Steve Barton: Silver, Gold at New Highs, Here's What's Cheap Right Now

Key Concepts

• Cyclical Resource Sector: The inherent pattern of rising and falling prices in commodities, requiring strategic rotation between assets.
• Fibonacci Retracement/Extension: Technical analysis tools used to identify potential support and resistance levels, and price targets.
• Bull Flag Pattern: A chart pattern indicating a continuation of an upward trend, often followed by a breakout.
• Cup and Handle Pattern: A bullish continuation pattern suggesting a potential price increase.
• Term vs. Spot Price (Uranium): The difference between long-term contracted prices and current market prices for uranium.
• Ratio Analysis (Gold/Silver vs. S&P 500, Housing): Comparing the price of assets to gain insights into relative value and potential investment opportunities.
• 200-Day Moving Average: A technical indicator used to identify the long-term trend and potential support/resistance levels.

Oil, Uranium, Precious Metals & Commodities: A Cyclical Rotation Strategy

This discussion, between Charlotte Mloud of investingnews.com and Steve Barton of “In It Two Minute Show,” centers on a cyclical investment strategy within the resource sector, focusing on identifying undervalued assets and rotating capital between commodities based on market conditions. Barton details his recent trades and outlines his current outlook for oil, uranium, gold, silver, platinum, copper, and housing.

I. The Rotation Strategy: From Negative Oil to Precious Metals

Barton’s strategy revolves around capitalizing on cyclical peaks and troughs. He began by purchasing oil when prices went negative during the 2020 market sell-off, selling at $115-$120/barrel. Profits were then reinvested into uranium at $50/pound, realizing gains up to $108/pound. Subsequently, uranium profits were moved into gold and silver, timed with the breakout of a 13-year cup and handle pattern in gold. He highlights the importance of taking profits and redeploying capital into the next undervalued opportunity. As of the conversation, he believes oil is poised for a rebound and is initiating a rotation out of some precious metals into oil equities. He emphasizes this isn’t a complete exit from precious metals, but a strategic shift.

II. Oil: A Potential Rebound Play

Barton believes oil is currently “depressed” relative to other equities and commodities, presenting a buying opportunity. He points to a recent breakout in WTI oil above the 50-day and 20-day moving averages, with the 200-day moving average acting as the final resistance. He anticipates a move to the upside, supported by Fibonacci retracement levels. He favors the XLE ETF for broader exposure, but also holds positions in three select oil companies, preferring American names. He estimates a potential breakout target for the XLE ETF based on the bull flag pattern, projecting a rise from $50 to potentially the low $80s per share. He acknowledges a potential recession could dampen demand, but views current oil equity valuations as attractive for bottom-picking.

III. Uranium: Taking Profits & Monitoring Term/Spot Price

While previously bullish on uranium, Barton is now taking profits. He explains the relationship between the spot price (current market price) and term contracts (prices for future delivery). He notes that the cheapest term contract was recently available, signaling a potential peak. He sold uranium positions after the spot price approached the term price, similar to his previous strategy with oil and gold. He still holds a 10-12% allocation to uranium, anticipating potential volatility and another “blowoff” move, but is actively trimming positions. He differentiates between actively traded positions (less than a year) and longer-term holdings (over a year).

IV. Precious Metals: Silver’s Potential & Gold’s Continued Strength

Barton remains bullish on precious metals overall, but is more cautious on silver after its significant run-up. He uses Fibonacci extensions to identify potential resistance levels for silver, projecting targets around $100, $131, and even higher. He anticipates profit-taking around $100, but believes a further move is possible. He’s rotating profits from physical silver (PSLV) into oil equities and gold/silver miners, anticipating a catch-up trade in the mining sector. He notes the SIL ETF (silver miners) has underperformed silver itself, creating an opportunity.

For gold, Barton highlights a breakout in the ratio of gold to the S&P 500, indicating gold’s outperformance. He believes the 200-day moving average represents a potential downside support level. He also points to a cup and handle pattern suggesting continued upward momentum.

V. Platinum & Copper: Opportunities & Corrections

Barton views platinum as a good opportunity, noting a recent breakout and a potential target of $3,300. He believes the current price is attractive. Regarding copper, he anticipates a short-term correction but remains long-term bullish. He highlights a broken trend line and suggests a buying opportunity upon a pullback, particularly near the longer-term trend line. He emphasizes the undervaluation of copper relative to gold, as indicated by the copper/gold ratio.

VI. Housing: A Contrarian View

Barton presents a compelling argument for housing as an undervalued asset, using a ratio comparing home prices to gold and silver prices. He notes that housing is currently significantly cheaper than it was a few years ago when priced in ounces of gold or silver, suggesting a potential opportunity for stackers to trade metals for real estate.

Notable Quotes:

• “You don’t really make any money until until you press the sell button.” – Steve Barton, emphasizing the importance of realizing profits.
• “Housing is actually cheap when you price it in gold and silver.” – Steve Barton, highlighting a contrarian investment opportunity.

Conclusion:

Steve Barton advocates for a dynamic, cyclical investment strategy within the resource sector. He emphasizes the importance of identifying undervalued assets, capitalizing on market rotations, and actively managing positions by taking profits and reinvesting in emerging opportunities. His current focus is on oil equities, while he remains bullish on precious metals overall, but is selectively taking profits and reallocating capital. His analysis utilizes technical indicators like Fibonacci retracements, moving averages, and chart patterns to identify potential entry and exit points. He stresses the need for constant monitoring and adaptation to changing market conditions.