SCRAP My Call for $60 SILVER, We're Headed to $100+: Michael Oliver

Key Concepts

• Momentum Structural Analysis: A technical analysis methodology focusing on price momentum and structural patterns.
• Silver Price Forecast: Updated to $100-$200 per ounce within the next two quarters, a significant increase from previous $60-$70 projections.
• Gold Price: Discussed in the context of historical performance and its relationship with the S&P 500.
• Silver Miners: Viewed as a highly attractive investment, potentially offering more "bang for the buck" than silver bullion itself.
• Gold Miners: Expected to outperform gold, though not as significantly as silver miners.
• S&P 500 and NASDAQ: Considered to be in a topping process, despite recent price highs.
• US Dollar: Technically showing broken momentum, with a likely downward move in progress.
• Commodity Complex: Poised for a major breakout and a significant investment opportunity over the next decade.
• Oil Sector: Currently undervalued with attractive technical indicators for a potential rally.
• Fertilizer Stocks (Potash, Phosphate): Ignored but undervalued, expected to rise with the grains complex.
• Silver-to-Gold Ratio: A key technical indicator signaling a potential explosive move in silver.
• T-Bond Market: Technically ripe to roll over, suggesting higher yields and a negative for traditional 60/40 portfolios.

Silver Market: A New Reality

Michael Oliver has significantly revised his outlook for silver, abandoning his previous $60-$70 per ounce forecast for a new target of $100-$200 per ounce within the next two quarters. This recalibration is based on extensive technical analysis, not just intuition.

Reasoning and Technical Indicators:

• Historical Comparison: Oliver draws parallels to copper and lead, which were also stuck in long-term trading ranges for decades before experiencing quadrupling price surges in a matter of quarters. He argues that silver, despite its monetary metal status and gold's significant price appreciation since 1975, has remained largely stagnant.
• Gold's Performance vs. Silver: Gold has seen substantial price increases from its 1975 peak of $200 to $850 in 1980 and now around $4,000. In contrast, silver, which peaked at $50 in 1980, is currently around $48, indicating a significant disconnect.
• Market Mistakes: Oliver posits that markets can make "mistakes" by staying too low for too long, leading to a sudden and dramatic awakening. He believes silver is currently in such a state.
• Trigger Level: A specific trigger level, not detailed in the transcript, is identified. Once this level is breached, Oliver anticipates silver could quadruple in price within six months, reaching $100-$200 per ounce.

Silver Mining Sector: Explosive Potential

Oliver views the silver mining sector as an even more compelling investment than silver bullion itself, potentially offering greater returns.

Key Points:

• Lagging Performance: Silver miners have historically lagged behind gold miners and gold itself. The SIL ETF, for instance, has not yet surpassed its 2011 high of 90, unlike the GDX (gold miners ETF) which has broken above its 2011 high.
• "10 Cents on the Dollar" Valuation: Oliver suggests that by investing in silver miners, one is effectively buying silver at a fraction of its true value, akin to purchasing it at "10 cents on the dollar."
• Broad Market Play: He advises against granular analysis of individual mining stocks, suggesting that the entire sector is undervalued and will benefit from a general influx of capital. "You could throw darts," he states, implying that even less-than-stellar companies will rise.
• Focus on Silver: The current emphasis should be on the silver component of monetary metals, with silver miners expected to outperform gold and gold miners.

Gold Market: Just Beginning

Despite recent pullbacks, Oliver believes gold is in the early stages of a significant bull market.

Arguments and Evidence:

• Historical Context: Gold's performance since its legalization in 1975 has been characterized by massive surges. The 1976-1980 bull market saw an eightfold increase, and the 2001-2011 bull market also saw an eightfold rise. The current move, while substantial, is only a fourfold increase from its 2015 low of $1,050.
• Gold vs. S&P 500 Spread: A crucial technical indicator is the spread between gold and the S&P 500. For 11 years, this spread has been in a basing process with four flat rally highs. Oliver notes that gold is currently pushing against this resistance.
• Breakout Signal: A monthly close of the gold/S&P 500 spread at 60% would signify a breakout from an 11-year relative performance base, indicating the beginning of a new trend where gold outperforms the stock market.
• Outperformance vs. Broader Indices: Gold has already broken out against the New York Composite and Dow 30 indices, which are less susceptible to the influence of a few mega-cap stocks. The S&P 500's outperformance is attributed to a handful of dominant stocks.
• Buying Opportunity: The recent pullback in gold is viewed as a buying opportunity, not a sign of weakness.

