Precious metals still have something to prove: strategist

Chris Vermeulen, CEO, founder and chief market strategist at The Technical Traders, remains wary of investing in precious metals despite a strong rally because he says longer-term chart patterns have yet to signal a sustained uptrend. 

“We have seen a very nice rally in gold, silver, and miners, there is no doubt about it,” Vermeulen told MINING.COM anchor Devan Murugan on Top of Mine. “But when you look at the big chart patterns, they all still have a series pretty much of lower highs and lower lows, which is the definition of a downtrend.” 

Vermeulen said the recent rush into mining stocks may reflect herd behaviour rather than a durable shift in the market. 

“I think we’ve just seen a herd mentality pile into the miners and I think it’s actually a little overdone and I think they’re going to pull back, so I don’t fully trust this move,” Vermeulen said. 

His caution highlights the divide between the bullish fundamental case for precious metals and what he sees in technical indicators. For Vermeulen, the opportunity cost of holding an asset that could remain stagnant outweighs the appeal of waiting for the fundamentals to translate into stronger price momentum. 

Opportunity cost 

Vermeulen said time is an investor’s most valuable asset, making it important to keep capital deployed where it can generate returns. 

“There’s no doubt we have the strongest fundamental story in precious metals, but based on what the charts are showing, and nobody wants to hear this, we could see precious metals actually go dormant for a few years,” he said. “That’s a long time, especially if you can go make 10% on average return somewhere else for two, three, or four years. That’s a lot of gain that you’re missing out.”  

Vermeulen’s approach treats the stock market as a frequency that investors must tune into.  

“In order to understand and play it, whether it’s a bullish, a positive or negative frequency,” he said. 

Vermeulen pointed to fear in the bond market and heightened attention on yields as forces helping revive interest in precious metals, with investors seeking alternatives to the dollar. 

“Something eventually will break, there’s no doubt about it,” he said. “There’s a lot of fear in the bond market and yields definitely have everybody’s attention. People are looking for safety and we’re seeing precious metal space come to life because of it, they’re trying to get away from the dollar.” 

Watch the full episode here: