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From the Heart: Own Precious Metals

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Published : February 06th, 2018
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One of the things from which I occasionally enjoy a good chuckle is the insecurity displayed by bloggers or newsletter writers who are constantly in need of positive reinforcement derived by reminding readers of their "incredible market calls." It is always readily-predictable because just before they ask you to buy something (like a subscription), they post a link to emphasize their brilliance with phrases like "as you know" or "back in 2017" providing breathtaking introductions to their most recent "BUY SIGNAL" or "TRADE RECOMMENDATION."

Now, I ALSO tend to post some of my "calls" (such as calling Bitcoin a "BUBBLE" at $2,000, $5,000, $10,000 and finally $19,981), but at least I am happy to poke fun at myself because in sixteen days I am officially a "Senior Citizen" so the only reason that I post links to my past forecasts is that it allows me to remember where I live and what my email address is. If I could get away with posting where I left my keys, I would plaster it all over the internet so I could retrieve them by simply doing a "MJB KEYS" Google Search. And May God Bless the Internet.

Speaking of the internet, I absolutely LOVE YouTube. When I was younger and decided that I had no time to try to save money, I rarely had the time nor the interest in learning how to change a furnace filter or hang curtains. Mind you, as a kid, I used to boost old, discarded lawnmowers from the local junkyard after luring that incredibly fierce German Shepherd over to the fence with hamburgers discarded from the local MacDonald's and turn the engines into Go-Karts (for a "nominal fee," of course).

As I get older and am forced to be more frugal, I have lately been going to YouTube and searching out things of zero interest to Millennials nor Gen-X-ers that usually are related to tasks that I USED to do but which are now in need of a "knowledge upgrade" because the freaking carburetor I USED to fix is "no longer in stock." You can learn literally EVERYTHING that you failed to learn as a "younger person" on the YouTube site and all you need to do is ask. By example, as I was trying to take my beloved Fido for a grooming (bath and a shave) last week, this 140-lb. canine decided to jump into the front seat and into my lap at the PRECISE second that I was negotiating the starboard side of the garage resulting in the strategic circumcision of the passenger-side mirror. Well, the point of this invective is that after taking out the mirror and after scolding the dog, I called around to get quotes for repairs to the now-dangling side-view mirror and the lowest was from the local Port Perry "Mr. Fix-It" who came in at $650 parts-and-labor. So I went to my tablet and located a site called A1A Auto Repairs out of east-central Florida and not only did I get a discounted price on the mirror, they had a video of some guy showing me how to remove the old mirror and install the new. Needless to say, the entire exercise cost me $125 (Canadian) and most of that was in beefed-up shipping costs because I didn't like the look of the old mirror duct-taped in place while driving around town.

However, I digress.

Back on to the topic of self-congratulatory, pat-on-the-back, ego-stroking, I was amused to find that I have been on somewhat of a "roll" with no fewer than four "items of note" resembling trade-worthy forecasts:

  • November 27, 2017: "Bullion Bank Short-Covering will become Year-End Profit-Taking": gold under $1,300 with the HUI trading down to 170. We open up modest call positions in the Junior and Senior Miner ETF's (NUGT and JNUG) and add a week later into an early December swoon "and for the taxable accounts, I will move next week to accumulate an additional position to the tiny option purchases made the week of November 27."
  • December 10,2017: "Cryptojunkies: Beware the Ides of December": Bitcoin was being introduced to the floor of the Chicago Mercantile Exchange on December 17 to which I opined that "Bankers will reel in BTC in the same manner in which they reel in gold and silver. What both have in common is the medium of control (the CME)."
  • December 23, 2017: "CME "fiat police" arrive right on schedule": Bitcoin plunges over 45% in the next week of trading. CME (government/bank-controlled traders "reeled it in".) (BTC has traded under $10,000 since the all-time high of $19,891 seen the NIGHT BEFORE futures began trading on the CME.
  • January 1, 2018: "2018: The Year of Living Dangerously": The chart on the left seen below was the "call" and the chart on the right is tonight's close. Gold hit $1,365 five days ago to which I tweeted: "$1,363 gold tonight completes the target price set in December - with gold RSI north of 75, it is probable that a reversal is night."
  • January 16, 2018: Tweeted out "Buying 1000 UVXY (volatility) at $9.10 STOP @ $7.95 target $50 by June" and then proceeded to add four more times in the next days. Took 20% profits into Tuesday's big spike at $12.80.

