It was two years ago this week that I proclaimed that we were witnessing the final lows in the 2011–2015 bear market in the precious metals as gold traded down to $1,045 amidst total capitulation by the Large Specs and after massive short-covering by the Commercial traders. The weekly COT for that week showed an aggregate short position of a miniscule 2,911 contracts down from the earlier highs of over 300,000 contracts. About six weeks later, despite the earlier bottom in gold, the HUI (NYSE Arca Gold BUGS Index) got mauled mercilessly and closed at 99.19 on January 19th 2016. What followed was the best rally in a decade as the HUI peaked the following August at 286.05. The 2.88 times move in the HUI was paltry compared to the moves in the leveraged ETFs NUGT (Direxion Daily Gold Miners Bull 3X ETF) and JNUG (Direxion Daily Junior Gold Miners Bull 3X ETF). The NUGT moved from $13.92 in January to $143.06 in August for an advance of 927%. Based on what I saw in the latest COT report, the set-up is in progress for a repeat performance. And it will be a BIG one.
The recent Nov. 27 commentary was entitled "Bullion bank short-covering will become year-end profit-taking," and that is EXACTLY what transpired this past week as the bullion bank traders (loosely termed "Commercials") covered 22% of their shorts into the decline. To wit, since the COT week ends on a Tuesday, the Wednesday–Friday projectile emesis of unwanted longs was a perfect example of the longstanding opinion voiced by this author that in gold and silver, you BUY breakdowns and you SELL breakouts. Why do I violate the basic trading rules for technical analysis? It is because unlike most other markets, the precious metals markets are "rigged." The bullion banks waited for the hedgies (Large Specs) to gather en masse on the long side of the trade before crushing price down through 50 and 200 DMAs, triggering a full-scale liquidation into the ever-greedy and welcoming arms of the bullion banks. It was a complete no-brainer as you can see below with the profit taken on a notional value of $7 billion allows for a very Merry Christmas indeed for the serial manipulators manning the desks of the most corrupted, compromised markets on earth. I figure they took $50 per ounce out last week on 5,665,100 "ounces" of fabricated, phony, counterfeit "gold" for a tidy year-end profit of $283,255,000, which has got to be the best (and easiest) job in all of finance. Backstopped by the CFTC and the central banks, this rigging exercise is surpassed in history by none except perhaps the masterful importing of bootleg liquor by Capone from the mighty Canadian Bronfman family back in the days of Prohibition. The only real difference is the utility of self-medication associated with booze versus the blatant robbery committed by the bullion banks.
Now, simply because the Commercials trimmed their shorts by 22%, it doesn't mean that price is going to suddenly vault forward because back in late 2015, it took six weeks for them to cover 122,000 net shorts before arriving at that fateful $1,045 low, but the good news is that we are heading at least in the right direction. Accordingly, the proper action for me will be to add to positions—SLOWLY—with the JNUG and NUGT ETFs containing maximum leverage (and risk) in advance of the "turn." For the retirement account, I will stick to physical silver (no leverage) and for the taxable accounts, I will move next week to accumulate an additional position to the tiny option purchases made the week of Nov. 27. Remember that we still have tax-loss selling to get through so the optimum acquisition period should be the last two weeks of December unless of course the big money decides to preempt the retail bargain hunters, which I view as a distinct possibility.
The two precious metals junior we own, Stakeholder Gold Corp. (SRC:TSX.V) and Canuc Resources Corp. (CDA:TSX.V), are holding their own in a particularly difficult environment with both issues trading well-off their respective 52-week highs but still ahead for the year-to-date performance numbers. Mind you, when I look at the action in the metals whether they be in the mania-driven zinc space or the high-expectation copper space or the must-own-it lithium space, the precious metals explorcos were challenged all year long by competition from the hot sectors to the extent that when Fido hears a commentator use the words "Bitcoin" or "blockchain," he lets out a bloodcurdling howl and makes a beeline for the attic (which is particularly curious given that we don't even HAVE one).
Both SRC and CDA have completed small fundings in the interest of keeping the projects cooking and Stakeholder has actually begun to drill Goldstorm in the northern Carlin trend of Nevada this past week. CDA awaits results from a comprehensive sampling program designed to delineate the breccias where in two zones, Carranza and Cerro Colorado, 11-meter outcrops yielding 260-gram Ag (∞ 8 oz) are present. I am hopeful that exploration success in the early new year will be rewarded by investors because in the world in which I reside, nothing is more devastating than a negative market response to a positive exploration result.
The bottom line for many of us that have been accumulating physical precious metals is this: We correctly foresaw this coordinated global currency debasement at an alarmingly accelerated pace after every crisis since that DotCom meltdown in 2000. We enjoyed vindication from 2001 until 2013 with rising precious metal prices until the central banks decided to forever cripple investor sentiment for gold and silver by way of orchestrated carpet bombings carried out via the derivative markets (Crimex) with increased and predictable frequency after the bank bailouts in 2009. Like dutiful and obedient canines, we came back time after time to the "master" (gold ownership) only to be rebuked with physical, emotional and financial sadism. Always believing that 5,000 years of economic, political and financial history would once again reassert itself vaulting gold and silver to the forefront of investor urgency, we have been undermined with malicious fervor at every turn by the "moneychangers in the temple" that refuse to accept the fact that physical ownership as opposed to digital ownership is the only true "safe haven."
As a result, here we are in the final month of 2017 with bubbles arising everywhere, be they cryptocurrencies or real estate or lithium deals where investors have indeed been trained in a manner not unlike my beloved Fido that flees from the room the minute my voice rises point-zero-three octaves to AVOID gold because it has been rendered "obsolete." "You WILL avoid gold and you WILL love paper assets or suffer the consequences!" roar the price managers in Washington and London and Brussels and indeed that is what drove the younger and infinitely more pragmatic breed of investors to avoid fiat currencies in favor of the digitally generated stores of value.
This need for fiat sanctuary, insulated (or so they assume) from the devious tentacles of bankers and governments, will be tempered by the introduction of Bitcoin futures by the CME Group on Dec. 18. Just as precious metals futures are the tail by which governments and bankers wag the dog through unimpeded interventions, it is, in my opinion, the very tail by which the moneychangers are going to "reel in" cryptocurrencies. So, between now and the end of the month, the Commercials (bullion bank traders) will reduce their aggregate short position as gold's major competition comes under the smothering blanket of intervention and manipulation.
As I wrote about in the commentary entitled "The True Meaning of Bitcoin's Success" this is all about the arrival of the hyperinflationary melt-up characterized by various asset classes going into systemic price spikes. Stated another way, it is about the purchasing power of fiat currencies experiencing sudden and dramatic crashes. This recent narrative of a digital currency replacing gold as a store of value is as non-sensical as the idea that "dollars" whether from the U.S., Canada, or Zimbabwe will maintain their purchasing power over time. The bankers reeled in gold in 2013; they will reel in the Bitcoin as well. What both have in common is the medium of control.
Beware the Ides of December.
All charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.
