Steve Barton: Gold, Silver Prices Down from Highs, How to Play the Correction

Key Concepts

• Gold and Silver Pullbacks: Analysis of current price corrections in gold and silver, with technical targets for potential support levels.
• Fibonacci Retracement: A technical analysis tool used to identify potential support and resistance levels based on Fibonacci ratios.
• Bear Flag Pattern: A bearish continuation pattern in technical analysis, indicating a potential further decline in price.
• Moving Averages: Technical indicators (e.g., 50-day, 200-day) used to identify trends and potential support/resistance.
• Relative Strength Index (RSI) and MACD: Momentum indicators used to assess overbought or oversold conditions.
• Volume Analysis: Examining trading volume to gauge market sentiment and identify potential trend reversals.
• Uranium Market: Discussion of government support and potential investment opportunities in the uranium sector.
• Rare Earth Elements (REEs): Analysis of the geopolitical importance and investment potential of rare earth metals, particularly in light of China's market dominance.
• Hated Sectors: Identification of undervalued or overlooked sectors with potential for future growth, such as oil and nickel.
• Investment Thesis: The importance of developing a clear rationale for investment decisions, including entry and exit strategies.

Gold Analysis

Current Situation and Pullback Targets

The discussion begins with the recent significant run-up in gold prices, followed by a current pullback. Steve Barton notes that while projections are difficult, especially at all-time highs, pullbacks offer opportunities for investors and speculators. He uses Fibonacci retracement on the recent gold rally (from late August to the peak around $4,400) to identify potential support levels.

• Fibonacci Retracement Levels:
  • 38.2% retracement: Already breached.
  • 50% retracement: Expected to be hit, aligning with the 50-day moving average.
  • 61.8% retracement: A key target, estimated around $3,750. This is considered a strong Fibonacci support level.
  • 78.6% retracement: A further potential support level.

Bear Flag Pattern Identification

On the hourly chart, Barton identifies a bear flag pattern in gold. This pattern consists of a "pole" (the sharp decline) followed by a consolidation phase (the flag). The measured target for this bear flag, calculated by taking the height of the pole and extending it from the breakout point, suggests a target around $3,720. This target aligns closely with the 61.8% Fibonacci retracement level.

Future Outlook for Gold

Barton expresses surprise if gold were to immediately rocket back to all-time highs, suggesting a period of consolidation is more likely, potentially lasting a month or longer. He draws a parallel to a previous consolidation period in April that lasted for four months.

• Ideal Scenario: Barton hopes for a "washout sale" down to around $3,500, which would coincide with the 200-day moving average. He describes this as a "backup the truck moment" and a potential "springboard for much higher prices."
• Without a Washout: If gold moves up from current levels without a significant dip, he anticipates topping out around $5,500-$5,600.
• Underlying Fundamentals: Barton emphasizes that the fundamental case for gold remains strong due to government fiscal policies ("printing money like drunken sailors") and expects the gold bull market to continue for a long time, possibly only in its "fourth inning."

Silver Analysis

Current Situation and Pullback Targets

Similar to gold, silver has experienced a run-up to new all-time highs followed by a pullback. Barton applies the same Fibonacci retracement methodology to silver's recent rally.

• Fibonacci Retracement Levels for Silver:
  • 38.2% retracement: Breached.
  • 50% retracement: Currently being tested, around $45.50.
  • 61.8% retracement: A strong support level, estimated around $43.50. This level aligns with the 50-day moving average.
  • 78.6% retracement: A further potential support level, around $40.65.

Bear Flag Pattern Identification in Silver

Using the 2-hour chart to highlight patterns more quickly, Barton identifies multiple bear flag patterns in silver. He notes that these patterns have played out, with a recent breakdown.

• Measured Downside Targets:
  • First bear flag target: Around $43-$44.
  • Second bear flag target (after another breakdown): Also suggests a downside target in the $43-$44 range.

Future Outlook for Silver

Barton anticipates further downside in silver, with consolidation expected to last at least a month.

• Potential Floor: While he'd like to see it reach $40.65, he believes the "floor" for silver is likely around $35, suggesting it's unlikely to fall below this level again.

Silver Miner ETFs (PSLV)

Barton discusses PSLV (Sprat's Physical Silver) as a way to invest in physical silver through an ETF. He notes the significant increase in trading volume for PSLV, indicating growing investor interest. He also points out that when volume increases while price is rising, it signifies strong buying pressure. Conversely, if volume dies out while the price is rising, it suggests buyers are running out and a reversal may be imminent.

Investment Strategy and Technical Analysis

Timing Entries and Exits

Barton emphasizes the importance of using charts to time entries and exits, complementing fundamental analysis.

