Craig Hemke (00:00)
We've reached the end of February and it's time for the Sprott Money Monthly Wrap-Up. We do these every month and it's time to do it. I'm your host, Craig Hemke and joining me for your monthly wrap up is my old friend, Michael Oliver, one of Eric Sprott's favorite analysts. runs Momentum Structural Analysis. We'll talk about that in a second and we're gonna get Michael's views on this month and where we are going forward. Michael, good to see you brother.
Michael Oliver (00:28)
Good to see you again, Craig.
Craig Hemke (00:30)
Hey, look again, get started here. It's going to be March. I mean, if you've been putting off doing your taxes, it's probably time. You need to fund that RRSP or IRA account and buy some physical metals. Sprott Money will help you do it. Go to SprottMoney.com or give them a call at 888-861-0775. Get some metal out of the hands of the banker, force more deleveraging of the system, and maybe we'll get some actual price discovery. Michael?
Let's get some actual price discovery. We ended January on ⁓ an interesting note, right? With prices collapsing into the monthly close, conveniently after Shanghai and London are closed back on Friday the 30th. But we recovered nicely and the long-term charts don't look that bad. As we record this here on Thursday the 26th, the gold price is up almost 6 % on the month, even after that washout. Silver's up about two.
Michael Oliver (01:07)
Yeah, yeah.
Craig Hemke (01:28)
So it's kind of, you know, trying to do its thing. The shares are doing great. The GDX is up nearly 19 % on the month. I think we should start with though, as we narrow in on the end of the month, the events of late Wednesday, the 25th. Michael, you have been, I always like to say, you've been doing this since your days at EF Hutton. And when Michael Oliver talks, people listen. Brother, you've been around these commodity markets for 50 years. You ever seen things like yesterday? How often does that happen?
Michael Oliver (01:35)
Mm-hmm.
Very seldom. ⁓ It's too peculiar to be an accident. ⁓ That's not our expertise at MSA. We analyze markets via their momentum, structural behavior, ⁓ technically, in other words. ⁓ But these events are just bizarre. And when they occur is bizarre. And how limited it is. other words, wasn't the whole CME went down. was just silver, gold, and natural gas, too.
Craig Hemke (02:25)
Right.
Michael Oliver (02:28)
We can't just say it was well, they're manipulating silver because natural gas got shut down too. Well, anyway, ⁓ any attempt by any force with the government brokerage firms, whatever, to restrain the market from doing what it otherwise would do in reality, know, merely compresses the explosive effect. Whereas if you hold something back and it should have been there, but you're keeping it back, when you finally crumble,
as the enemy overruns you. It's probably even more compressed then with explosive behavior, in the case of silver upside explosive behavior, than it would otherwise be. ⁓ Markets make errors. Markets aren't always rational. That's a false assumption. And whenever markets do make an error, you we see this in bubble stock market tops, for example, where the market gets overpriced for too long, like the dot com top, let's say.
Craig Hemke (03:00)
Mm-hmm.
Michael Oliver (03:28)
And when it unleashes, it unleashes itself even more than it probably should. know, one error goes to another. Well, silver has been irrationally in a range for 50 years. From $4 to $50 to $4 to $50. And if you look during that same period, 1970s through 2011 peak in silver when it hit 50 again until now, just recently a couple months ago, broke through that.
Craig Hemke (03:33)
Yeah.
Michael Oliver (03:57)
No other market's been restrained like that. Copper hasn't. Copper lived in a range from 50 cents to a buck 50 a pound during multiple decades, 70s, 80s, 90s, 2000. And in the late 2005, it said no more. Boom, it went to four and a half bucks in a matter of a couple quarters from a zone that on average was a dollar. It's silver still in its 50 year range though. Lead, another exciting market.
Craig Hemke (04:00)
Yeah.
Hehehehe
Michael Oliver (04:26)
2007 did the same thing. It had been in a range for many decades and suddenly quadrupled basically in price in a matter of a couple of quarters. And once it did, it lived in a new reality of price level compared to that old reality. Well, silver on a net price basis, if you're just a stupid price chart looker, okay, you got a breakout a couple of months ago, getting above 50. Okay, fine. First thing it did is go to 122, bam. More than doubled the range.
