"Destroyers seize gold and leave to its owners a counterfeit pile
of paper."– Ayn Rand
Twelve days ago, we were forced by gale force winds to seek safe harbor in
the lovely northern Ontario town of Britt, located on the north shore of the
Magnetawan River, approximately fifty miles south of Sudbury. As I was
growing increasingly less patient with Mother Nature's petulance, I found
myself drawing an intuitive parallel between the good fortune in avoiding the
ravages of the Georgian Bay rollers (big waves) and the pecuniary good
fortune of having taken a very large physical and paper position in silver.
Riding out a dangerous and violent midsummer Great Lakes tempest in the
sanctuary of Wright's Marina alongside dozens of equally
thankful-yet-exasperated mariners was analogous to watching your incompetent
boss drive your new Porsche off a cliff: You are filled with mixed emotions,
angry that your voyage has been delayed yet ecstatic that you are safe from
harm.
Similarly, being overweight silver in today's confused and catatonic
financial world has been at once both a blessing and a damnation: Purchases
at the lows in early July have been countermanded by the many earlier
attempts, since December 2015, that had to be aborted due to the criminal
interference and intervention covered countless times in this publication
(and, invariably, to the point of launching quote monitors out the
ninth-floor window in search of a bullion bank skull).
Since the tops in 2011, it has not been a pleasant voyage for those aboard
the silver ship, but nothing quite as painful as the period of December 2015
until June 2019, as the precious metals nadir that I nailed on December 4,
2015 gave us a brief nine-month rally. Maddeningly, after August 2016, the
bullion bank behemoths mercilessly punished all technical traders by selling
all breakouts, flooding the Crimex with counterfeit paper "gold"
and paper "silver." I came out in late 2016 with the "Sell
breakouts, buy breakdowns" strategy, which was precisely the
correct chart to follow, gingerly avoiding the treacherous rocks and shoals
of drawdowns as I successfully navigated around the perhaps $400 per gold
ounce and $5 per silver ounce of systemic "shipwreck" brought about
"regulatory undersight," giving way to total bullion bank control.
And all I could do was sit back and watch.
The landscape all changed in June, not so much by the advance through the
six-year cap at $1,375 per ounce but more so by the content and quality of
the advance. How many times have you read my thoughts on the importance of
the prototypical sequence required by true precious metal bull markets?
Silver outperforms gold; miners outperform physical; and junior miners
outperform senior miners. As the chart below would suggest, we have a classic
"phoenix-style" bull market, arising majestically from the ashes of
neglect and criminal collusion to assume its well-deserved resplendence in
its role the market leader for the balance of 2019.
The Invasive Species missive, penned just after we arrived
into the Byng Inlet in full flight from the 50 kilometer per hour northwest
gales, brought about a plethora of responses, the bulk of which were
favorable, with the only dissenters being the staunchest of bulls in the
precious metals arena. I advised the sale of 50% in the GDX and GDXJ
positions exactly one week ago, and I did so, averaging over $42 (paid
$30.13) for GDXJ and $29.60 (paid $21.11).
Despite the fact that they are marginally lower this week, the bulls were
outraged by my decision to take profits on half-positions in the miners. The
old adage that "one never goes broke by taking a profit" is offset
by Jessie Livermore's "the hardest thing to do in a bull market is to hold
on," but it is important for the outraged bulls to understand that the
GYM portfolio remains 25% long physical gold, 25% long physical silver, 12.5%
long GDX, 12.5% long GDXJ, and holds 25% cash. I am attempting to capture
"alpha" by trading 25% of the portfolio into what has been a
mind-blowing run from the lows in June—and also, I might add, from the start
of the year, as shown in the chart below.
On a less-favorable note, the best performer of the bunch was the Gold
Junior Miner ETF (GDXJ), which one might think would include more than a
handful of the junior explorers. But investors are still reeling from the
horror of the 2011–2015 bear market in gold, which resulted in catastrophic
losses in the junior explorers. Gold corrected 45% from the 2011 highs, but
many explorers, once darlings of the average speculator, are still down over
90% in some cases.
The best example of exactly why the GGMA portfolio kept the explorco
exposure to a minimum is shown below. I cite, as an example from 2011, where ATAC Resources
Ltd. (ATC:TSX.V) was heralded as the "next big Carlin-type
deposit." Some of the smartest investors in the world believed the hype
as the control block wound up being sold to a billionaire investor at or near
the top in 2011. This is a stark contrast to Great Bear
Resources Ltd. (GBR:TSX.V; GTBDF:OTC) ($5.26) recommended at $2.30 in
January, it is now the largest position in the GGMA portfolio.
