A few days ago, I postulated that despite the seasonal weakness most were
anticipating in May and despite the sharp increase in Commercial shorting
that was still below 2016 levels, the precious metals would buck conventional
wisdom and advance further into even greater degrees of overbought status.
On Tuesday morning, after watching 22,000 contracts in June Gold
completely wipe out every bid down to $1,280.60, causing a sympathetic crash
in silver down to $18.06, I was not only ready to break out the infamous
Louisville Slugger, but also my wonderful dog Fido went screaming out of the
house in obvious expectation of the arrival of an MJB tirade and temper
tantrum. Actually, Fido was well guided in assuming a Ballangerian response
to the blatant intervention of the bullion banks, which was almost a
"given" after the pre-Good-Friday COT report that showed the
Commercials now at the highest aggregate short position in gold for 2017 and
one of the highest ever in aggregate silver shorts EVER.
The Cartel cretins waited until all of the technical funds were
"in" after chasing the gold "breakout" above $1,260 and a
similar silver "breakout" above $18.50 until they sensed the
slightest hint of weakness at which point they descended upon the Crimex
trading pits like sharks in a frenzy. However, despite the pounding, gold
battled back into the green and was back above $1,290, while the silver
market was still reeling down 1% on the day. That was Tuesday. . .
And again today. . .
(Last two charts courtesy of Zerohedge)
The big news lately is how awfully the junior miners are acting now that
Van Eck (creators of the GDXJ [VanEck Vectors Junior Gold Miners ETF]) has
been forced to stop buying junior gold stocks. You wonder why the juniors are
now in a completely bifurcated market and all you need do is look at the
names in the GDXJ that are considered the "anointed ones," while
everyone else aspires to be lest they wind up as "orphans" (housed
and fed but without sponsorship) or the "zombies" (no food, no
shelter, reviled by all). The bankers created the ETFs to capture market
share but more importantly, they created ETFs to capture FEES and to corner
the bid-ask spreads that allow them to take a haircut on every ETF
transaction that occurs.
Applying this line of thinking to the junior gold miners and explorers,
back in the days before bankers took greed to a new level, the junior mining
space had access to ample funds by way of the junior resource brokerage firms
such as Canaccord (before the "wealth management" transformation),
Yorkton, Haywood, Fraser Mackenzie, Union Securities and Mackie. Private
investors would forge relationships with the resource broker and if he/she
wanted to invest in the junior exploration sector, his/her only access would
be through the open market or indirectly through a mutual fund or through
private placements.
The conduit to the market was not guarded by a gatekeeper called IIROC
until the banks decided to exert pressure and then once achieved, the big five
Canadian banks squeezed the little firms out of business by creating the
money-draining resource ETFs run by ex-bankers whose billion dollar funds
would inevitably find their way into the bank-led underwritings, formerly the
specialty of the smaller boutique brokers.
Watching the lag in junior miners despite a move over $1,290 in gold is
painful but now you know why. The Van Eck GDXJ ETF is a $5 billion fund in a
$35 billion junior mining market and there just aren't enough names to go
around. This is why I try to have a basket of my own juniors rather than the
ones owned by the ETFs because once you are in the GDXJ fund, you are slave
to the macro trends and victim to the inevitable moment where you may get
ejected from the fund and 18% plus of your issued capital is thrown on the
market for sale. In fact, inclusion of your company into the GDXJ has been
transformed into a "Sell Signal" because it is the second-greatest
liquidity event in a company's life, the first being a takeover by a major.
In all of my writings over the years, I have always held that gold mining
stock prices are lead indicators for gold (and silver) prices. In the latest
advance in gold to over $1,290, the GDX (the Van Eck Senior Gold ETF) has
performed in line with expectations with the exception of the last few
trading sessions while its little brother, the GDXJ, has been a pitiful
underperformer. So if we are using mining shares to guide our forecasts for
gold and silver, do we buy into GDX's strength or do we sell into the GDXJ
weakness. I tend to trust the former because the weakness in the GDXJ is due
to a technical and regulatory glitch while the GDX suffers no such malaise.
Nevertheless, this confusing signal being given off by the juniors is
creating technical uncertainty and it is giving the bullion bank criminals
the courage to resume their carpet-bombing of the June Gold and May Silver
contracts, thus throwing the karma off kilter. I am currently long the USLV
(Velocity Shares 3x Long Silver ETN) and barely onside from the position
acquired two weeks ago, while I am on the sidelines for the GDXJ and GDX.
I must apologize if I must vacillate and refrain from some bombastic
prognostication as to the next big trade in gold and silver, but the truth
remains that both of those markets are very confusing at this point.