The range was what, four bucks to 50, four bucks to 50. It was like a $45 range, let's call it. We'll add 45 bucks to 50 and it says, well, the swing objective would be 95, right? Thickness of the range added to it, the orthodox. Well, it went past that. So that notion is no good anymore. So Silver said, no, I'm not going to be confined by old rules. If Silver does what Copper did in 2005-06, or what Lead did in 2007.
Craig Hemke (04:59)
Yeah.
Yeah?
Michael Oliver (05:26)
What gold has done repeatedly at each of its bull market peaks, goes way beyond the old peak.
Craig Hemke (05:29)
Yep.
Michael Oliver (05:32)
We project and have projected for months now that when this thing unleashes to a new reality, we call it silver, it's probably gonna be, three to 500 bucks. And only then would I think Eric Sprott pointed this out in an interview he did some months ago that if you factored in just the decay in the money unit, and there was the increase in the quantity of the money unit, the M2, and factored that back to 1980 or 2011, silver would well be in the hundreds just to get even.
Craig Hemke (05:59)
Yes.
Michael Oliver (06:03)
to those equivalent price levels, the reflected decay in the real buying power of the dollar. ⁓ And the fact that there might be entities that try to restrain this process, and obviously it hasn't been working, we're not still in the 50s again, you know, okay. ⁓ They only accelerate it and they create these boom effects. So it wouldn't shock me somewhere down the road here in the next couple months even.
to see something like a couple $10 days in silver or $20 days on the upside. Bam, bam, bam. With just gas, okay? While it seeks its new reality.
Craig Hemke (06:46)
You know, ⁓ Michael, we've known each other now for a couple of years. And I remember when we were talking last year and so, you know, gold had already taken off and silver starting to play catch up. And it was about then you started talking about, you're not just going through 50, but, know, going through a hundred and 200 and beyond these targets that you're talking about. I, you know, I've been preaching against this frac, I call it the fractional reserve and digital derivative pricing scheme, right? Where.
You're not really trading physical metal. You're swapping these derivatives back and forth. And I would sit there and look and go, okay, I can see where he's coming from, but how do we get there without blowing up this pricing scheme, without making it obsolete because the metal's not there backing the derivatives? And then you get things like Wednesday the 25th, and I start to think, well, heck, maybe that's how we're going to get there. Maybe that's how it combines all of this together into your price targets. What do you think of that?
Michael Oliver (07:15)
Yeah. Yeah.
Yeah, these things are compression effects and they're wrong. In other words, they're trying to keep reality from happening. And ultimately, once the market unleashes itself as it has, even on a net price basis, it said, I'm not going to live in that old range again. Okay. Well, our momentum work said that before that even occurred in price. Momentum said, yeah, you're accelerating. In fact, June of last year, silver was coming back up to 35 again.
Craig Hemke (07:50)
Yeah.
Mm-hmm. Right.
Michael Oliver (08:08)
It had already been there a couple of times in late 24 and early 25, just above 35. And it dropped hard into April, if you recall, last year. It came roaring back up and when it was about 34 plus, we said, okay, this time it's different. You're going to accelerate. And sure enough, we went from 35, bam, up to over 50. And then something else happened. it's a metric we're watching that most people aren't, but we see it as a dynamite metric.
Craig Hemke (08:25)
Yep, yep, you're right.
Michael Oliver (08:38)
And I've sent you some charts that make this point. A lot of people like to look at a price chart. And obviously, if you just look back a year or two or three and what's happened then, you see this verticality and you think, my gosh, I can't get in that. I missed it. It's going to crash, et cetera, et cetera, without looking at the context of the longer term reality that has existed for more than a half a century. But momentum said, no.
Craig Hemke (08:55)
Right.
