2020 Foresight

A look ahead to a volatile but profitable year.

41
Mon, Jan 6, 2020 - 11:35am

The year 2019 unfolded just about as predicted in our annual look-ahead post entitled "2010+9". And that's nice. But it's all for naught if we fail to correctly forecast where we go from here. With that in mind, here's a first look at what to expect in 2020.

These annual forecasts are risky business. Get it wrong and you create a paper trail for trolls to poach for years to come. Get it right and you get a few backslaps while being told that anyone could have foreseen the predicted events so get over yourself. Which leads me to wonder why I started making these forecasts in the first place...but here we go again.

First a recap...

  • As 2017 began, we were told that the election of Trump would crash gold prices due to a soaring dollar, a surging U.S. economy and a bursting of the bond bubble. This narrative seemed ridiculous at the time and we were right...it was. And we wrote about it on January 17, 2017: https://www.tfmetalsreport.com/blog/8103/questioning-generally-accepted-...
  • The following year, even more supposed experts were calling for triple-digit gold prices and a resumption of the bear market. They were proven wrong. At TFMR, we expected prices to be steady and rising instead as three themes would support prices. This was posted on January 4, 2018: https://www.tfmetalsreport.com/blog/8755/three-themes-2018
  • And last year at this time, all of the 8-figure Wall Street economists were insisting that gold would crash as the Fed hiked rates as many as four times in 2019. These same clowns expected the yield on the US 10-year note to rise to 5%! This was utterly ridiculous for reasons we've discussed here for the past decade. So instead, we figured that 2019 would play out a lot like 2010 and forecasted "the best annual gains since 2010" in this post dated January 14, 2019: https://www.tfmetalsreport.com/blog/9151/2010-9

OK, so what are all of the mainstream "experts" forecasting for 2020? It's as if they never learn! The consensus is again for stable to higher interest rates, a rising dollar, a growing US economy and flat-to-falling precious metal prices. As you might expect, I disagree.

Let's start with that interest rate forecast. Back in December, Chief Goon Powell attempted to convince everyone that The Fed's preemptive easing cycle had run its course and that interest rates would remain unchanged for the balance of 2020. He also claimed that the REPO crisis was under control and that his current debt monetization scheme of $60B/month in T-bill purchases was "definitely not QE". All of this is simple garbage and SPIN.

Instead, the year 2020 will see a continued slowing of the U.S. and global economies and the new geo-political worries will only worsen the decline. The Fed will be forced to resume their fed funds rate cut policy and, as the U.S. must fund a minimum budget deficit of $1.2T, they will also begin monetizing longer-term treasury notes. In case you missed it, the FOMC openly admitted this in the minutes of their December meeting. See below: https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20191211.pdf

It's not just the REPO & Liquidity Crisis that will cause the rate cuts and expansion of QE, it's the faltering US economy, too. Led by the manufacturing sector, the US economy is stumbling into contraction and recession, just as it did in 2010-2011. See this Reuters link: https://www.reuters.com/article/us-usa-economy-pmi/december-us-factory-a...

From that summary, check this excerpt:

So, will these PMIs drop to near 40 in the months ahead? Check this DeutscheBank chart from last October. Given how accurate this has been in the 90 days since, I'd say the chances are pretty high.

So the global economy is faltering and the central banks will soon be forced into more rate cuts and debt monetization. The only other piece of the puzzle is the forex market, specifically the U.S. dollar. While not a direct correlation to dollar gold prices, a rising or falling dollar can provide either a head or tail wind. Check the chart below. With the dollar index breaking down along with a bearish "death cross" of its key moving averages, does it appear that those dollar winds will be in our face or at our back in 2020?

So there's your macro forecast for 2020...a slowing economy and surging fiscal deficit leads to more QE, lower interest rates, negative real (inflation-adjusted) rates and a falling dollar.

But let's get to the heart of the matter...the prospects in 2020 for gold, silver and the mining shares.

At this critical time, no forecast of PM prices should begin without first noting the extreme, all-time high levels of contract open interest on the Comex. In desperate protection of their established (and now deeply underwater) short positions, The Banks in 2019 increased the total supply of Comex gold contracts by 329,806 contracts or about 73%.

(As an example of the criminally-fraudulent nature of this exchange, be sure to note that 329,806 contracts is the equivalent of 32,980,600 pretend gold ounces and that year-end total open interest was 786,166 contracts for 78,616,600 pretend ounces. For reference, total global mine supply for 2019 will likely be around 90,000,000 actual, physical ounces.)

