Precious Metals Bull Market to Resume?

As fully expected, the S&P500 continued to erode in price last week. While not losing a whole heck of a lot, it did slip another 0.4%. Once again, volume was slightly higher than it has been on weeks when the S&P500 rose in price.  And the VIX index, while not changing by much, did also creep higher as one would expect when prices decline; that said, S&P volatility is still near the lows of the year set in April……and nowhere near the highs set in January.

The technical picture on the daily charts is becoming even more clear—-a downturn in the short-turn looks increasingly more likely to occur. The uptrend that began with the bounce in late February has been broken. Upward momentum stalled several weeks ago…as noted here. Friday’s closing price, while still above the 200 day moving average, is rapidly falling back down to this major level of support—and this will be the big test: will the 200 day hold? If so, then the short-term downtrend may be reversed, and the big February bounce may resume. But if the 200 day fails to hold, just like in November and December of 2015, then further losses will almost surely follow.

The week was busy with lots of economic reports. PMI manufacturing kicked off the week with a miss. Then ISM manufacturing also missed. Construction spending disappointed. Productivity fell a little less than expected, but unit labor costs rose much more than predicted. Obviously, fast rising labor costs will eat into future corporate profits. Initial jobless claims missed. The big number of the week, payrolls, was a disaster, missing very badly. And to add insult to injury, the unemployment rate ticked up and the labor force participation rate ticked lower. On the bright side, PMI services, factory orders and ISM services all beat expectations. But still, all in all, there is no sign that the US economy is doing anything but limping along on the verge of suffering another, long overdue recession.

Finally, let’s revisit the precious metals markets, specifically gold and silver. For the first time since 2009, the price of gold has soared above its 200 day moving average. More importantly, the 200 day moving average has started to slope upwards….also for the first time since 2009. Something similar is happening in the silver market.

The reason this is notable is because back when this happened last time in 2009, gold went on to rise by more than 100%, peaking in late 2011. And silver went on to rise by about 500%.

If something similar were to repeat in near future, then gold could rise from about $1,000 to over $2,000.  Silver could rise from about $14 to $85.

Of course this is not an actual prediction…..but it is an indication of how much these prices have fallen since 2011 and how much potential upside could lie ahead for investors who start buying now, rather than when gold and silver prices have already taken off and registered most of their upside moves.

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