TWO SCENARIOS FOR GOLD AND SILVER

 

Precious metals are close to confirming the start of a new bull run, but a little work still needs to be done. This post will focus on two possible scenarios, entry timing at the next low, and a simple buying strategy.

 

LONG-TERM PERSPECTIVE

Before I get into the different scenarios, I want to remind members of the bigger picture. Irrespective of how the rest of 2016 plays out precious metals are headed much higher over the next 5+ years. The latter stage of this exceptional bull market will see public participation explode, and everyday people will be obsessed with gold and silver prices. Speculation, fear, and greed will be widespread as prices rise parabolically, there will be panic. I still believe $500 silver and $10,000 gold are very possible.

 

GOLD SCENARIO 1

In this scenario gold prices made an important 8-year low at $1,045.40. However, for this low to be confirmed prices need to produce a clear intermediate correction and then rally to higher highs (above $1,306). Short-term gold prices likely topped when they failed to stay above $1,300, and prices appear to be dropping into a June low. A potential strategy is to buy long positions at the June low while placing a protective stop under that low.

pic1Note: If Gold Prices exceed $1,306 after making an intermediate correction, then the Bear Market in precious metals is 100% over.

 

GOLD SCENARIO 2

As a trader, you need to have a defined plan and exit strategies for the off chance that your wrong. Scenario two looks at what might happen if gold prices do not make a new high after producing a correction.  If this plays out, that will imply the $1,045.40 low is a false bottom and prices are headed lower into late 2016 or early 2017 when they make their actual 8-year cycle low. I currently give this scenario 30% odds, slightly up from the 20% last week. Here the protective stop would be triggered, but fear not you will get an even better entry price later.

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SILVER-SCENARIO 1

Silver prices are also dropping into a 6-month cycle low and will provide a potential buying opportunity. Our work suggests a low should arrive in the middle of June, around the time of the next Federal Reserve meeting. How prices rally from that subsequent low will determine if the next bull run has begun or if it will be slightly deferred.

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SILVER-SCENARIO 2

In this scenario silver prices aren’t able to rally back above the $18.06 high, and will drop to a new low; this would become the actual 8-year cycle low. As with gold, the odds of this scenario aren’t good, but commodities can be tricky, it’s best to be prepared for multiple outcomes.

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A BOTTOM IN MINERS

Despite the different scenarios in Gold and Silver, the HUI has likely bottomed, even if precious metals head lower I expect them to stay above the $99.19 bottom.

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EU REFERENDUM

One potential disruption on the horizon is the upcoming referendum in the European Union (EU). UK voters will decide if they want Britain to exit from the EU on June 23rd. It’s not expected to pass but if it does shock waves would be sent through their currency, and I imagine the Dollar would rally.

In Summary, I believe a golden buying opportunity is approaching in both gold and silver. The alternative scenarios are growing improbable, but we need to be prepared if they play out. I’m partial to silver prices going forward.

Have a wonderful weekend!