One of the more striking developments in the bizarro
world of gold and silver trading has to be yesterday's settlement between
Deutsche Bank and a class-action group that alleged that the bullion banks
(DB, Scotia and HSBC) were manipulating the physical and Comex silver futures
market since 2007; what is laughable and disgusting is the size of the
settlement�$38 million. It's like Lee Harvey Oswald being charged with "Assault
with a Deadly Weapon" and winding up with a misdemeanor. Then again, it
is really no different than Libor-rigging or the sub-prime mortgage fraud or
more recently the Wells Fargo scam.
At the end of the day, if you had told me back in 1977
when I got first got hired by a old, venerable Bay Street investment firm
(McLeod Young and Weir Limited) that multinational banks would be facing
multibillion dollar fines for committing FRAUD and then being allowed to
continue to do business, well, I would have laughed you out of the room.
Furthermore, if an insignificant little retail salesman�also known as
"registered representative" or "stockbroker" or
"investment executive"�is caught taking client money or even
recommending an "unsuitable investment," he is offered up by his
firm as a sacrificial lamb to be raped and pilloried in the Town Hall square
and usually is fined far higher than he can afford (non-negotiable) and is
usually banned from the industry. In fact, you can search far and wide over
the past fifty years to find one senior executive of any financial services
company that ever got fined or banned. Ex-Goldman CEO John Corzine stole a
great deal of money from client accounts when MF Global went under and he is
still living "the good life" with nary a worry in the world.
So we may now confirm that Deutsche Bank will be warbling
like an amorous songbird as it gives up its co-conspirators in the upcoming
London (U.K.) trial as the wagons get circled and the markers and bribes are
all dialed in. Scotiabank will have its operatives in Ottawa and at the Bank
of Canada crying "poor" while HSBC is in London trying its best to
avoid embarrassment and inviting Members of Parliament to "tea"�all
at once and behind closed doors, limos packed with all sorts of gentlemanly
"favors" and bags full of cash. The more things change, the more�
Anyhow, I digress, and as I have been lecturing for what
seems like a lifetime (it has), the gold and silver miners predictably made
the turn to the upside around the 11th of October when they began
to miraculously outperform gold and silver. As you can see in the chart
below, the HUI (NYSE Arca Gold BUGS Index) decoupled from the physical metals
prompting me to pen the piece "Tiptoeing Back into the Miners"
on Oct. 16, and it was that last Thursday that I bought a 25% position in my
beloved VanEck Vectors Junior Miners ETF (GDXJ) and subsequently added the
remaining 75% the following day. I now have officially bought back the entire
GDXJ position which was agonizingly jettisoned by way of a stop-loss on
October 3rd at the grand price of $41.43. Until that day, sleep
had been fitful, irritability rampant, and neither woman nor beast had been
safe in my company. Once the GDXJ showed up in my account that afternoon, a
magical calm descended upon my psyche. Howling winds and rain turned to
gentle breezes and warm sunlight. My net worth is once again on the line and
all is well and right with the world.
I laid out the five reasons thought the downside was
limited and of course the major technical reason was the RSI (Relative
Strength Index), which was dancing around the magic 30 number for most of
that week but seemed to be rejecting further downside probes. The low trade
for the GDXJ came on Oct. 4 at $36.96 with RSI touching 30 that day. Since
then, RSI has slowly and grindingly inched higher while the GDXJ thrashed
around in a tight range. What we needed to see was the physical metals pay
heed to the predictive power of the miners the failure of which would be a
very nasty false bottom. Predictably, luckily, wonderfully the RSI for the
GDXJ has now risen to 46.39 with gold having only just scrambled back above
$1,270.
What IS critical is that it was only last Friday that
gold very briefly retested the sub-$1,250 territory while the miners were
trading higher for most of the day. GDXJ opened this morning at $41.48, a
nickel higher than where my stop-loss order was filled and $2.58 higher than
my new average cost base. In a nutshell, the predictive power of the gold and
silver miners has once again prevailed.
Shifting gears for a moment to the 357 Magnum portfolio,
I have removed Tinka Resources Ltd. (TK:TSX.V; TLD:FSE;
TKRFF:OTCPK) from the portfolio on the basis of
valuation ($45M market cap), and added Canuc Resources Ltd. (CDA:TSX.V)
(halted pending RTO approval) at the pre-halt average cost of $0.25, again,
on the basis of valuation ($10M market cap). The restructured Canuc/Santa
Rosa Silver Mining Corp. will retain the CDA.V symbol and will have
approximately 43M shares issued and outstanding by time the deal gets
approved. It is a silver-gold deal with positive cash flow from gas wells in
Texas and will be capitalized at around $10M. I anticipate it opening at
$0.50-0.75 once the deal is ratified and approvals are granted, but for
purposes related to the portfolio, I'll use the first trade after the opening
to establish the adjusted cost basis for the Magnum portfolio.
Compiled at the end of April of this year, the 357 Magnum
was named after the famous handgun wielded by Clint Eastwood in the Dirty
Harry series, which, according to folklore, carried the ability to
"substantially change lives," Best performer to date has been Yukon
gold explorer Stakeholder Gold Corp. (SRC:TSX.V), up 85% YTD while the TSX Venture Exchange is ahead
"only" 49.10% YTD.
As for my intermediate term forecast, I need to see a
move through $1,400 gold in order to truly, once-and-for-all,
never-again-to-be-debated dispel any belief that 2016's gold and silver
rallies were nothing but "bear market rallies." When gold closed
below $1,300 on Oct. 4, there followed a torrent of bearish commentary that
has been relentless in proclaiming "the Death of the Golden Bull"
and it has now become "cool" to once again talk about the
resumption of the deflationary tsunami and the China banking system, but then
again it is never cool to talk about gold and monetary madness and central
bank experimentation. While I will never claim to be a technician, the
following chart goes right back to just after the sub-prime crisis when gold
was responding to all of the bailouts and money printing by Fed Chairman Ben
Bernanke and Co. and what is crystal clear is the downtrend line drawn off
the Q3 2011 and Q3 2012 tops that now crosses Q3 2016 right at $1,400. A
weekly close above that level will not only set up a test of the 2011 peak
north of $1,900, it will finally silence the fools calling for $850 gold and
THAT will be ultimately more satisfying than making a few million dollars
here and there.
As I close out today's missive, GDXJ has $42.00 in its
crosshairs and Fido is sleeping soundly at my feet while I hear the melodic
humming of a worry-free spouse in the other room. However, the pooch is
sleeping with one eye open and spouse has a large ten-pound rolling pin
hidden under her pinny because they both have learned how to read financial
data as BNN quotes flow across the screen.
Can't say I can blame them�
