Canaries in the Gold Mine: Gold Eyeing All-Time New Highs in 2020

“…The task is not so much to see what no one yet has seen, but to think what nobody yet has thought about that which everybody sees.” — Arthur Schopenhauer

For those that were with us back in 2015, you remember well the promise presented with the sharp rally in January 2015 that saw a quick 12% rally in GLD squandered just as quickly: breakage below the January low pointed the way down for the entire year.

Those that were with us in December 2015 will recall that we pounded the table, convinced that 2016 was going to be a golden year for the precious metals.

Our opinion was based on three technicals:

1) Our belief was GLD was presenting an Ending Diagonal or Descending Wedge 52 weeks in the making that represented the washout of a synchronous 52 month decline.

2) GLD had pulled back to the breakout point at 100 from October 2009. Prior resistance becomes new support.

3) In December 2015, GLD struck the bottom rail of a declining trend channel for the second time shown on the quarterly chart below. Notice that the 2nd test of the top of the trend channel in September 2012 (one year after the ATH) perpetuated a sharp decline.

So there was some good symmetry in that we had a one year topping process followed by a one year bottoming process.

The above quarterly GLD shows a 5 year saucer base within the context of a complex Head & Shoulders bottom.

In late May/early June 2019, we got a decisive breakout in gold right in line with our forecast for a liftoff to begin before the end of May.

The timing was predicated upon the pivot high in February, which looked like the right side of a Cup of a Cup and Handle pattern.

Subscribers profited smartly from positions initiated in May in GLD call options as well as long swings in KL, GDXJ.

Markets often play out in 90 day/degree decrements, so the assumption was the pullback 90 days later into late May was likely the Handle to a Cup & Handle bullish setup on the monthlies, which we show below.

But first, let’s finish with the big picture quarterlies.

The 3rd quarter of 2019 carved out a large range outside up quarter following the late May low.

Notice the breakout above the trend channel that had defined the correction from the advance off the October 2008 low.

This summer’s breakout put gold in a bull market.

In early September, gold stalled out exactly were one would expect it to… right at the breakdown region from April 2013 around 148.

This was the underside of the 2011-2013 distribution pattern.

This 148 level is a key level because once GLD clears it, it will be in a position to challenge the all-time highs at 1921.

Following the early September high, we forecast another 90 day/degree correction/consolidation to culminate with an impulse around early December.

GLD has rallied sharply in December and looks poised to attack the key 147-148 region.

In the spirit of fair disclosure, subscribers initiated long positions in GLD calls again earlier this month as well as positions in GDXJ, FNV and silver miners AG, SSRM, PAAS and WPM.

Interestingly, the September to December consolidation occurred above a Neckline of an inverse Head & Shoulders in GLD.

The projection of the pattern projects to 160, which obviously indicates a breakout above the key 148 level.

The implication is that GLD/gold may be in the heart of a powerful 3rd wave advance that could see it go parabolic in 2020.

Here are the projections based on the Principle of Squares:

360 degrees up from the 66 October 2008 low is 102, which ties to the big December 2015 low.

Another 360 degrees up is 146. This ties to the 147-148 pivotal level.

This is another reason why we could get accelerated momentum above 147-148.

Another 360 degree advance is 198.

Note the top rail of a trend channel at 180… near the prior ATH.

Additionally, a Measured Move of the 120 point advance from the 2008 low projects to 220. The indication is that a breakout above the trend channel at 180 will see all-time new highs from 198 to 220.

If you look at the character of the advance from 2008 you see that in January 2011, the Quarterly Swing Chart turned down by 11 cents, immediately made low, and reversed decisively to the topside, culminating in a buying climax.

The turndown in the quarterlies in Q1 2011 was the only such turndown in the quarterlies during the entire advance.

Notice the turndown in the Quarterly Swing Chart in the 2nd quarter of 2019 led to similar accelerated momentum.

Let’s drill down to the monthly GLD from the December 2015 low.

Notice the turn down in the 3 Month Chart in May 2019 by ONE CENT.

That was the turn down in the quarterlies.

Notice the subsequent explosion.

This is the power of the Monthly and Quarterly Swing Charts and how their BEHAVIOR determines the trend.

The 3 Month Chart turned back up with 3 consecutive higher monthly highs in August 2019.

Bullishly, that turn up led to further momentum.

In late November, GLD carved out 2 consecutive monthly lower lows. This satisfied my Plus One/Minus Two method on the monthly time frame.

