Time for a Turn

Time for a Turn By Craig Hemke for Sprott Money

It is remarkable how much the year 2020 has played out like 2019…at least for the precious metals. And now, with 2021 on the doorstep, it’s time to begin looking ahead.

As you certainly know, the last four months in COMEX gold and silver have been no fun at all. After peaking on August 6, the downtrend and consolidation has seen prices pull back 15% in COMEX gold and 25% in COMEX silver. This has been arduous and painful, but it is not at all uncommon. In fact, the current downtrends are a near mirror image of the price action seen in 2019.

Below is a reminder of how things went in the second half of 2019. The first eight months of the year had seen tremendous gains in COMEX gold, as price finally broke out of a six-year trading range. Price peaked in early September and then fell into mid-December. The U.S. dollar plunged in the final week of the year, and COMEX gold finally broke out.

Gold Chart

The late year rally got price back to our 2019 price target of $1520 and set the stage for extended gains in 2020, where we set our price goal at $1800. With that in mind, please take a look at the current chart below. Please be sure to note that price peaked this year in late summer—just as it had last year—and the consolidation has extended into December.

Gold Chart Analysis

You might also note that from the initiation of the downtrend to its break last year, there were 76 daily candles. As I type this on Wednesday, December 2, we are now on Day 74 and price has suddenly reversed this week on hurried short-covering and a plunging U.S. dollar.

It is also noteworthy that COMEX gold is re-establishing a foothold above its 200-day moving average. This is a key technical trend indicator, and this move likely foreshadows more strength to come.

Gold Chart Analysis

So please do not despair during this holiday season, as there is surely enough other stuff to worry about. Both COMEX gold and silver will soon resume their uptrends and carry them into 2021. Why? Because just as it was a year ago, the underlying bullish fundamentals remain unbroken:

  • a falling U.S. dollar
  • record notional amount of negative-yielding debt
  • negative real (inflation-adjusted) interest rates
  • pending massive new fiat creation programs (“stimulus”)
  • outright debt monetization by central banks

As such, with the fundamentals remaining intact, why would COMEX gold in 2021 fail to produce gains similar to those of 2019 and 2020? The answer? It will…and you should expect 2021 to unfold in a manner similar to the last two years. Sort of like Frank Shirley’s concession in the final scene of “Christmas Vacation“, take last year’s gains and add 20%.

  • Finish 2020 at $1900. Add 20%. Price target for 2021: $2300

That sounds about right, but let’s see where we finish 2020 first. There are still four weeks left and plenty of “unknown unknowns” that may impact price in the interim. However, my hope is that this post has provided a reminder of where we were a year ago, where we are now, and where we are headed as we travel the winding road of this continuing bull market in the precious metals.

 

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Sprott Money

Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.