Michael Oliver (09:08)
It's over. We're coming out of here. Okay. And then price joined. Usually it's lagged to its own momentum. Okay, fine. But, and so that's our main analysis is the momentum analysis of the price action. And when we plot it, we get different visual view of the trend structures that you might see on a price chart, like the ceiling, going back 50 years on price, 50 bucks, 50 bucks. Okay. Well, on momentum, you have similar structures, but they broke out earlier. Okay.
We're price in relation to a moving average and we're oscillating it. So it's not just like overlaying a moving average on a price chart. Everybody does that. But where is it in relation to that average? And you create an oscillator and it gives you a different visual picture sometimes. And usually it will lead price. Okay, forget that. We stepped away from that a bit and we also looked at relative performance of this versus that. ⁓ For example,
some big things happened on relative performance in the last three or four months. For example, the issue is for an investor, what's a better place to be? It's always the question. And it's always, well, within the S &P, where's the best place to be? But how about thinking beyond that? Maybe gold is a better place to be than the S &P or gold and related things. And if you go back after that 2011 peak in gold, gold collapsed in price down to
$1,900 down to $1,050. And its relative performance to the S &P, and this is the first chart that is being put up, it shows the monthly closes of gold plotted as a percent of the price of the S &P. And each month you plot that reading, okay? And when you do, you'll see that there's a trend line, gradual trend line going all the way back to 2014. So like 11, 12 years where you've bumped this line, bumped it, bumped it, bumped it. It's a super clear.
structure, not on a price chart, but on a relative performance chart. Gold broke through that in November, meaning gold performance broke through this resistance level it had with the S &P where it had been confined, basically going sideways for 14 years or so, dozen or so years. And finally it punched through this line in November. Well, where was gold in November? $4,200, okay?
Craig Hemke (11:22)
Yeah.
Yeah.
Michael Oliver (11:31)
November, okay, let's start the clock in December, because the breakout was the close of November, December, January, now February. Three months later, we're $1,000 higher in gold net price. And the S &P has unchanged from where it was three months ago, okay? So when these spreads breakout, it often does not just signal, ⁓ one's gonna do better than the other. But if the dynamics of that breakout are so clear as the this chart is,
Craig Hemke (11:41)
Mm-hmm.
Michael Oliver (12:00)
and it's fresh, you just broke through a dozen year base, that anybody with a crayon could plot the line. You just broke out a few months ago. This is not ending. This is something that's just beginning. And the initial price response to that spread breakout was $1,000 gain in gold and S &P sitting there kissing itself. Wow. In other words, the spread breakout yielded a massive price.
At the same time that happened, ⁓ there's another spread chart. Well, I want to get to another one first. This is one that hasn't broken out yet. This is the really important one right now as far as I'm concerned about February, March. XAU index goes back into the 1980s. It's the gold, silver miners index, Philadelphia, gold, silver miners index. XAU, okay. And if you plot it in relation to an ounce of gold,
Craig Hemke (12:39)
Mm-hmm.
⁓ Gold bug index or whatever they call it Michael. Yeah
Michael Oliver (12:59)
divide the price of XAU with an ounce of gold, go back to the 1980s, and you'll see that on the left side of that chart, it oscillated in a range for decades with lows about 17 and a half to 18%, meaning XAU would drop down to that relative value to gold and highs above 30%. So if you look at that range and sort of divide it in half, you'd say, well, it lived on either side of about 25 % of an ounce of gold. XAU expresses an ounce of gold.
It collapsed in that bear market in 2015, got all the way down to 4%. In other words, the miners used to be worth 25 % of an ounce of gold, then they went to 4%. Okay, then what are they gonna do, go to zero? Okay, screw your head on. Okay, since then, that spread has lived in a range, perfect little box, for a dozen years plus, with highs at the same level.
Craig Hemke (13:33)
Yeah, I'm sure it did.
⁓ jeez.
Yeah, right.
Michael Oliver (13:58)
Every time it goes up to like over 8%, it gets knocked back down a bit. It doesn't go back to that 4 % level. No, it didn't. It left that alone, but still lived in a range. You're now with one day left in the month. If you close tomorrow where the spread is right now, you're going to break out of that massive spread range. Similar to that line we broke out of, where gold broke out over the S &P, okay, November and shot up $1,000. Even in the pullback, it's up $1,000 in price.