I have chosen to discuss the junior explorcos only because of the
relatively poor performance of the juniors within the GGMA portfolio, and
that includes Getchell Gold Corp. (GTCH:CSE) (down 55% from the January
purchase price at $0.18). The problem with exploration juniors here in 2019,
versus 2009, is that the new generation of speculators have a) more
(non-mining) to choose from; b) limited history of joy in discoveries; and c)
no regard for precious metals.
Because of these reasons, if I invest in GTCH at $0.15 pre-drilling, I do
not get the advantage of speculators moving the price higher in expectation
of a lottery-style win. In the 1990s, stocks commanded $30 million market
caps during the pre-discovery phase. That lasted until 1997, when Bre-X
snuffed the lights out.
Again, in contrast, I recently added Aftermath
Silver Ltd. (AAG:TSX.V) to the GGMA portfolio, to secure exposure to a
physical silver resource for a company capped at under CA$3 million. When
silver exploded higher in late July, AAG was able to catch a bid because they
did not need to find a resource; they already had one.
Stakeholder
Gold Corp. (SRC:TSX.V) was added in January at $0.05 per share, with gold
under $1,300 per ounce, and there it remains with gold at $1,500. Why? It is
because they have no precious metals resource and no active project to
attract investor interest (but that is a topic for another time and day).
As I stated when I added Aftermath, the deals I will own going forward are
the ones that have a resource to backstop exploration. From an investor's
viewpoint, it is preferable to be drilling to define a discovered ore body
than to be trying to find a brand-new one. There may be less leverage in
paying up for that resource, but until retail speculators begin to buy into
exploration plays pre-discovery, I am better off waiting for that
discovery and then buying, because I have deflected the risk away from
reliance on those two unforgiving ladies of the exploration fates—Mother
Nature and Lady Luck. Between Aftermath and Great Bear, the portfolio has
over CA$50,000 in profits; the rest are down a cumulative CA$15,600. Two
explorcos and one uranium/vanadium play (Western
Uranium & Vanadium Corp. [WUC:CSE; WSTRF:OTCQX]) are underwater, with
one gold discovery and one silver resource constituting the wins. As we move
forward, I want to add to what is working and reduce what is not. (Note: I
will have a missive out early next week specifically addressing the juniors,
with special attention to GTCH and WUC.)
As we move forward though the second half of 2019, the goal is to continue
to avoid the rocks, drastic drawdowns that have plagued most precious metals
investors since 2016. Investing can be a wonderfully calm experience with
flat seas and shining sun and just enough wind to keep us cool. But as I have
found in my years as a mariner, "ideal conditions" on a body of
water such as Georgian Bay can become "hazardous conditions" at the
drop of a barometric hat. Just as a plummeting barometer warns of an impending
change in conditions (usually for the worst), a rising barometer is the
reverse.
For the precious metals, until the late 1980s and the advent of the
Working Group on Capital Markets, precious metals were the singular best
barometers (in reverse) of looming trouble on the economic or financial
horizon. The shift we encountered in June has served to challenge the status
quo, whereby prices are managed to facilitate an aura of calm, but since the
bond market and the inversion of the yield curve represents a market that not
even the powerful Fed can control, the metals now appear to be in the Fed's
rear-view mirror, instead of its crosshairs. Despite numerous albeit feeble
attempts, the bullion banks have offered what I would brand as "futile
attempts" to control prices, as if they are being distracted by a larger
menace. Furthermore, since the bond market is many times larger in size than
stocks, and since Forex is an equal amplitude larger than bonds, the central
bankers have not only the tip of a tiny crag (gold) off their port bow to
contend with, they also now have three Titanic-style icebergs and Cape Horn
in their binoculars.
Finally, as a punctuative rationale to explain this change, the explosion
in the amount of bonds paying a negative interest rate is not only an
iceberg, it is a nuclear torpedo targeting the broad side of the global
financial starboard bow.
Capital preservation is now the numero uno of objectives, and it is
no surprise that just as running to an inland town called Britt vaporized any
and all chance of quiet anchorages and serene relaxation, it also allowed us
to let the tempest pass. Physical gold and silver are a "safe
harbour" counterparty to nothing and no one. They have no nationality
and no liens of any sort. Physical ownership and possession are akin to being
"a lee of the wind," and that is exactly where I will be in the
days, weeks and months ahead.
Carpe Sanctum: Seize sanctuary.
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.
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