So, I nailed the December-January metals rally with a $1,360 gold target; I called the Bitcoin top within a day (and more importantly, the role the CME would play); I called THE top in gold within $5; and I nailed the VIX spike for a 43% gain in two weeks. Not a bad couple of months but as Gordie Howe used to tell the gloating rookies, "You're only as good as your last shift." So, where to now?

Obnoxious gloating notwithstanding, the gold and silver markets got severely overbought during the early part of January, but whereas gold had RSI readings in the high 70s, silver's RSI failed to get through 70 even once. It was once of the negative non-confirmations that popped up earlier this month that prompted me to vacate the leveraged positions and the options.

Donald Trump spoke to the American nation Tuesday night after the worst daily stock market showing since June 2016 only to have it bounce back hard the next morning until the release of the FOMC "minutes," which immediately caused an air-pocket erasing a 200+ point gain the Dow. As soon as the market gave back all of the SOTU gains, the CBNC spin police all began pointing to "end-of-month rebalancing" as the culprit and that it wasn't rates or overvaluation or technical weakness or the record CAPE index.

The financial media are absolutely terror-stricken by the thought of a correction because they all rightly know that the leverage contained in the ETFs is going to annihilate everything once it begins to unravel—and it IS going to unravel. To coin one of my favorite phrases, "it is time for the beast to exhale" and when it does, its putrid breath stench will permeate EVERYTHING. As an added bit of anecdotal flotsam, it was after the second presidential SOTU address delivered by Ronald Reagan in 1981 that the big bear market of 1981–1982 began to sink in its teeth and like today, the culprit was rising interest rates and anti-inflation policies.

While the leveraged ETFs in the Gold Miners have fallen back, I have bought back perhaps 5% of the dollar value in the JNUG March $18 calls at $1.85 and MAY add more next week. With RSI now under 50 from its plus 70 reading a month ago, JNUG is getting ready for a resumption of the uptrend and while it isn't yet pound-the-table time as it was in mid-December, seasonality favors the long side but with very gingerly-treated entries.

Friday is going to be pivotal as institutional appetites are displayed in the first few days of the month as pension flows and other capital sources have to be invested. If we close out the week to the downside, it sets up the potential for an acceleration of the downside momentum that could be a carbon-copy opposite of the vertical blow-off that got us here in the first place. In all markets that have gone into "blow-off mode," the most dangerous period is where investors suddenly realize that they have erred and when that happens, greed turns to fear in a flash and panic selling ensues. It is analogous to chasing a wounded animal into a dead-end alley when the creature suddenly realizes it has no way out—benign retreat is replaced with animated attack and behaviour becomes unpredictable, erratic, and vicious. As I wrote about in "2018: The Year of Living Dangerously," "what worked in 2017 will not work in 2018" so bonds, stocks, cryptocurrencies and base metals (like copper and zinc) are going to struggle while unloved precious metals and volatility (VIX) should outperform. Most importantly, almost all valuations for paper assets are stretched leaving the only refuge in the two safe havens that have yet to feel the love of several billion investors and a legion of algorithm-driven super computers and that, of course, means gold and silver. And remember that in a stock market meltdown, the Gold Miners could be treated as "stocks" so focus on the physical metals first to be on the safe side.

My head, my heart and my gut say "Own precious metals"; may the market gods agree with me.

(Late Note: Friday Feb. 2nd 12:13 p.m.: The Gold Miners and the Precious Metals are to the downside today due to the bounce in the USD so while it is still a tad early, the RSI under 30 for JNUG is pretty tempting.)

Charts and images courtesy of Michael Ballanger.

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Originally trained during the inflationary 1970s, Michael Ballanger, director of wealth management at Richardson GMP, 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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