Craig Hemke (14:22)
Mm-hmm.
Michael Oliver (14:28)
not just beating the S &P, but also a surge in gold. Well, here the gold and silver miners relative to gold are saying, I'm back. I'm reborn. And I'm still at 8.7 % of the price of gold compared to lows that were 17, 18%. In other words, when you look at that chart, if you broke out of that base and ran up to the bottom end of the multi-decade prior range of reality.
Craig Hemke (14:39)
Yeah.
Michael Oliver (14:57)
You'd more than double the current relative value of the gold miners to gold. So wake up. Something's just beginning. You don't break that spread out and top the market. Okay.
Craig Hemke (15:06)
So this.
So this breakout, again, we're recording this on Thursday the 25th. So after our experience at the end of January, I guess we got to assume anything's possible on Friday. But nonetheless, if just the price of the XAU or just the miners in general relative to gold, this stays where it is through Thursday and Friday so that anybody that's watching this over the weekend can look this up. You're going to have this massive breakout similar to gold versus the S &P at the end of November.
Michael Oliver (15:26)
Stay where it is right now. Yeah.
Yeah,
yeah. No, and therefore, you know, recall what gold did versus S &P when it broke out in November. It wasn't just that it did better since then versus S &P gold, and that price exploded. $1,000 in three months. Okay, even in a pullback, it exploded $1,000 where we are right now. Okay, we're off the high, which was 5,600 area. So this spread is very important to watch now, the gold silver miners versus gold.
Craig Hemke (15:51)
Mm-hmm, right.
Michael Oliver (16:09)
And then there's another set of charts that also speaks as a table pounder as far as we're concerned. That's silver versus gold. In this chart, top of that page, you'll see that it goes back to 2011. Why go back then? Well, 2011 is when silver had that bull market run up to 50 bucks for the second time. And in April 2011, it reached 50, again, like it was in 1980, and it peaked there. Okay.
The spread at that time, which is divide an ounce of silver into an ounce of gold and reach 3.1%. Okay. We don't do the ratio. We just divide it as a spread. But you'd exploded from like, you know, 2 % or so to 3.1. And then the spread peaked and dropped back down in the subsequent years since 2011. And recently, like last year, got below 1 % again. Silver is going to be free versus gold, I guess. You know, okay.
Craig Hemke (17:03)
Yeah, I'm doing that, I'm sticking the same thing.
Yeah.
Michael Oliver (17:08)
It's sort of like the miners versus gold, know, off the page cheap. Okay. Well, that spread, silver versus gold broke out through our first breakout level as of the November close. In fact, it went up even further in December. There's another breakout level you can see on that chart. There's two horizontal lines. But at the price of the first breakout on that spread, the November close, silver was $56. Okay. Yeah, we're off the high about right now, but where are we?
88 as we're speaking. so December, January, and now into three months later, we were at 56 at the November close and now we're 88. Not only did the spread breakout favoring silver over gold and it surged, the spread did, but silver's price surge was massively more, even with the pullback that we had off the January high. And that spread in fact is making a higher high this month than it did last month, despite that pullback.
So again, when the spread breaks out, expect price dynamics in that leader category, in this case in silver. Now it's our view that this search for new reality in silver is gonna get us up to that three to 500 zone, okay? But probably very quickly, because when this spread breaks out, like it just did in November, usually within a couple quarters of that breakout is when you get your gusher, where you go ape.
on the upside in price. We're expecting silver to reach that new reality basically within by this summer. So another three or four months, because usually they spread breakouts. They yield their results within a couple quarters of the breakout. They yield most of their results. And so silver, if it's going to seek a new reality, could easily be back where it was in 2011, 3.1 % the price of gold. Or what about
Craig Hemke (18:36)
Yeah. Yeah.
Yeah.