Allow me to explain.

The Plus One part of my method occurs when the 3 Month Chart is pointing up.

Subsequently, two consecutive lower monthly lows satisfies the Minus Two part of the +1/-2 buy set up.

The outlook for gold and silver and precious metal miners could hardly be stronger for 2020.

With the dollar very close to a major breakdown, gold seems to have decided it isn’t waiting around anymore.

Combine this with the prospect of continued low interest rate policy by the Fed and accelerating QE/Non-QE vis-a-vis the repo crisis, and the embers of inflation may flare up next year.

Whether you believe the structure I have shown in GLD is the correct structure or not should not be material.

The fact is, many charts across the complex present us with continuation setups, which could lead to a parabolic type of rally in 2020.

Therefore, I think the wise thing to do is to at least recognize the potential clearly exists across the gold and silver complex and to keep an open mind, especially if you did not see this rally coming.

These are one of those set ups you do not see very often in one’s career.

Does this mean you bet the farm and throw caution to the wind? No.

I have outlined levels in GLD which, if exceeded, represent the opportunity for leveraged plays and pyramiding. In our daily reports and on our private twitter feed, we alert readers of these opportunities.

The bottom line is when the metals are in gear, it behooves a trader to give them the benefit of the doubt because when the gold and silver streak express trains leave the station, they typically move faster than most market participants can believe.

This is why we maintain core positions in the aforesaid stocks because once you take off the entire position, it is very difficult psychologically to get back in a runaway move and even more difficult to locate a good stop placement on a speeding locomotive.

If the current pattern shakes out, then we just stop out and wait for it to reset.

That should be our focus with the metals here as to ignore them when they are providing a setup this long in the making that may produce one of the most powerful rallies you have seen in years would be something you regret.

The precious metal miners lead the metals themselves and I key off GDXJ.

For now, it looks like GDXJ will strike a high above its September 43.10 high before a possible reaction.

I expect this to play out in the next week or so.

My expectation is for a pullback at that point.

A ensuing rally over the high struck prior to the pullback should coincide with a move that takes GLD above the key 147-148 level.

Conclusion. There are plenty of fundamental and technical reasons backstopping a powerful advance in gold and silver, but the strongest reason of all may be a crisis in confidence in government and central banks.

We are at the end of a decade that saw an ongoing destruction of currencies by central banks who have responded to debt burdens with money creation on an enormous scale.

We can expect them to maintain low and negative interest rate policies and to pump money with abandon when faced with a choice between a liquidity lockup or systemic implosion or see rampant money creation pave the way to potential hyperinflation. When push comes to shove they are bound to follow the course of money creation because it is more gradual and buys yet more time.

With all the central banks dancing to the same music, it will be hard for them to keep up with the Fed which is ramping up money creation at a frantic pace — the effect of which will collapse the dollar, already breaking down.

That gold has rallied sharply, while the 10 year UST that has also rallied is a canary in a gold mine.

The market rise out of the ashes of December 2018 crash has served to glorify Fed omnipotence.

The vast majority of market participants subscribe to the idea that the Fed drives the market.

What will the narrative be when the market turns down in spite of Fed injections?

The metals are talking.

I have been providing analysis for traders since 1996.

Over that time, I have noted an intriguing relationship between the SPX and gold.

For example, the SPX bottomed at 667 in 2009 while gold topped at 1921 in 2011. Checking a Square of 9 Wheel shows that 666 and 1921 vector/align with each other.

In fact, they form a T-Square in the last decade, with gold squaring out at a top on this square in September and the SPX squaring out in March at a low.

The purple arrow is 667
The blue arrow is 1921
The red arrow on the left timed the ATH in gold in early Sept 2011
The red arrow on the right timed the bear market low in SPX in early March 2009

This T- Square allowed me to nail the ATH in gold to the dollar in early September 2011, as well as the SPX bear market low in the SPX.

Ken Rostron of Carpathia Capital Consultants notes:

“Jeff’s prescient calls go back many years and my organization has benefited greatly from his methods. In particular, the September 2011 top in gold when most were looking up, we benefited with Jeff’s cautionary stance. Conversely at bottoms. The biggest was March of ’09 in the SPX, but the December bottom call in gold was the one that helped my firm navigate the soon-to-come advance.”

If I am correct, 2020 is going to mark a dramatic advance in the metals and intense volatility in the SPX.

I want to wish everyone a happy and healthy new year. I look forward to a very profitable 2020 with you.