I can’t really nail a prediction much more than I did on Tuesday.
In that article, I wrote about how surprised I was that Hurricane Zeta pushed up oil prices to nearly $40/barrel, and that it would be “only a matter of time before these (oil) prices implode.”
Well, it took exactly two days for crude to capitulate, falling all the way down to $34.92/barrel today on concerning COVID-related news out of Europe before rebounding into the mid-$36 range.
That push off the bottom, however, was driven by the supposedly positive GDP number released this morning. Although it was, at 33.1%, the largest ever on record, it also followed the largest ever decline of -31.4%, which means that the total number is still much lower than prior to the pandemic.
As such, that price decline is nowhere near finished.
Gasoline demand is likely to crater once recent exports from Europe – shown in the Atlantic Ocean on the map below – show up on the East Coast, along with our own COVID-related issues.
And given that today’s action pushed WTI crude prices below their 200-day moving average, that level of $37.27 is likely to serve as a maximum going forward.
To figure out exactly where it goes from here, we must look at the recent past, from the downturn in April through the summer peak.
When I isolate that period, it’s clear that there are two key stopping points on the way down. The first is a consolidation range from late May between $30-35, and the second occurring two weeks prior between $22.50 and $27.50 per barrel.
As such, I’m setting a price target toward the upper end of that bottom range – say around $26 or $27 – at which point we will sell our entire position in Proshares Ultra Bloomberg Crude Oil (NYSEArca: SCO).
That may take until December or January to happen. But it appears to be inevitable with or without stimulus, and it would net us a profit of about 50%… which is not too shabby.
Unfortunately for us, gold has also pulled down below a key moving average, gapping down below its 100-day moving average yesterday, and is approaching September lows around $1840-1850 per troy ounce.
However, it has three key support points just below that level. Two of them are Fibonacci Retracement Levels at around $1830 and $1750, highlighted in green and blue, respectively.
The third is the middle of July’s consolidation range around the $1800 mark, which is highlighted in white.
While I do think we will see some additional selling, that miniscule 6% is gold’s entire downside at this point in time.
With the amount of stimulus set to come out of Congress in January – no matter who wins this election – I want to use this opportunity to make sure we have as much leverage to the yellow metal as possible.
As such, I want to pick up another ¼ stake in Proshares Ultra Gold (NYSEArca: UGL) here.
And in the event gold falls to any of those support points mentioned above, feel free to pick up additional ¼ stakes there as well.
We should also examine silver prices here, as it is set up very similarly – below its 100-day moving average with support at September lows of $22 per troy ounce and a 50% Fibonacci Retracement Level just below $21.
If prices break lower through either of those levels, I will also want to pick up additional ¼ stakes in Proshares Ultra Silver (NYSEArca: AGQ). Silver tends to be much more volatile than gold in both directions, which gives us huge potential upside.
But also, a ton of silver is used in several industrial manufacturing processes which would be an additional huge upside for gold’s little brother… again, no matter who wins Tuesday’s election.
Election Expectations and Market Musings
So, while precious metals prices are set to soar as either candidate prints ungodly amounts of money to fund their respective pet projects, the overall stock market does not appear to be in quite as good a shape.
If we overlay the Dow Jones Industrial Index from 2009 to the present with the market leading up to its 1929 crash, the picture is…
Well, it’s bad.
Source: Bloomberg, Crescat Capital
And with the nation’s most contentious election in a century – alongside 22.6 million people still out of work – it is difficult to expect today’s levels to hold up.
Source: Department of Labor
As such, the best we can do is make sure we have downside protection in the form of gold and silver, because they will benefit in any near-term economic outcome.
In the meantime, we all have some voting to do… please be safe, everyone.
All the best,