I think it was March when I turned bullish on gold & silver. This was before COVID-19, so I had to factor in the impact from the pandemic since turning bullish. I was expecting this to be a good year for gold & silver even without the pandemic, but COVID-19 only makes for a more bullish case.

I have always said that I am waiting for an imminent once in a lifetime bull market in gold & silver. So, I have been waiting for a run at new highs and beyond. In March, it felt like we were ready to make that run, and this pandemic only reinforces my outlook. Below is a chart of corporate profits versus the value of corporate stocks. The disconnect that already existed has only been exasperated. Thus, the stock market will be overvalued for months to come.

The chart above implies that we will likely get a stock market crash at some point, probably sometime this year. The Fed will do whatever is necessary to prop it up, but this should only help gold & silver. Many are expecting the miners to get crushed along with the market if we do get a crash, and that will likely happen, but perhaps not as deep as many are expecting. Why? Because gold is currently showing strength from a number of factors that are not likely to go away.

If the market does crash, I am not expecting gold to crash like it did in 2008. It might drop around $100, but $200 seems improbable. There are too many factors propping up gold. Let’s look at them. First, the Fed is printing money at an unprecedented rate. Second, we have negative real rates. Third, the fear-trade is in effect and driving gold demand. In my opinion, these three factors are significant.

A $100 to $200 drop in gold won’t kill the miners. They will have a short-term correction, and then gold will bounce back and head higher. At least that is my expectation. Last month, I said that silver was waiting for a correction in the market (S&P 500). However, the pandemic has lowered the silver supply, and investors are gobbling it up. Silver is starting to make its move. I’m expecting to see $18.50 in July or August. That is the indicator for a bull market in silver, although $18.50 is the starting point. The bull market in silver won’t be at full speed until around $23.

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In Wednesday's analysis, we wrote that we didn’t trust gold’s breakout above the November 2011 high and that we thought that it will be invalidated shortly. We didn’t have to wait for long. Gold invalidated this breakout several hours after we posted the above.

Invalidation of a major breakout is a major bearish development and a confirmation of the outlook that we outlined previously. In particular it indicates that gold has just topped or that it will top shortly. Quoting yesterday’s analysis:

Gold just moved to the November 2011 high and in today’s pre-market trading it even moved above it. The volume on which gold moved up last month was relatively small, which doesn’t support the bullish case, but a confirmed breakout above the November 2011 high would be an important technical development, nonetheless.

The key word here is “confirmed”. The November 2011 high was $1,804.40, and at the moment of writing these words, gold futures are trading at $1,805.15 – that’s less than $1 above the above-mentioned high.

The way in which gold moved between 2012 and 2020 created a near-perfect cup from the cup-and-handle formation. Generally, the bigger the base, the stronger the move, and this time the base is huge. Still, the “handle” of the pattern is still missing, and it could take form of a volatile plunge. This would be in tune with how gold reacted to the first wave of coronavirus.

The breakout above the November 2011 high is far from being confirmed, and in our view it’s unlikely to be confirmed. Why?

There are multiple reasons for it, but the most precise and technical ones are gold’s likelihood to reverse its direction based on the triangle-vertex-based reversal and the long-term cyclical turning point.

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