Still Risk of Further Downside in Precious Metals and Miners - David Brady (May 29, 2020)
May 29, 2020
PHYSICAL GOLD & SILVER
No major changes in premiums in the past week from either a dollar or percentage basis relative to the paper spot price. Inventory levels in coins remain unchanged, and bars of 10 oz. or greater still remain virtually non-existent. Silver premiums remain significantly higher than those for Gold.
The minimum premiums based on several major dealers worldwide and their change from a week ago:
The original blowout in premiums, which began in March, was triggered by a surge in demand the Friday before Powell had his ‘whatever it takes’ moment, then two days later when he also slashed the Fed Funds rate by 100 basis points on a Sunday. It was compounded by a shock on the supply side, due to the temporary closure of several refineries and miners because of the risk of COVID-19. Refineries have only partially reopened, and mines are slow to do so also. While the Fed continues to ramp up its printing press, imagine what could happen to physical Gold and Silver supply and prices if we do get a second wave of the virus.
PAPER PRICES
GOLD
Gold fell as forecast last week to a low of 1685 but short of my initial target of 1653. We have since seen a bounce to 1744, a little higher than expected, but there is still the risk of a positively divergent lower low yet. 1776 is resistance on the upside.
SILVER
Silver also fell as forecast last week, but like Gold, it stopped short of my initial target at the 200-day moving average at ~17, reaching a low of 17.19. This may be sufficient for the low to be in place, but we would need at least a new higher high above the recent peak of 18.17 to suggest that is the case.
Yet Silver remains significantly overbought and bullish. While I, too, remain extremely bullish Silver beyond the very short-term, the risk of further downside remains for now, to 17 or 16.25 below there.
SILJ
SILJ dropped to 10.40 this week, short of my initial target of 10, and then rebounded to 11.57 yesterday before falling back. It looks like a classic A wave decline followed by a B wave rally, with C now potentially under way. What makes this even more interesting is that the targets on the downside are for where the size of wave C = A and C = 1.618*A are approximately 10 and 9. The same support levels I provided last week.
In summary, despite the strong recoveries in Gold, Silver, and SILJ, the risk remains to the downside in all of them. I am content to wait and see if we break the recent peaks in each or we get another chance to buy the dip at even lower lows ahead. Should the latter occur, much of the overbought and bullish conditions that signaled this decline will have been erased, setting us up perfectly for the rally to follow.
Don’t miss a golden opportunity.
Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.
About Sprott Money
Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.
Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.
Learn MoreYou Might Also Like:
Comments