Back in early March, with the HUI screaming along north
of 150, I published "Patiently Climbing Aboard the New Golden
Bull," in which I opined that we had entered a brand-spanking-new bull
market in precious metals and related equities. But I also noted that, with
the Relative Strength Index (RSI) above 85 on the daily SPDR Gold Trust ETF
(GLD) and approaching 80 on the daily NYSE.Arca Gold BUGS Index (HUI), the
short-term outlook was less than appealing, while the intermediate and
long-term outlook was unequivocally bullish for the first time in five long
years.
When that report went out, the next ten days was spent
fending off a barrage of nasty, spiteful emails as to why the commercials no
longer mattered and why the COT was a "useless tool" ("just
like the author of that report"). In fact, for the next two months the
COT continued to erode, with prices of gold and silver elevating modestly and
with the miners going literally "vertical" as the number of
"ha-ha" emails was directly proportionate to the move in the HUI.
It got to the point where I was sledge hammering the liquor cabinet before
lunchtime. However, as is usually the case, the COT, while failing as
a timing tool, proved to be a valuable directional indicator and gold and the
miners have finally rolled over, offering me vindication (of sorts) and a
chance to cover the hedges and add to my favorites PATIENTLY.
I said this would be a "nasty week" and it surely was, with
mostly everything shiny under pressure. The chart below shows a clear
blow-off in the miners in the move up to 236 with RSI above 70 four times
between February and May with two Moving Average Convergence/Divergence
(MACD) negative crossovers and dramatically weakening momentum. The HUI has
broken 200 today and the gold has "given" $1,220 so the washout
that I expected and which the Commercials ORCHESTRATED has come to bear and
there will be more next week. (And NO-it won't be "different this
time").
Silver appears to under less pressure today in the sense that the
gold-to-silver ratio (GTSR) is dropping again (74.58) and that is what I
wrote about back in April-you are better off buying silver than you are gold
with the GTSR trading where it is. Looking out long term, you can see that
silver has clearly broken the long-term downtrend line but gold still needs
to surmount $1,450, the line drawn off the double tops in late 2011 and late
2012. For that reason, I believe that accumulation of the silver deals and
remaining short gold versus long silver is a great way to position one's self
into the May-July selloff in the metals and miners.
The Gold COT Report for May 24
Well surprise, surprise, surprise. . .we are suddenly down $94 off the
$1,306 peak back on May 2 and look what the COT dragged in! 65,030 contracts
representing 6,503,000 ounces of fairy-tale gold is covered from the nearly
30 million-ounce paper gold short position. Next week's COT will include the
crack for the week from $1,250 last Tuesday to today's $1,209 ($41 an ounce),
but as you recall from the bottoming process in November and culminating on
December 4, the unwind process takes about 3-4 weeks to go through the full
cycle. These bastards can just sit there at $1,280-1,300 and short an
infinite amount of gold with zero accountability, completely unfazed by
margin calls or vault inventory levels until the Large Specs get the
"rolling over" signal, and then all hell breaks loose. Now that
they have completed the rollover of the moving averages through the
relentless feed of bank-fabricated phony "supply," they can sit
back and relax as the now-panicked Large and Small Specs scramble to liquidate
their late longs into the welcoming arms of the bullion banks. Another near
$100 million bonus week for the banksters, and nary a word written about the
heist from anyone. And people ask me why I have been calling myself a
"cautious bull". . .
Because the gold market and the miners are now in liquidation mode, the
time to initiate hedges has now past. It's too late to protect holdings BUT
it's also too early to cover the hedges and add. The RSI, MACD, and
histograms are all approaching oversold status with particular emphasis on
the RSI that is now just above 30. Under 25, I will be buying long-dated
calls on gold and silver scaling into the market with 20% stabs spaced weeks
apart until sometime in midsummer.
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.
Disclosures:1) Statements and opinions expressed are the opinions of
Michael Ballanger and not of Streetwise Reports or its officers. Michael
Ballanger is wholly responsible for the validity of the statements.
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Ballanger was not paid by Streetwise Reports LLC for this article. Streetwise
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