Michael Oliver (19:06)
when it was in 1980, it was 6.5 % price. Good grief, right now we're 1.68 or something. You could double, triple the price of silver relative to gold just to get to the old highs on the spread. So all these factors are saying sudden, now, and new reality. And then when we do the silver miners, that's a chart at the bottom of that page, you'll see silver miners are broken out versus gold miners, echoing.
Craig Hemke (19:27)
Yeah. Yeah.
Michael Oliver (19:35)
the breakout of silver versus gold. Conclusion, be in the monetary metals, be more focused in silver and the silver miners.
Craig Hemke (19:45)
I'm doing that math in my head. mean, the gold chart since the breakout about this time two years ago has followed a, I mean, anybody can pull up a weekly chart, just a price chart and see it. goes up 20 % and then go sideways, goes up 20 % and go sideways. Another 20 % takes it to 6,000. 3.1 % of 6,000 is a hundred and what, 83?
Michael Oliver (19:47)
Okay.
Yeah.
Yeah, well, the gold in its prior bull markets, by the way, it usually doesn't do that layered process all the way. You'll do that ⁓ four steps up, two steps back process during the bull trend. But then suddenly in the latter part of the bull trends, it gets you to the new reality. You go more vertical. The behavior changes, which fools people because they're used to the old layered behavior. And they think it's going to, you know, once you've made a high, you're going to stay there for four or five, six months in a range or you're going to pull back.
Craig Hemke (20:13)
Yeah, that interesting.
Right.
Yeah.
Michael Oliver (20:36)
Don't expect that this time. If gold matches its bull market peaks of 1980, 2011, in terms of the ratio dimension of the bull market from bear low to that bull high, bear low to the bull high, those were both eight fold moves. Gold's bear market low was 1,050 in 2015. Eight times that says I could go to $8,500 gold just to match.
Craig Hemke (20:39)
Just.
Yeah.
Michael Oliver (21:05)
the dimensions of the prior two bull markets. And what's really curious is that we've had this analysis for quite a few months now. Not saying we're just gonna go to 8,000 plus, that's just the norm. I'm gonna probably go well beyond. Suddenly now some major brokerage firms, big name firms, have come out with similar numbers saying, hey, we could see $9,200 gold, JPMorgan, and they just came out with that, based on certain mathematical relations to monetary degradation and so.
Craig Hemke (21:14)
Right.
Mm-hmm, right.
Michael Oliver (21:34)
So on, but a lot of big firms are coming out with our numbers for various reasons, ⁓ which is interesting. But ⁓ I think that this bull move is now in the acceleration phase where we're going to get most of what you're going to see. Most of the rewards you're going to get if you're long will occur between now and the summer.
Craig Hemke (21:57)
Michael, what would have to happen? I mean, you've been on this, like you said, since June, reiterating things last year. I remember you talking about, yeah, it's going to get to 80 by the end of the year. And I was like, God, I love you, Michael, but geez. then here we were. now, you know, so what, this is all very compelling and you see the numbers for the metal and you translate that to the miners with their leverage versus their margins.
Michael Oliver (22:09)
Ha
Craig Hemke (22:26)
Well, I can certainly see why then the gold shares and the silver shares should be breaking out as well as a ratio. I guess my last question is what would cause all of this to reverse in your mind to go, you know what, we're going to have to rethink this.
Michael Oliver (22:39)
We don't see the technical dynamics for a top. when we see a top, and by the way, we do call tops in gold. 2011, two months, three months off the high, we said, that's it, it's over, bear market coming. Well, the bear market really didn't start to unfold till 2013. But we labored off that $1,920 high in late 2011, dropped down and in December of 2011, we said, we're bearish. And it floundered for a year and then finally crashed.
Craig Hemke (22:45)
Sure.
Okay.
Right.
It did.
Yep.
