I have a question: "Does ANYONE have the foggiest
recollection of just how incredibly bullish the Gold COT (Commitment of
Traders) Report structure was back on Dec. 1, 2015?"
The Large Speculators were net long a paltry 9,750 gold
futures contracts; today they are net long 285,911 contracts.
The Commercials were net short 2,911 contracts; today
they are net short 315,477 contracts.
The always-wrong Small Speculators were net short 6,839
contracts; today they are net long 1,577 contracts.
Market timers for gold were 104% bearish (meaning that
they were short); today they are 94% bullish (long to the teeth).
Gold miners were trading at valuations never before
recorded; seven months later they are up 250%.
On December 1, 2015, gold was trading around $1,050/oz;
today it is at $1,323/oz.
Now I have a second question: "Does anyone realize
how things have changed?"
The COT Report shown below, while historically bearish,
is not going to cause a crash in gold and silver prices; it is instead going
to prevent a runaway in prices until the criminally inclined bullion banks
have unwound what was two weeks ago a painfully acute paper loss in the
billions. I only mention these two COT reports to illustrate the contrasts
between then and now.
Despite the modest weekly improvement in the COT
structure, gold and silver miners are trading down from the post-Brexit peak
and have now given up the uptrend line that dates back until the January
lows. Now, if the HUI (NYSE Arca Gold BUGS Index) can get back above the line
sooner rather than later, it is a "no harm, no foul" scenario and
300-325 could be in the cards. My bet, however, is that the miners continue
under pressure until July 31-August 15, and that there will be a downward
trajectory that will allow for the bullion bank behemoths to unwind their
massive short positions in paper-based gold and silver futures that are
supposed to represent the actual physical metals but in reality are nothing
more than synthetic proxies easily fabricated and used as weapons of mass
abuse and distortion.
The gold and silver markets have completed a remarkable
transition from the "most reviled sector in market history"
(December 2015) to "There ain't no fever like GOLD fever!" here in
July 2016. The Bay Street brokers are all falling all over themselves with
gold and silver deals and my phone is ringing constantly with calls from
prospectors and junior mining execs trying desperately to peddle their wares.
Seven months ago, you could have picked up entire companies with decent
portfolios of properties and prospects by just paying for their audited
financials and exchange fees. My point is that as much as I love the rebound,
it has gotten too crazy, too quickly, and with too many late arrivals now
clamoring for positioning.
That is not to suggest that anything in my intermediate
and long-term strategy has changed; I see gold through $1,425/oz and silver
approaching $30/oz by year-end as the intermediate-term forecast I laid out
in March kicks in. However, the short-term outlook will do precisely what our
dear departed Richard Russell used to say about being "thrown from the
horse" just as it takes off into flight. In my world, the unexpected
appearance of a gut-wrenching, face-ripping correction in the metals would do
what powerful bull markets do-punish the late arrivals and reward the early
birds.
There is a certain portfolio manager often seen on
Canada's Business News Network that was notoriously bearish on gold back in
December, launching into this laborious explanation of why gold was doomed
and headed to $700/oz: "We are in a deflationary period and there is no
need to hold gold when prices are going down. Fluh-flah,
fluh-flah-flah-fluf-fell." It drove me bleeding-well bonkers to listen
to this "wealth advisor" talking such utter nonsense (with the
public actually BELIEVING him) so you can imagine my shock when I read a
commentary from said "wealth advisor" last week that was urging
clients to climb aboard the "precious metals train."
On the one hand, it frightens me when these trend
followers finally capitulate and dive into the HUI 250% off the January lows;
on the other hand, it is exactly what many of us have been predicting for
many months. To wit, the number of portfolio managers actually recommending
and owning gold and silver and the miners is estimated to be less than 1%. If
that number were to grow to just 2% in the next year, I would hazard a guess
that gold would see $2,400-2,500/oz with silver at $70/oz and the HUI at 500.
Interestingly, on a comparative basis, with the TSX
Venture Exchange (TSX.V) ahead 68% from the January lows, it still remains
moribund relative to the HUI (up 250%) or the GDX (Market Vectors Gold Miners
ETF)-up 253%-or GDXJ (Market Vectors Junior Gold Miners ETF)-up 276%. Before
this bull is over, the TSX.V is going to hit record highs and that record
high was back in 2007 at 3,307, making the lift from current levels over
400%. When one uses the phrase "There ain't no fever like gold
fever," it is important to understand that demographics have undergone
an enormous shift as many of the prominent players from the big advance in
the 1970s have passed on and the same is true for the big exploration decades
of the 1980s and 1990s when new discoveries drove the markets.