Prices rallied regardless but the change in Bank/Commercial positioning is significant. On the CFTC-issued Commitment of Traders report, the "Commercials" began 2019 with a NET short position of 92,700 gold contracts. As of the most recent report, these same "Commercials" now hold a new alltime high NET short position of 366,500 contracts. Specific to The Banks, the CFTC also issues a monthly Bank Participation Report. As 2019 began, The Banks reported a NET short position of 88,265 contracts. Here in early January 2020, it's now 225,111 contracts. So, again, any guesses as to the prospects for additional gains in Comex gold prices must be tempered due to the extreme positioning of these market-dominating Banks.

However, this does NOT mean that prices can't go higher in 2020. Given the macroeconomic forces discussed earlier in this post, they almost certainly will. However, it's not going to be easy and The Banks will fight against every uptick. The old alltime high for Comex gold open interest was seen in 2016 near 660,000 contracts. We're now near 800,000 and The Banks will not hesitate to take it to 900,000 or even 1,000,000 in 2020. This continued dilution will impact price, you can be certain of that.

Regardless, I expect higher gold prices in 2020. How high? The first key level to watch will be a weekly close above $1550. Last Friday, January 3, saw our first close above that level but that was primarily due to the current geo-political concerns. What will be needed is a sustained move above this key level. And why is $1550 so important? For nearly 19 months...following the price peak in September of 2011...the area around $1550 held as important support. Now on the way back up, this area acts as significant resistance.

I think the breakout above $1550 comes in Q1 of this year and, once that's accomplished, the next target is near $1650. If we finished the year there, Comex gold would register an annual gain of about 8.5%. While nothing to sneeze at, that seems a little light given all that we've laid out above. So an aggressive target for 2020 is actually $1800 or so. That would be a 25% gain on the year. Can we get there? Again, given the already-bloated OI and CoT positioning, it's not going to be easy but it's certainly possible.

Turning to Comex silver...it, too, has seen its open interest and Bank positioning increase greatly in 2019, but not nearly to the extreme as Comex gold. Therefore, the fight for gains will be challenging but not insurmountable.

In our 2010+9 forecast last year, I thought Comex silver could reach all the way to $20 and maybe even $22. As you know, it reached $19.75 in early September before sliding backward to finish the year at $17.90. For 2020, eclipsing $18.50 on a weekly closing basis will be the first step, followed a trip to $20. Once above there, the clear and obvious target is $22.

Just getting to $22 would signify a 23% gain and that would seem to be an appropriate expectation. However, IF things can really get rolling, then the all-important and critical resistance of $26 will come into view. Can we get there in 2020? We'll just have to see how bad the macro picture gets. In the meantime, even a move to $22 will be sufficient to spark the mining shares even higher.

And let's conclude with the mining shares because, if you want to make some old-fashioned fiat currency trading profits in 2020, this will be where the action is.

Why? As Grant Williams and Rick Rule have noted, total global asset allocation to the entire precious metal sector remains below 1%. The highest it has ever been was in 1980 when it reach 8% while the long-term median is closer to 2.5%.

So let's just say that all of the macro factors listed above come to pass. Let's also assume that precious metals prices continue with just a gradual incline this year. Taken together, these two factors will have a significant impact on the viability and profitability of the mining companies and large institutions...think hedge, mutual and pension funds...will take notice.

With gold prices remaining above $1500, the Q4 2019 earnings reports for the major producers (due in late January and early February) will again show 3-5X growth over Q4 of 2018. As metal prices continue higher, the reports for Q1 2020 will be even better. This WILL get the attention of global money managers seeking "alpha" and precious metal exposure.

So what happens if that global asset allocation percentage moves back to the long-term median of 2.5%. Where will that cash go? Sector exposure will be sought and demand for precious metal IN ALL ITS FORMS will grow. This means that a huge flow of funds will be looking for a home...but there are VERY limited opportunities! Thus a "crowding in" of investment dollars will very likely spark out-sized gains for the mining shares in 2020. Just how out-sized?

At present, the GDX is moving up toward significant resistance at $31-32. This area is important because it is the gap on the chart from the April 2013 smash AND the peak from the rally in 2016. The flow of institutional funds will really kick in once price is above this level and, once it does, the target becomes $40 and then $50. A move from the current $29 to the expected $50 would be a gain of 72%. That certainly qualifies as "out-sized".

However, IF Comex gold can stretch toward $1800 and/or IF Comex silver can stretch above $22, then the gains in the juniors and explorers will be even better. At present, the GDXJ ETF is trading near $42. Once above $55, first $70 and then even $100/share come into view.

In summary, you should expect a continuation of this renewed bull market in 2020 as the macroeconomic forces that drive demand for precious metal in 2019 extend and worsen in 2020. However and as always, these gains will not come easy as The Banks will fight us every step of the way.

In dollar terms, precious metal prices will see another year of strong gains so prepare and stack accordingly. However, if you can withstand the volatility and you want to have some fun, there will be sizable fiat profits to be booked from the mining shares and this sector will likely receive some additional focus here at TFMR in 2020.