• Key Indicators: He looks at RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence).
• RSI Thresholds:
  • Oversold: RSI below 30 is a signal to consider buying.
  • Overbought: RSI above 70 (or 80 in some cases) is a signal to consider taking profits.
• Volume Bars: He uses volume bars to identify periods of high trading activity and potential trend exhaustion. For example, a price increase with declining volume suggests a lack of buyer conviction.

Risk Management and Position Sizing

When anticipating further downside but believing in the long-term trend, Barton advises a cautious approach to position sizing. For example, when considering a $1,000 bet, he suggests starting with a smaller amount like $100, allowing for the possibility of buying at a cheaper price later.

Uranium Market

Current Situation and Government Support

Barton expresses excitement about the uranium market, noting that the spot price is around $77 and the term price is around $81. He highlights the SRUF (Spot Physical Uranium Trust) as an easy way to play the sector.

• Government Initiatives: The US administration is prioritizing securing its own uranium conversion, enrichment, and mining capabilities due to reliance on foreign sources, particularly Russia. This reliance is becoming unsustainable as import restrictions loom.
• Subsidies: Barton anticipates government subsidies for the uranium sector, similar to past initiatives like Trump's $80 billion investment in Cameco for nuclear reactor construction. While not a fan of subsidies, he acknowledges that investors can benefit.

Investment Opportunities

• URMM and URJ: He points to the positive price action in uranium ETFs like URMM and URJ, which have bounced off their 50-day moving averages, especially after fundamental news of subsidies emerged.
• Entry Points: While he doesn't see immediate buys, he expects news to be "washed out" and anticipates another entry point on a rising 50-day moving average.

Rare Earth Elements (REEs)

Geopolitical Significance and China's Dominance

China's near-monopoly in the rare earth sector (controlling about 90% of global production) is a significant geopolitical concern. REEs are critical for modern technology, including electronics, defense systems (Tomahawk missiles, tanks, fighter jets), and GPS satellites. This dominance gives China considerable leverage.

Historical Context and Market Capture

China captured the rare earth market over several decades by processing and refining these elements with less stringent environmental regulations compared to Western countries. Furthermore, the Chinese government subsidized its miners and refiners, making their products cheaper globally. This led other nations to abandon their own REE production, creating the current dependency.

Investment Opportunity in REEs

• REMX ETF: Barton identifies the REMX (Rare Earth and Strategic Metals ETF) as an accessible way to invest in the sector.
• Current Setup: He believes the current setup is "sweet" for investors. Despite potential short-term sell-offs due to geopolitical meetings (e.g., Trump meeting with Xi), the underlying problem of supply chain dependency remains.
• Entry Strategy: Barton plans to make his first buy on the REMX ETF, noting a double bottom pattern below a rising 50-day moving average. He suggests a phased entry strategy:
  • Initial bet: 15% of the intended investment.
  • Second bet: 35% at $62.50.
  • Final bet: The remaining half at $55.
• Rotation of Capital: He sees REEs as a potential area to rotate capital from gold and silver miners, which have recently seen profits taken. He believes many investors are "asleep at the wheel" regarding rare earths, presenting a real opportunity.

Other "Hated" Sectors

Oil (WTI)

Barton considers oil to be "pretty hated" and likes it as an investment. He mentions the XLE ETF as an easy way to play oil and has limit orders set at $87.25, $84.50, and $81.50.

Nickel

The nickel market is also described as "hated" and cyclical. After a blow-off top in February 2022, the price has been flatlining. Barton gets excited about commodities in these periods of "complete boredom," believing investors are also "asleep at the wheel" here. He likes nickel plays.

Final Thoughts and Investment Philosophy

Patience and Thesis Development

Barton's core advice is to be patient. Investors should not feel compelled to invest immediately upon hearing about an opportunity. He stresses the importance of:

• Research: Understanding the fundamentals behind an investment.
• Thesis Writing: Developing a clear, concise thesis for each investment, outlining the reasons for owning it and the conditions under which to sell. This helps in making objective decisions.

Technical Analysis Course

Barton offers a technical analysis course that details the patterns he looks for and how to spot them. The course includes instructions on setting up charts to match his preferred view.

Long-Term Outlook

Barton believes that 2026 will be a "really, really nice year" for precious metals. He advises investors who are underinvested to look for sell-offs and use chart indicators to find buying opportunities. He plans to wait for lower RSI and MACD readings before reinvesting profits from gold and silver miners back into those sectors. He emphasizes that during bull markets, pullbacks and consolidation periods are normal.

Fed Policy and Economic Outlook

Regarding the Federal Reserve's interest rate decisions, Barton notes that rate cuts often signal economic weakness. He believes that while the immediate Fed meeting might not have a significant impact, a few rate cycles after cuts begin is typically when markets turn. He anticipates a potential correction in the S&P 500 and other indices as the economy struggles, and does not expect continued all-time highs in the stock market. He also foresees a potential "washout sale" in assets as people face economic hardship, though he doesn't expect a crash.