The US government will shut down Saturday, and 12-million people will lose their unemployment benefits on December 26 if Congress fails to pass a new stimulus package. They are currently negotiating a $900-billion agreement.
The near-term fate of metals and miners hangs in the balance:
- If Congress passes a deal (weaker dollar), gold will likely continue higher and forgo the December decline.
- If Congress fails to reach the $900-billion solution, metals and miners would likely turn immediately lower and proceed to our December targets.
The next 24 to 48-hours are critical. Congress may work over the weekend to reach a deal, so we may have to wait until Monday for a decision.
DOLLAR WEAKNESS: The dollar has been exceptionally weak, and prices have been unable to rally out of the most recent low. This supports the potential for a breakout in precious metals.
DOLLAR MONTHLY CHART: The persistent weakness in the dollar is like what we experienced in 2002 and 2003. The monthly chart has broken the multi-year trendline, paused, and is continuing lower. At this rate, I decline to 80 seems likely by the first half of 2021. Closing below 88.15 would confirm a bearish breakdown towards 80.00.
CALIFORNIA COVID SPIKE: California reported 61,569 new daily cases yesterday. The day before was 35,547. I’m not sure what caused the recent spike, perhaps something with testing. Nevertheless, if daily cases stay above 50,000 for any length of time, that can pose real problems for their healthcare system. Covid remains a major threat.
The Gold Cycle Indicator is at a critical level. Consecutive finishes above 100 would support a bullish breakout and a 6-month low in precious metals – it finished at 98 today.
-GOLD- Gold closed above the $1880 level. I’ve said progressive closes above the $1880 level would support a 6-month low and bullish breakout. We got one close today. However, I neglected to mention the intermediate trendline in prior posts. From a technical standpoint, closing above the intermediate trendline (currently above $1925) is the proper confirmation of a breakout.
Note- The bullish engulfing candles on December 1 and December 15 support the bullish breakout scenario.
–SILVER– For a breakout in silver, I’ve been looking for progressive closes above the November $26.14 high – we got one today. Prices are also testing the intermediate trendline, and a close above $26.30 would prescribe a bullish breakout.
Bullish Note- Silver diverged from gold in late November and made a higher high. If silver confirms a bullish breakout, I think it could move sharply higher, outpacing gold during this cycle advance.
–PLATINUM– Another bullish sign I’m contemplating is the divergence in platinum. Prices rallied to new highs ahead of gold and silver. That could be an incredibly bullish sign if metals and miners confirm breakouts in the coming days. Closing above $1093.10 would support a run to fresh highs.
-GDX- Miners gapped higher at the open and finished above December 7 $36.92 high. I see the potential for a bullish breakout if prices maintain today’s gap and do not close below the 200-day MA (currently $35.88). Any reversal that settles below the 200-day would recommend a bearish reversal and maintain the outlook for one more decline in December.
-GDXJ- Juniors gapped higher at the open and finished above the December 7 high. As long as prices maintain today’s gap (do not close below $53.00), I see the potential for a bullish breakout. A close above the intermediate trendline (currently $58.00) would confirm a new cycle advance.
-SILJ- The silver junior mining ETF closed above the intermediate trendline supporting the bullish argument for silver. I see the potential for a breakout as long as prices don’t close below $15.00.
Bitcoin is at new all-time highs, and it could top any day. I have the same feeling about it as I do Tesla – both have a bubble feel. Speaking of Tesla, the days surrounding the December 21 addition into the S&P 500 are of particular interest and could time a peak, just something I’m considering.
In summary, the near-term fate of precious metals and miners hinges on the ability of Congress to reach a deal. On the one hand, I thank they can and should, but on the other, I have little faith in the political establishment.
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AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.