Precious metals expert Michael Ballanger says we are actually back in a
bona fide, brand-spanking-new, bull market in gold and the gold miners.
As I was busy last evening returning a myriad of emails regarding the
near-term outlook for gold and silver, I was suddenly hit with the
realization that we really are actually BACK in a bona fide,
brand-spanking-new, bull market in gold and the gold miners.
After doing this for nearly four decades-riding these massive cyclical
swings in the resource sector and nearly/totally losing my mind-I have
developed an indicator that can best be described as an "ad hoc"
indicator that is totally based upon my interpretation of human emotion and
one that cannot be quantified. The reason is so difficult to quantify is that
it is so totally subjective and completely devoid of any form of objective analysis
and, sadly, 100% reliant upon my ability to correctly assess the levels of
"fear" and "greed" that dominate the precious metals
arena.
Back in the summer of 1987, I was at a local meeting of the "Small
Business Luncheon Group" in a mid-sized Ontario city and in the
pre-lunch cocktail session, I would stand by the bar and offer to answer
questions from the attendees about stocks and bonds and gold. Over the past
years, I had noticed that my popularity at these events carried an inverse
relationship to the real estate market and was directly correlated to stock
market tops and bottoms. I affectionately called this my "Cocktail Party
Theory" and I have made notes every year since 1985 although I rarely
attend these functions anymore, largely because everyone is 20 years younger
than I am and doesn't know the difference between a porphyry and a porpoise.
(A porphyry is a type of mineral deposit.)
At this particular meeting around June of 1987, you could SMELL the GREED
in the room and cut the financial hysteria with a knife. Every discussion by
various pods of people was stock-centric and the decibel level was like the
floor of the old Chicago Mercantile Exchange pork belly pit. As for me, I was
up there at the bar (no surprise here, move along) holding court with what
must have been 25 people in a crowd at least five-deep all shouting questions
like "Whadd'ya think of Magna?" or "We gonna see 3,000 Dow by
Labor Day?" or "What about calls on Royal Trustco?" (RT went
BK about five years later) and when it was all over and I realized that my
beer had actually gone warm at half-empty, I was struck with an epiphany: The
stock market was going to crash.
Well, you all know what happened on October 19, 1987, so I won't bore you
with how much money I actually LOST (I was long gold miners instead of
gold-TSE Gold Stock index got cut in half while bullion prices went up 20% in
10 days) but the point of the exercise is that this uncanny ability to sense
"crowded" trades and "exaggerated sentiment" has kept me
out of the glue more than a few times in my career and while not exactly
perfect, it is a pretty reliable tool, despite the fact that I can't explain
it.
Where we are today, I believe, in the context of the "New Golden
Bull," is very, very difficult to assess and especially for a
long-standing gold "bull," like me, to assess. On the one hand, the
majority of the people I liaise with are , like me, inherently
hopeful/convinced/rabidly sure that we are now in a new bull market that is
going to a) make them rich, b) make them smart, c) make them incredibly
attractive, and d) make them invisible. (Yes, "invisible," kind of
like "The Four Stages of Tequila").
The problem I have today with being fully exposed and "all-in"
gold and gold stocks is, in addition the reason I alluded to in my short-term
outlook from the weekend, is that there are thousands of hedge fund managers
out there that not only had horrible years in 2015, they have started the
2016 year off even worse; nothing worked for them. It didn't matter what they
touched, every asset class was down last year. This year, up until Jan. 19,
it looked like stocks were going to tank and take the gold miners with them,
but here we are in March and the only thing "working" is gold and
its equity-based brethren.
So, in order to avoid the hedge fund version of venereal disease,
REDEMPTIONS, they have all begun to pile into their new best friend, the
"GOLD TRADE" and now every fund manager and TV commentator are
hiding in the safety and comfort of this trade because their competition is
there and as we all know, these guys hate being first (or last). They just
want to hide in the safety of the crowd where that extra 0.6% that being long
the "GOLD TRADE" gives them is 0.6% that their competition won't
beat them by in performance. They are "hugging the benchmark" and
don't particularly care whether gold goes up or down, as long as every other
fund owns it too. Conclusion: They are now chasing gold out of fear and that
is not good.
To wrap this up, I sense that there is an ever-increasing number of
hedgies out there that are become ever-so-fearful that they have missed or
are missing that oh-so-important alpha-generating "Trade of the
Year" that allows them to avoid putting up their redemption
"gates" because they are still long Amazon and Valeant and Netflix
while being agonizingly mired in YESTERDAY'S TRADE. With that sense of
desperation has come the amazing spike in volume in the Market Vectors Gold
Miners ETF (GDX) in January and particularly February, which has driven the
RSI and MACD to multiyear overbought extremes. Now, in the past five weeks I
have seen all of the CNBC Fast Money gang turn suddenly gold-bullish; Cramer
is now claiming the trade as "his own" and Dennis Gartman is now
"long of gold in U.S. terms"; the only thing missing is Simon Hobbs
sporting a "Gold $5,000" baseball cap.
I have chosen to refrain from adding to longs and in fact I have taken out
a few hedges by way of the SPDR Gold Trust (GLD) and Direxion Daily Gold
Miners Index (NUGT) puts which are still only partial positions; I am now
heeding the astrological signs and look to March 11 as a potential "turn
day" for the metals and the gold and silver miners. We'll see what the
Commercials have done this Friday, but the with open interest rising every
single day, you have to assume that it can't be friendly.
So tip a glass of bull market cheer as we welcome the late-comers to our
world of wonderment in sound money and hard assets; the MSM will now be
transformed from agnostics and antagonists to bandwagon jumpers as they take
ownership of the magical world of gold. As they move to the podium to take
their bows spotlights beaming, you and I will be waiting in the wings with
two suitcases full of cash, an airline ticket, a fake nose and moustache and
a silver limo waiting outside the convention hall doors. . .
You know, just like it should be.
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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This article is not a solicitation for investment.
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All images/charts courtesy of Michael Ballanger