What is noteworthy is that many of the new generation of
investment bankers and traders are neither trained nor skilled in the
intricacies of the exploration-driven TSX.V and as such have been largely
avoiding it. That, my friends, is changing and when these new "Young
Centurions," with their skills in social media and technology, discover
the insane profit opportunities associated with a big, new, gold discovery,
the TSX.V will be the focus of generations of inherited wealth, as well as
decades of central bank currency debasement with the resultant miniscule
market cap of the TSX.V moving up several orders of magnitude from current
levels.
I cite as proof a recent interview with Goldcorp Inc.'s (G:TSX; GG:NYSE) Brent
Bergeron being asked about his company's future M&A plans: "There
are quite a few projects that are adjacent to Coffee, and we're always
looking at possibilities that will allow us to build a camp and be here for
the long term," Bergeron hints. "We're definitely watching what
junior explorers are doing, and when it's appropriate we will make those
investments and work with them to develop these opportunities. We want to
make sure when there are promising projects that we're investing in moving
them forward."
He was, of course, referring to Goldcorp's recent acquisition
of Kaminak Gold Corp. for over $500 million and subsequent purchase of 19.9%
of Yukon explorer Independence Gold Corp. (IGO:TSX.V) by way of private placement. These remarks represent a huge
testimonial to the outlook for gold, for the Yukon, and for the White Gold
District, and with Goldcorp's renowned skills in handling First Nations
issues and permitting roadblocks, the path they are today blazing will be
well used by the juniors in the region.
The top pick in my portfolio from 2015 was in fact
Kaminak, which I tendered to the bid by Goldcorp (and subsequently hedged)
but I still believe that the White Gold District will develop into a
"camp" not unlike Timmins or Kirkland Lake or Rouyn with multiple
major mines and associated infrastructure. Goldcorp's proposed road to Dawson
City will reduce the seasonality for anyone with proximity to it so
undoubtedly the fact that it will transverse the eastern portion of Stakeholder Gold Corp.'s (SRC:TSX.V)
Ballarat project is a huge bonus for this little junior.
Stakeholder has completed Phase One of the 2016
exploration program (soils and GT probe [trenching]) and will soon begin 25
RAB drill holes designed to probe down to 100 meters in the areas covered by
the soil grid. It must be noted that 2012 trench results yielded gold values
greater than those found on the Coffee project so my hopes are quite high
that those elevated levels of arsenopyrite and antimony are pathfinders to a
large epithermal system. Results are expected in very early August. At a $6.6
million market cap, this micro-cap junior is a low-risk entry point for what
we are all hoping will be Kaminak's little (or big) brother. (And please read
the disclaimer at the conclusion of this missive.)
This week is going to prove to be critical for those
looking for a near-term pop in the precious metals prices because we are
getting a barrage of macro data and geopolitical noise all at once along with
the Democratic National Convention or "DNC" but with recent
allegations coming in from Wikileaks that some of the Hillary lieutenants
were sabotaging Bernie Sanders during the primaries cannot be a positive for
her. In fact, "DNC" might really stand for "Don't Need
Clinton" as the Gong Show starts to heat up.
All I know is that we have finally relocated outside of
the City of Toronto and further outside of the "GTA" (Greater
Toronto Area, which includes the suburbs) to a small rural town to the
northeast called Port Perry. It is about 20 minutes of additional commuting
time to get to Bay and Wellington but the traffic is manageable and the air
one breathes is superb. It reminds me of the little town where I grew up 55
years ago where you didn't lock your doors at night because the police force
was comprised of 3,000 moms and dads with soup ladles and belts as
"weapons." It was a different time and a different social psyche to
be raised in the 1950s and 1960s, but the farther one moves from the
"big cities," the more one feels as though they just got out of a time
machine.
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:
1) The following companies mentioned in the article are sponsors of
Streetwise Reports: None. The companies mentioned in this article were not
involved in any aspect of the article preparation or editing. Streetwise
Reports does not accept stock in exchange for its services. The information
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to buy or sell any security.
2) Michael Ballanger: I or my family own shares of the following companies
mentioned in this article: Stakeholder Gold Corp. I personally am or my
family is paid by the following companies mentioned in this article:
Stakeholder Gold Corp. I am engaged as a consultant to Stakeholder Gold Corp.
and am chairman of the Advisory Committee. I determined which companies would
be included in this article based on my research and understanding of the
sector.
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All charts and images courtesy of Michael Ballanger.