Accordingly, to have a large leveraged position in gold or silver or the
associated mining share ETFs is folly; the next $20 move in gold could take
the miners up or down 10% in a heartbeat and I don't feel like taking that
kind of drawdown when the indicators are so skewed.
I put a stop loss on the UVXY (above) on Monday morning at $19.90 thinking
that the $21.46 close on Friday would provide a large enough gap so as to
prevent a whipsaw but, alas, it was not. We were eliminated for the holding
by 11:00 Monday morning and it now resides at around $18.40, once again
proving that stop-loss strategies for volatile trading vehicles does involve
the risk of whipsaws but most of the time, it is far better to protect a
small profit than to lament the loss of a larger one. Hence, I am
"out" and looking for a re-entry point.
As for the overall investing climate, I have to hark back to Michael
Lewis' third most-famous book "Boomerang�Travels in the New Third
World" (ranking behind "Liar's Poker" and "The Big
Short") and the sections in which he describes Greece and Germany. Now,
culturally, there are no two more different nations than Greece and Germany.
Living and growing up in Canada, I went to school with a great many children
of immigrants so I know the various behavioral nuances of Europeans. For
example, the British kids were not really "British" in behavior
because while they were all pretty tough in the playground, there was NOTHING
more frightening that when the big Scot Angus McGuigan got angered by an
errant elbow.
Similarly, if you wanted to get something done quickly (like pinching a
set of colored pencils from Becky Johnston's desk) I only needed to whisper
into Tommy O'Leary's Irish ear and it was done in a fraction of a second.
Now, if you wanted to have the schoolyard bully thumped out after class, a
casual suggestion to Bruno Teti (with promise of a "plate o' fries"
at Burt's Diner) always got the job done. But when it came to the Greek and
German lads, they were total polar opposites.
My buddy Ulrich (pronounced "Ool-rick^^^" with the
"CK" at the end of his name sounding like one clearing one's
throat) could tell you how many ounces of dishwasher soap was needed to remove
blood from a white T-shirt but Teddy Gerasimos couldn't tell you what
dishwasher soap was used for�not that he was unclean, his mother did all the
laundry EVERY DAY. Ulrich had his desk organized in a manner that resembled a
floor plan at a jewellery store; Teddy's looked like the bargain bin at
Target. Ulrich liked to play tennis and gymnastics (where he didn't have to
"TOUCH" anyone) while Teddy loved hockey and rugby and
wrestling�anywhere there was total chaos and lots and lots of physical punishment.
The point of this rather ethnocentric critique of the European Union and
its inhabitants is that we have now watched the English (not British, mind
you) decide to leave the EU and very soon we will have the French elections
where, no matter what the outcome, the dual dilemmas of debt and immigration
are bearing down on the integrity of this absurd "union" like a
handshake between Ulrich and Teddy, which would never happen for the simple
reason that Ulrich would never TOUCH Teddy let alone shake his hand let alone
agree with him on ANYTHING.
The root cause of the immigration problem in Europe happens to have been
the unilateral American decision in 1992 to invade Iraq in order to defend
"freedom"�er�Halliburton�er�Mobil Oil�and create a generation of jihadists-to-be
after these little Islamic girls and boys watched Uncle Amir get blown up by
a bunker bomb. They all went "refugee" and wound up in Holland or
Norway or Germany and especially France and are now awakening from within the
walls of their ghetto-like cocoons as fully grown young adults eager and
willing to assign blame for the 40% unemployment rate and near-poverty
conditions.
These same conditions are prevalent in every single country in Europe and
to defend against it requires that basic freedoms (like the right to drive a
cement truck) must be policed in order to prevent the mass murders. In my
politically incorrect opinion, these Eurozone politicians should have
remembered Granny's old health adage "Prevention is the best medicine."
Carrying on with this geriatric and ethnophobic line of thought, these
young Millennials that are soon to inherit the mantle as the largest voting
bloc in the democratic world are 90% liberals and >50% socialists and
before long, they will be legislating we Baby Boomers into exile from the
Halls of Elitist Power. Since the Millennials gravitate to an urban world of
mass transit and Uber and prefer to share rental accommodations rather than
equity, the adherence to pro-Wall Street policies and "global growth"
agendas will be thrown to the wind in favor of "safe spaces" and
"wealth redistribution."
To wit, those are NOT optimum surroundings for bull markets in stocks and
they are nightmare surroundings for sovereign debt and the ensuing defaults.
In sum, after a government-supported nine-year bull market in financial
assets, it is time for a pause (at best) or a crash (at worst). You might not
wish to short stocks now (or ever) but to be sidelined with ample cash and
buying power and a liberal holding of gold, silver and the associated gold
and silver mining stocks is most certainly not a bad place to be.
Charts courtesy of Michael Ballanger except as noted.
