The recent bottom in metals/miners has everyone excited to see what this next upside price leg is capable of achieving. The extended pennant/flag formation that setup a peak in August 2020 has nearly reached the apex. The upside move in gold and silver, as well as junior miner ETFs, over the past few weeks suggests a new upside price trend is setting up. The concept that commodities and metals are very new to historically low price levels sets up expectations that a longer-term price advance could send gold above $3,750 and send silver above $50 as expectations adjust to the new price cycles.
Where Are We In The Commodity/Metals Cycle?
Some of my team’s recent research has highlighted our belief that we are just starting a depreciation cycle for the U.S./global stock market, which aligns with the historic lows for commodities/metals.
Using our proprietary price modelling and adaptive learning technology, we’ve identified a broad market cycle that lasts between nine to 9.5 years (on average) and we believe a U.S. stock market appreciation phase ended in 2018~2019. We feel the current rally in the U.S. stock market is an “excess phase” (blow off top) rally that may extend well into early 2021 before suddenly shaking out the hype. This same type of enthusiasm is taking place across the globe and in various classes of assets (cryptos, various market sectors, metals and essential minerals, and others). The U.S. Fed and global central banks, are fuelling the rally with easy monetary policies – attempting to keep the party going.
We suggest traders watch how hedging instruments react to this excess phase over the next 12 to 24 months. When precious metals, miners and cryptos (which have now become a new hedging instrument) begin to rally when the U.S. stock market is flat or devaluing – then we may be very close to the end of the excess phase.
Bloomberg Commodities Index Bottom
These long-term Bloomberg Commodities Index and Silver to M2Money Supply charts highlight the extended downtrend in commodities over the past 12 years. Interestingly, this decline in the commodities index, see chart below, aligns with our longer term appreciation phase in the U.S. stock market from 2009 to 2018~19.
The deep lows of the COVID-19 market collapse may have setup a major bottom in the commodities index going forward. If our research is correct, commodities should start a major upward price trend that lasts for five to seven more years. We have highlighted a mean price range (in RED) from the 2009 to 2013 area suggesting commodity prices could recover to this level fairly quickly in a new appreciation phase.
Bloomberg Silver To Money Supply Ratio
The following silver-to-Money-Supply Ratio chart highlights how inexpensive silver is in comparison to historical values. Even though silver is trading near $26 per ounce right now, historical mean levels in appreciation phases suggest silver could rally 200% to 300% (or more) from these lows. We’ve highlighted an area in red on this chart showing a moderate mean average of the last appreciation phase (2004 through 2011).
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