Gold Mining Sector: Preference Over Gold

Oliver recommends favoring gold miners over gold itself, expecting them to deliver superior returns.

Analysis:

• Relative Cheapness: Gold miners, when plotted against gold, appear historically cheap.
• Technical Breakouts: Spread charts of gold miners versus gold show technical dynamics favoring the miners.
• ETF/Basket Approach: For investors not wanting to pick individual stocks, ETFs or buying a basket of gold miners is advised.
• Outperformance Expectation: Gold miners are expected to perform "much better than gold," though not as well as silver miners.

Oil Price Impact on Miners:

Oliver dismisses concerns that rising oil prices will negatively impact gold miners. He cites a study showing that periods of rising oil prices have not damaged gold miners and have often coincided with their advances. The significant increase in per-ounce profitability of gold mining, he argues, makes input costs like oil relatively unimportant.

Broad Market (S&P 500 & NASDAQ): Topping Process

Oliver maintains a long-term bearish stance on the broad US stock market, viewing current price action as a deceptive topping process.

Key Arguments:

• Historical Parallels: He draws parallels to the dot-com bubble top in 2000 and the 2007 market peak. In both instances, the market made higher highs after his bearish calls, but these were ultimately followed by significant declines.
• "Teasing Firmness": The current market exhibits "teasing firmness," with limited upside and some sectors already showing weakness.
• Sector Divergence: The S&P 500's strength is not uniform across all sectors. For example, the financial sector has fallen back below its prior high.
• Momentum vs. Price: Oliver trusts momentum indicators over price action. He states that the S&P 500's momentum has broken major structural support, and the current rally is occurring under a broken trend structure dating back to 2022.
• Triple Top Breakout Deception: A triple top breakout on a price chart can be misleading, as seen in 2007 when the market briefly exceeded prior highs before a significant crash.

US Dollar: Momentum Broken

From a technical and momentum perspective, Oliver believes the US dollar is in trouble, despite its recent strength.

Observations:

• Weak Correlation with Gold: The correlation between the dollar index and gold moves is described as "pathetic" and not consistently inverse.
• Dollar Index Stagnation: The dollar index has been trading sideways for approximately five months, indicating a lack of upward momentum.
• Momentum Breakdown: Oliver asserts that the dollar's momentum is broken, and the next major move is likely downwards, a process that began in March.
• Limited Impact on Core Markets: He notes that the dollar's movement does not significantly impact the core commodity markets he focuses on.

Commodity Complex: Major Investment Arena

Oliver anticipates a major breakout in the overall commodity complex, positioning it as a prime investment arena for the next decade.

Supporting Evidence:

• Bloomberg Commodity Index (BCOM) Valuation: The BCOM is trading at approximately half the price of its prior bull market peaks (107 vs. 238 in 2008 and 170 in 2011).
• Basing Pattern: After a sharp run-up from its 2020 low, the BCOM has been in a sideways, basing pattern for two and a half years, indicating it is too cheap to go lower.
• Technical Breakout: The BCOM broke out last month based on annual momentum metrics, signaling the start of a second advance.
• Sector Readiness: Energy, grains, and base metals are all poised to participate in this commodity upturn. Oil is noted as a laggard in this cycle but is expected to join.
• Relative Value vs. S&P 500: Historically, commodities have outperformed the S&P 500. The current relative value collapse of real-world assets compared to paper bubble assets suggests a significant opportunity for long-term investors.
• "Buy Low" Principle: The commodity complex is currently cheap and has been consolidating for years, aligning with the principle of buying low.

Oil Sector: Attractive Value Proposition

Oliver agrees with the assessment that the oil sector presents an attractive value proposition, despite being "hated" by many.