Thus now is the time to join us at TFMR. Not only do you receive daily analysis and podcasts, you'll gain access to the greatest and most knowledgeable community of investors on the internet...and all for just 40¢/day. You can learn more about a monthly or annual subscription here: www.tfmetalsreport.com/subscribe

Let's make it a great 2020!

TF

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  41 Comments

  Refresh
Jan 6, 2020 - 4:35pm

OOPS

So much for that story of the letter that claimed the US would soon be leaving Iraq...

5 minutes after leaving press room at DodD, Gen. Milley turned around and came back in, telling us the letter US sent to Iraqis about withdrawal was a "draft" and it was a "mistake." Wasn't meant to be sent. No US troops are leaving.

— paul mcleary (@paulmcleary) January 6, 2020
Angry Chef
Jan 6, 2020 - 4:26pm
NoterietyOrange
Jan 6, 2020 - 4:16pm

Propaganda

Pure and simple.

Everyone is propagated to all the time. Pro-Trump, anti-Trump, beside-Trump, Quasi-Trump. I don't blame anyone for following Q. I respect skilled propagandists and this Q phenomenom is remarkable.

I want to say that this Tweet is bullshit, but how could I ever prove that it is?

Only a full-blown, fully declared War between Iran and the USA could prove the bullshit (but that will not happen in Modern Warfare. This can only be asymetric). The Iran Parliament unanimously chanted 'Death to America' over and over again. The USA Military is openly killing high ranking Iran Generals. I fail to see how this isn't war.

Future proves past? How far into the future? 1 year, 3 years, 5 years, 200 years, or infinite years? Apparently Trump time travelling is proving that there is no such thing as the 'future'. Therefore this quotation is for all intents and purposes, benign.

Ben StackinOrange
Jan 6, 2020 - 4:16pm

Richard Haass

head of the CFR. Total douche bag. Funny how they (CNBC/Harwood) credit him with his Bush era position, not his current CFR leadership role. Maybe they feel they're in the nooz too much, given the Joe Biden video about the Ukraine quid pro Joe that was filmed in front of a CFR backdrop. Fukk them all. They are globalish NWO anti-American scum.

slujanTF
Jan 6, 2020 - 3:56pm

Speculation?

with such extreme COT Data / and pure speculation. What is the likelyhood that HSBC has actually been building a stealth long position to counter their massive short? Essentially knowing they will cover shorts, the blow won't be as bad if they have an equivalent long?

Jan 6, 2020 - 3:54pm

brace yourself

Here are your CoTs...surveyed last Tuesday the 31st

CDG by far the worst ever. Wil discuss context in podcast today.

CDS getting close to extremes seen in 2016.

Key Economic Events Week of 11/30

11/30 9:45 ET Chicago PMI
12/1 9:45 ET Markit Manu PMI Nov
12/1 10:00 ET ISM Manu PMI Nov
12/2 8:15 ET ADP Employment Report
12/3 9:45 ET Markit Services PMI Nov
12/3 10:00 ET ISM Services PMI Nov
12/4 8:30 ET BLSBS
12/4 8:30 ET US Trade Deficit Nov
12/4 10:00 ET Factory Orders

allenbAngry Chef
Jan 6, 2020 - 3:30pm

Axis of resistance

Thanks Angry Chef.

Interesting speach and prognosis.

Oh to be a fly on the wall of the Oval Office!

Angry Chef
Jan 6, 2020 - 2:55pm

The Axis Of Resistance Announces The Project That Will Avenge...

...Qassem Soleimani

This is an important read for those interested. How many of us or our fellow citizens that wish to weigh in on the recent developments in Iraq/Iran and Washington are aware that Soleimani cooperated with American forces not one but twice. Once in the War in Afghanistan and against ISIS in Iraq and Syria.

The fog of War for sure. Now let me ask you who is the real beneficiary of the assassination of Soleimani ?

https://www.moonofalabama.org/2020/01/the-axis-of-resistance-announces-t...

Jan 6, 2020 - 2:52pm

oh my goodness pt 2

Here again is the same Bank algo that seemingly runs every day on the Globex, right after the Comex close.

