A Technical Analyst's Outlook for Gold and Precious Metals Stocks

Despite the looming threat of massive inflation, or at least stagflation in the event that markets collapse, many appear to have given up on gold at the worst possible time, perhaps due to the mistaken belief that it will be perpetually suppressed by market manipulators.

The key point to grasp with gold, which has always been the same, is that since it is "real money" with intrinsic value it will always retain its value, and this has never been more the case than in situations where a currency is rapidly losing its purchasing power, as is set to happen with the dollar—and is already happening—and with almost all currencies around the world. With the purchasing power of fiat money everywhere set to be vaporized by inflation/hyperinflation, gold's (and silver's) appeal as a store of value has never been greater.

It is crucial to understand that even if markets crash, and take gold and silver prices down with them, their prices should drop at a lower rate than most other assets, and thus they should retain or increases their purchasing power so you will be able to buy more—just ask the people of Venezuela what they would prefer to have owned before their country was destroyed by hyperinflation, their local currency or gold—by end of it gold would buy wagonloads of the currency. So, at a time like this, there are no asset better for retain value than gold and silver.

Whilst it is obviously ideal to have at least a portion of one's precious metal holdings in physical gold and silver, all gold and silver based assets should do well going forward, such as futures of course but also ETFs and the better precious metal stocks.

The reason that many investors have lost interest in gold is because it has been a dull market for a long time, having drifted lower for many months from its peak in August of last year. On the 18-month chart we can see that gold's reactive downtrend ended when it arrived at strong support in March, since which time it has made a clear breakout from this downtrend before backing off again to support at the top of the downtrend channel. What appears to be going on is that gold is floundering around marking out a large base pattern that will lead to renewed advance. It looks like a potential Head-and-Shoulders base pattern has been completing and if so gold is at a good buy spot here close to the Right Shoulder low of the suspected pattern. The strong Accumulation line supports this interpretation.

On the long-term 13-year we can see that it is perfectly reasonable for gold to have reacted back as it has since last August, given the magnitude of the advance following its breakout from a giant Saucer base in the middle of 2019. This chart suggests that after reacting back, gold is readying for renewed advance in another major upleg.

As for precious metal stocks, we see that although the 6-month chart for GDX looks rather grim, with a weak accumulation line and bearishly aligned moving averages, the long-term 13-year chart shows that it has reacted back close to strong support at the top of the giant base pattern that it broke out of last year. This therefore looks like a very good time to accumulate the better stocks across the sector.

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