Gold sets new all-time highs. Silver is nowhere near its all-time high seen in highs in 1980 and 2011 near $50. Today we’d have to get to $190 to equal the 1980 high on an inflation-adjusted basis and $70 for the 2011 high. Some believe it will happen. Right now, we see few signs. Silver has to break above $30.70 to suggest new highs above $32, preferably above $31.50. Even today at $28.85 it seems far away. But at least not impossible. A break back under $27.50 would be negative and a breakdown under $26 fatal.

Source: www.stockcharts.com

With gold prices making record highs and silver enjoying a strong up week, the gold stocks had a very good week, falling just short of new 52-week highs. That should occur early this coming week, unless… Technically, we look like we could be making a triple top, but then triple tops are a rare event. The TSX Gold Index (TGD) was the top performer for the TSX this past week, gaining 7.2%. The Gold Bugs Index (HUI) did even better, up 8.7%. On the year, the two have been stellar with the TGD up 28.5% and the HUI up 28.3%. Yet, oddly, the sector remains cheap and under-owned. The recent decline for the TGD saw it hit down to the 50-day MA near 336 before rebounding strongly. The top of that channel is up near 375/380 so it could be an initial target. The RSI is still at a manageable 63.5, so it is not as yet overbought. Naturally, if we were to fall below 345 again, we’d be concerned. Below 335 a bigger drop could get underway. We have emphasized that, while the gold stocks have been in a good bull market, pullbacks of 10% or more are not uncommon. New highs above 367 would be positive. A reminder we are still well below the all-time high of 455 seen in 2011. The HUI is even worse. At 312 it is more than a double away from its all-time high of 639, also seen in 2011. Such is the nature of gold stocks

Read the FULL report here: Technical Scoop: Precious Highs, Cut Babble, Staple Trajectory

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.