OrangeJ Siefert
Jan 6, 2020 - 2:32pm

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Key Economic Events Week of 11/30

11/30 9:45 ET Chicago PMI
12/1 9:45 ET Markit Manu PMI Nov
12/1 10:00 ET ISM Manu PMI Nov
12/2 8:15 ET ADP Employment Report
12/3 9:45 ET Markit Services PMI Nov
12/3 10:00 ET ISM Services PMI Nov
12/4 8:30 ET BLSBS
12/4 8:30 ET US Trade Deficit Nov
12/4 10:00 ET Factory Orders

Key Economic Events Week of 11/23

11/23 9:45 ET Markit flash PMIs
11/23 1:00 ET Goon Daly
11/23 3:00 ET Goon Evans
11/24 9:00 ET Case-Shiller home prices
11/24 10:00 ET Consumer Confidence
11/24 11:00 ET Goon Bullard
11/24 12:00 ET Goon Williams
11/24 12:45 ET Goon Chlamydia
11/25 8:30 ET Q3 GDP 2nd guess
11/25 8:30 ET Durable Goods
11/25 10:00 ET Personal Inc and Spend
11/25 10:00 ET Core inflation
11/26 US Market holiday

Key Economic Events Week of 11/16

11/16 2:00 pm ET Goon Chlamydia
11/17 8:30 ET Retail Sales
11/17 8:30 ET Import Price Index
11/17 9:15 ET Cap Ute and Ind Prod
11/17 10:00 ET Business Inventories
11/17 1:00 pm ET Chief Goon Powell
11/18 8:30 ET Housing Starts
11/18 1:20 pm ET Goon Bullard
11/19 8:30 ET Jobless claims
11/19 8:30 ET Philly Fed

Key Economic Events Week of 11/9

11/9 1:30 pm ET Goon Mester
11/10 7:30 am ET Goon Kaplan
11/10 10:00 ET JOLTS job openings
11/10 10:00 ET Goon Rosengren
11/11 Veteran's Day. Bond market closed.
11/12 8:30 ET CPI
11/12 11:45 ET Chief Goon Powell
11/12 2:00 pm ET Federal budget
11/13 7:00 ET Goon Williams
11/13 8:30 ET PPI
11/13 8:30 ET Goon Bullard
11/13 10:00 ET Consumer sentiment

Key Economic Events Week of 11/2

11/2 9:45 ET Markit Manu PMI
11/2 10:00 ET ISM Manu PMI
11/2 10:00 ET Construction Spending
11/3 U.S. Election Day
11/4 November FOMC begins
11/4 8:30 ET ADP jobs report
11/4 8:30 ET US Trade Deficit
11/4 9:45 ET Markit Services PMI
11/4 10:00 ET ISM Services PMI
11/5 8:30 ET Productivity & Unit Labor Costs
11/5 2:00 ET FOMC Fedlines
11/5 2:30 ET Chief Goon Powell presser
11/6 8:30 ET BLSBS
11/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/26

10/27 8:30 ET Durable Goods
10/27 10:00 ET Case-Shiller home prices
10/27 10:00 ET Consumer Confidence
10/27 10:00 ET Richmond Fed
10/28 8:30 ET Advance Trade in Goods
10/28 8:30 ET Wholesale Inventories
10/29 8:00 ET ECB monetary policy stmt
10/29 8:30 ET Q3 GDP first guess
10/30 8:30 ET Personal Income and Spending
10/30 8:30 ET Core Inflation
10/30 10:00 ET UMich Consmer Sentiment

Key Economic Events Week of 10/19

10/19 11:45 ET Goon Chlamydia
10/20 8:30 ET Housing Starts
10/20 1:00 pm ET Goon Evans
10/21 10:00 ET Goon Mester
10/21 2:00 pm ET Fed Beige Book
10/22 8:30 ET Initial Jobless Claims
10/23 9:45 ET Markit Oct flash PMIs

Key Economic Events Week of 10/12

10/13 8:30 ET CPI and Core CPI
10/14 8:30 ET PPI
10/14 9:00 ET Goon Chlamydia
10/15 8:30 ET Philly Fed
10/15 8:30 ET Empire State Idx
10/15 8:30 ET Import Price Idx
10/16 8:30 ET Retail Sales
10/16 9:15 ET Cap Ute & Ind Prod
10/16 10:00 ET Business Inv

Key Economic Events Week of 10/5

10/5 9:45 ET Markit Svc PMI
10/5 10:00 ET ISM Svc PMI
10/5 10:45 ET Goon Evans
10/6 8:30 ET Trade Deficit
10/6 10:00 ET JOLTS job openings
10/6 10:45 ET Chief Goon Powell
10/7 2:00 ET Sept FOMC minutes
10/7 3:00 ET Goon Williams
10/8 8:30 ET Initial jobless claims
10/9 10:00 ET Wholesale Inventories
10/9 12:10 ET Goon Rosengren

Key Economic Events Week of 9/28

9/29 8:30 ET Advance trade in goods
9/29 9:00 ET Case-Shiller home prices
9/29 10:00 ET Consumer Confidence
9/30 8:15 ET ADP employment report
9/30 9:45 ET Chicago PMI
10/1 8:30 ET Personal Income and Spending
10/1 8:30 ET Core Inflation
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/2 8:30 ET BLSBS
10/2 10:00 ET Factory Orders

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