Over the weekend, I wrote an essay entitled "Patiently Climbing
Aboard the New Golden Bull," in which I stated that not only are we in a
new bull market in precious metals, I pegged my long-term target price for
gold at U.S.$7,189 per ounce. which, at a GTSR of 50, implies a longer-term
silver price of $143 per ounce.
Over the intermediate term, I see a move up to the $1,450/oz range, albeit
not without a great deal of backing and filling and accelerated volatility.
That sounds wonderful, doesn't it? You can just back up your Ford 150 and
load it to the brim with gold coins and wafers and senior mining shares and
why not buy a few million shares of a 5-cent penny dreadful because, after
all, don't we all agree that "there's no fever like gold fever,"
and fifty-baggers are a walk in the park. Right?
Wrong.
The Friday afternoon numbers for the COT, coupled with the most rapid
advance in bullish sentiment since 2009, has set us up for disappointment and
if we are not careful, severe short-term draw downs.
Before I proceed, it must be stated and stated clearly that I have two
main accounts that I use for the precious metals, with one dedicated to long
and intermediate-term positions and the other to short-term trading. I own
large positions in a number of junior TSX.V explorer/developers and some of
these have been held since 2010, which means that I have exposure to gold
(and silver) literally 100% of the time. I never trade my physical; I seldom
trade the high-quality miners; and I often hedge both by using ETFs or
options. So when I tell the world that I am looking for a "better entry
point" for my trading positions, I don't want to read a post in some
chatroom that "Ballanger's bearish!" because, as you have read
earlier in this missive, I am NOT a "bear." But make no mistake: I
look for a bone-jarring correction in March-April that will singe the
eyebrows.
Now I must have received two dozen emails and Skype messages in the past
few days that are taunting and teasing every time gold has a $5 uptick and
for the millionth time, I am long gold and gold miners so if my short-term
caution proves wrong, I will STILL have seen portfolio values advance. It is
not unlike October, when I looked like a hero because I hedged at $1,180/oz
and watched the hedges advance sharply but at the bottom on Dec. 3, I had
gained 10% on the hedges but the entire portfolio was still down from the
mid-October highs over 30%. I recognize how frustrating it is for everyone in
the bull camp when we are sitting with positions in the metals and miners
acquired years ago and at much higher prices and just when you think the
market is about to skate you back into profitability, these criminals not
only short millions of ounces of synthetic, totally-phony,
never-to-be-delivered "gold", they get the Crimex to increase
margin rates on gold, just like they did back in April 2013 just before the
big $200 mugging that broke the 10-year trend line.
Drives is all crazy but the reality is that again today, thanks to massive
intervention by the BoJ, the Dollar-Yen reverses from 112.16 and mounts a vicious
squeeze that takes it to 114.18 before settling back to 139.50 and gold has a
$20 reversal, taking moods from euphoria to depression in a wink of an eye.
And all thanks to intervention by the BoJ on the first days of the month and
the first day of a "jobs report" week. Talk about a set-up...
Shifting gears for a moment, I haven't talked very much lately about the
S&P as my last move was to flatten most of the puts and the VXX position
the day that we moved down to 1,812 and I made reference to the Bullard
comments which transformed the market from freefall to 1,760 to rebound to
1,970. They turned oil and they turned junk bonds and they turned stocks
almost all at the same time, and for the past two weeks, they've had a little
fun. If I'm correct, Tuesday through Thursday will be the time to scale back
in to short side, so I'm bidding for the VXX at $14.50-15.00 and the SPY March
(18th) $195 puts at $3.50 all starting tomorrow and trying for 1/3 each of
the three days.
Remember, we are in the very early stages of an absolutely breath-taking
bull market in mining stocks and the precious metals but like the famous
Aesopian fable, sometimes it's the tortoise that wins the race by simply
plodding along and exercising patience and a tad of caution. And after being
forced to eat of a dog-food can for the past few years, I intend to do just
that as we move forward.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University
where he earned a Bachelor of Science in finance and a Bachelor of Art in
marketing before completing post-graduate work at the Wharton School of
Finance. With more than 30 years of experience as a junior mining and
exploration specialist, as well as a solid background in corporate finance,
Ballanger's adherence to the concept of "Hard Assets" allows him to
focus the practice on selecting opportunities in the global resource sector with
emphasis on the precious metals exploration and development sector. Ballanger
takes great pleasure in visiting mineral properties around the globe in the
never-ending hunt for early-stage opportunities.
Disclosure: This article does not constitute investment advice. Each
reader is encouraged to consult with his or her individual financial
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All images/charts courtesy of Michael Ballanger