Michael Oliver (23:08)
There were reasons for that, not just the price chart. There was a momentum structure when you plotted the annual momentum gold versus its 36 month average, for example, oscillated. You had an eight point uptrend line that you broke. You couldn't see it on a price chart, but a momentum said, God, you just blew the bridge over the river Kwai, man. Okay. And then we said, that's it, you're done. And it took a while to collapse. It finally did. We don't have any such structure set for gold and silver right
Craig Hemke (23:29)
Hehehehehe
Well,
Michael Oliver (23:37)
That was before you really top and have a major pullback, you know, like silver goes to 500 and then pulls back to 300, let's say. Probably you're going to have momentum structures develop and they're not there now. You haven't even developed the structures up under the market where if you sneeze off the high, you're going to break the structure. Right now, any structures we have that you could break and look at a momentum chart and say, oh, it broke its trend. They're not even near the market. So therefore, we do not think
there is any major downturn potential here. That instead, yeah, period.
Craig Hemke (24:10)
At not yet, huh?
Well, my friend, ⁓ you know, you can count me as a fan. know at my TF Metals Report site, you've got fans galore. I know Eric, when Eric and I did our year-end wrap up a couple months ago, he was raving about the job you do. ⁓ Tell everybody more about momentum structural analysis, where they can find your work, and where they can learn.
Michael Oliver (24:18)
Okay.
Well, it's olivermsa.com,
olivermsa.com. Ask for some sample copies. We explain our unorthodox methodology there pretty well. ⁓ It's not what you're used to seeing normal price chart stuff, you know. And we've been doing it since 1992. you know, and we look at all four major asset categories. Just look at gold and silver. Although right now that is our table pounder. That is the asset to focus on.
Craig Hemke (25:00)
And I've seen Michael in your regular reports, because you put out a weekend report and then during the week there's stuff that comes out. You point out some of these same anomalies that you see in individual shares as well.
Michael Oliver (25:06)
Yeah, yeah.
Yeah,
yeah. We try to find the outperformers. Anytime a sector is going up or down, there's going to be stocks within the sector that are outperforming the sector and underperforming or a par. And what we try to do is every month we sift through most of the mining symbols. We try to define their relative performance to GDX, for example. Which are they doing better than GDX or not? And we plot that and we technically analyze it. And so they're always going to be miners that beat
Craig Hemke (25:34)
Yep.
Michael Oliver (25:42)
on the upside and that's where you'd like to prefer to pick the better ones. Although frankly right now I think you could throw a dart at the whole sector and come away smiling big time in three to four months.
Craig Hemke (25:57)
I can sure say how it all connects. Like you said, if the metals are going to keep going and those margins just get getting better and better, then why wouldn't they? Yeah. Right. Right. Right.
Michael Oliver (26:02)
Well, the miners are back to their highs. You notice that? The silver miners are
back to their highs, gold miners back to their highs. So the miners have suddenly said, hey, know, we're leaders now. We're not followers. And we're underpriced relative to that which we get out of the ground.
Craig Hemke (26:13)
Mm-hmm.
Yep.
Fascinating stuff, Michael. Like I said, when Michael Oliver talks, people listen. Hopefully you've been listening, my dear reader, and that you flag this and go back and listen a couple of different times. ⁓ Obviously, thank you, Michael. We've reached the end of February. I can't even, I mean, we're already a sixth of way through the year. They say time speeds up as you get older, Michael. You agree with that? Yeah.
Michael Oliver (26:26)
Ha
yeah, and sometimes
things get really good. This is a major event we're looking at here in the monetary metals. It's just a lifetime event, okay?
Craig Hemke (26:51)
Yeah.
fun to go to work every day, isn't it? All right, so anyway, look, February's done, March is just starting. There's going to be another full slate of information coming from Sprott Money. So hit the like button, hit the subscribe button on whatever platform you're watching so you don't miss any of it. We'll be right back at it next week with Christopher Mulin video and Ask the Expert, all that stuff. So follow Sprott Money on whatever channel you've been watching so you don't miss any of it.
And then again, check out OliverMSA.com for more from Michael Oliver, ⁓ best in the business. Michael, my friend, thank you for your time and all this information. It's just been great.
Michael Oliver (27:30)
Thanks, Craig
Craig Hemke (27:32)
And from all of us at Sprott Money, SprottMoney.com. Thanks for watching. We'll have more information for you as soon as March begins.
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