Analysis:

• Historical Undervaluation: Current oil prices are low compared to historical levels over the past decade and 15 years.
• Technical Indicators: While the price is at the low end of its range, Oliver's momentum factors suggest a potential breakout.
• Trigger for Momentum: A monthly close of WTI crude at $68 during the current quarter is identified as a key indicator for long-term momentum to emerge. This level is expected to drop further to around $65 in the next quarter, making a price increase more significant from a momentum perspective.
• Correlation with BCOM: Oil is expected to move with the Bloomberg Commodity Index, even if it lags initially.

Fertilizer Stocks and Agriculture: Ignored but Undervalued

Fertilizer stocks (potash, phosphate) are described as "ignored" but present a similar undervalued opportunity to oil.

Outlook:

• Grains Complex Turnaround: Fertilizer stocks are expected to follow the grains complex (corn, wheat, soybeans), which are showing positive or near-positive momentum.
• Basing Action Over: The basing action in grains seen over the past year is expected to end, leading to an upward trend.
• Broader Agricultural Participation: The entire agricultural complex, including potentially livestock, is expected to rise.
• Shift to Real Assets: As paper asset bubbles burst, there will be a shift towards real-world assets, benefiting the agricultural sector.

Silver-to-Gold Relationship: The Key to Silver's Explosion

Oliver highlights the silver-to-gold ratio as a critical technical indicator for predicting silver's next major move.

Methodology and Signals:

• Ratio Calculation: The ratio is calculated by dividing the price of an ounce of silver by the price of an ounce of gold.
• Historical Parallels:
  • In the 1970s bull market, in the last six months of silver's move, it quadrupled in price.
  • In 2010, six months before silver reached $50 in April 2011, it doubled in price.
• Spread Deterioration Precedes Outperformance: In both historical instances, even while silver was in a bull trend, it was underperforming gold, causing the silver-to-gold spread to deteriorate. This indicated that silver was not yet participating as strongly as gold.
• Spread Breakout as a Fuse: The breakout of the silver-to-gold spread signaled that silver was about to outperform gold significantly.
• Current Technical Setup:
  • The spread chart shows a red horizontal line just above 1.3%. A monthly close above 1.31% would represent a breakout, similar to previous highs.
  • The current ratio is around 1.2%.
  • Historically, silver has been at least 2% of gold's price for 20 of the past 50 years, and over 3% during major bull markets. A move from 1.2% to 2% represents a significant multiple.
  • A momentum chart of the spread, measuring the spread's oscillation against its 10-month average, also shows dual highs. A breakout above this ceiling is imminent.
• "Clock Has Begun": The technical signals on the silver-to-gold spread indicate that the "clock has begun" for silver to enter a new reality.

Other Market Areas and Conclusion

Areas to Watch:

• Bloomberg Commodity Index: Seen as a laggard to gold, but poised to benefit from asset class shifts out of the stock market.
• T-Bond Market: Technically ripe to roll over, suggesting higher yields. This is negative for traditional 60/40 portfolios and reinforces the attractiveness of gold and commodities as alternatives.

Areas to Avoid:

• Broad Market: Considered overvalued and in a topping process.

Synthesis/Conclusion:

Michael Oliver's analysis points to a significant shift in asset allocation. He believes the US stock market is in a topping process, while the commodity complex, particularly silver, silver miners, gold miners, oil, and agriculture, are poised for substantial gains. The key technical indicator for silver's explosive move is the breakout in the silver-to-gold ratio. Investors are advised to prepare for a dynamic period in the markets, with a strong emphasis on real-world assets over paper assets.

Notable Quotes:

• "You could throw darts." (Regarding silver miners)
• "You're in effect buying silver bullion at at 10 cents on the dollar." (Referring to silver miners)
• "The technicals of silver right now argue to us... silver could go to at least 100, more likely to 150 to 200."
• "The game has just begun. I'm now a better place to be than the stock market." (Referring to gold's relative performance)
• "Seat belt time." (Concluding remark on market dynamics)