Gold recently hit all-time highs in all of the major currencies (euro, yen, British pound, yuan).
On March 1, 2024, priced in dollars, gold achieved its highest weekly close and then proceeded to hit new all-time highs. Gold continues to hit new all-time highs priced in dollars and yuan.
The chart above shows the dollar-based gold price on a weekly basis from 2010 to present.
The price has broken out to all-time highs from the massive cup and handle that started forming in late 2011 and from the daily closing price ATH (it did trade as high as $2,071 intraday on Sunday night, December 3, 2023 but quickly retreated and ended up closing the next day over $100 below that intraday high.
What is pushing gold higher?
I think the move in gold primarily reflects the fact that inflation is picking back up because the Fed has substantially loosened liquidity which in turn has pushed the money supply higher since February.
The Monetary Base, M1 and M2, continue to hover around all-time highs. The rising price of gold also reflects the fact that the U.S. banks have big problems with bad debt and the U.S. economic and financial system is becoming increasingly unstable. When the stock bubble pops it will inflict major damage on the economic and financial system.
What about Silver?
With gold breaking out, will silver follow? It depends on how “breaking out” is defined.
Silver is still well below the all-time high of $50 that it hit in 1980. The price almost got there in 2011 but not quite. In that sense, it will take some time before silver breaks out to all-time highs.
However, silver has been trapped below $28 since falling below $30 in 2013. I would thus argue that, for now, a push by poor man’s gold above $28, holding above $28 and moving higher from there can be defined as a breakout.
The chart above shows silver on a weekly basis from 2010 to present. Silver plunged below $28 in early 2013. After trading between $14 and $20 from late 2014 to June 2020, silver broke out above this range and, since then, has traded between $18 and $28.
At the same time, silver formed an inverse head-and-shoulders (HnS) technical pattern.
Whereas a standard HnS formation often precedes a move lower, an inverse HnS pattern often launches into a breakout move higher. In this case, a “breakout” will occur in my view if silver pushes over $28 and moves higher from there.
What will push silver higher?
I believe there is a strong possibility (i.e. greater than 80%) that silver is coiling for that breakout move. From a technical standpoint, the RSI and MACD momentum indicators (not shown) are now recovering from oversold readings and appear poised to let the silver price-action “pull” them higher.
More importantly, from a fundamentals standpoint, silver has been in a supply/demand deficit, which is projected by the Silver Institute to become more severe this year.
To balance the supply and demand equation by increasing supply, it will require a much higher price of silver to induce selling from existing silver holders. A much higher price should also slow the rate of investment demand. The other possible source of supply is from silver producers. A higher price might incentivize silver mining companies to increase output by processing lower-grade ore – if they have the processing capacity – or to spend the money to increase processing capacity. If producers were to increase output in response to a higher silver price, there would be a material lag in time before that supply hits the market.
What about mining stocks?
The breakout of gold, followed by a likely breakout of silver, fits a trading pattern that has been characteristic of the most powerful and durable cyclical bull moves over the last 24 years. Gold gets the party started with a strong move higher, followed by silver, and then followed by the mining stocks.
At some point silver will outperform gold and the mining stocks will outperform both metals. This pattern repeated in three cycles in the bull move from 2001 to early 2008 and it occurred during the bull move from late 2008 to mid-2011.
Assuming this pattern once again repeats, now is the time to start accumulating mining stocks. Recently two of the more well-respected investors announced that they were moving capital into mining stocks. Stanley Druckenmiller, who made his name running George Soros’ flagship Quantum fund, announced that he recently bought positions in Newmont and Barrick Gold.
More significant in my view, Elliot Management’s Paul Singer announced the formation of a venture to invest at least $1 billion in mining companies. He hired the former CEO of Newcrest Metals (recently acquired by Newmont) to head the new venture. Paul Singer made his fortune and highly regarded reputation as a value/distressed investor. The objective of the new fund is to look for opportunities to buy mines and, possibly, buy out public companies as well as take investment stake in companies.
In my opinion, Singer’s move to commit a significant amount of capital to mining stocks, more so than Druckenmiller’s investments in Newmont and Barrick, is strong affirmation that something extremely bullish is likely getting ready to unfold in the precious metals sector.
Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund.
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