Cutting directly to the chase, the correction in the gold
and silver stocks and, more importantly for us, the miners (GDXJ) is rapidly
coming to a close. Without embarking on a flight of verbosity and
overstatement, here in a nutshell is why I see a bottom in the cards�and
possibly a solid, tradeable bottom.
1. Sentiment: In January of this year, I couldn't
even get a meeting with any fund manager or investment banker, let alone
secure an order for financing. By July, I had those same people begging me
for a piece of ANY gold/silver-related financing I could offer. Mining
brokers went from the outhouse to the penthouse in record time, and with
unprecedented velocity by the summer of 2016. Today, in October, we are right
back to where we were in January. Those big managers of other people's money
now own "too many issues," the quality of which was noticeably
suspect in the late stages of the January-July advance. When my phone stops
ringing for at least two weeks, I know we are near the lows.
2. Relative Strength ("RSI"): Nothing
more to say here other than "Observe the chart posted above."
3. COT: The Commitment of Traders report for tomorrow
is going to see another sharp improvement as gold open interest has shrunk to
500,328, and that is down from 544,824 on October 4. This is the large
Commercials unwinding their massive short position in gold futures and is
normally a precursor for a reversal. However, it is not to be used as a
timing tool as the unwinding can take weeks to play out.
4. Deal Flow: The number of financings for the
junior exploration companies has suddenly and sharply dropped off a cliff as
the mania that engulfed the space in the spring and summer has evaporated
into nervousness and despair. Declining deal flow is normal into any
correcting market but the severity of the plunge is bullish.
5. Strong U.S. Dollar mantra: Everyone and their
hairdresser has now assumed a rate hike in December, and that, combined with
the crashing British pound and the surging dollar-yen, has sealed the fate of
all currencies against the Almighty U.S. dollar. But it should be noted that
the U.S. is the largest debtor nation on the planet and that its purchasing
power continues to erode against everything. For a superb primer on the state
of affairs in the good ol' US of A, follow this link to yet another fabulous
Michael Mahoney video called "USA's Day of Reckoning," where he talks about an economics term covered in this
space numerous times over the past ten years�the velocity of money.
The vehicle of choice for me is the Gold Junior Miners
ETF (GDXJ), and having completely missed the top in July-August above $50, I
was stopped out two weeks ago at $41.43, triggering a lovely and very
well-earned capital gain. Sadly, not having 75% of my net worth on the
proverbial line every day was disturbing, and for the past three weeks, the
lack of stress has transformed me into a slovenly "gentleman of
leisure," complete with weight gain and addictive behaviors.
Accordingly, in an effort to restore my spouse-annoying, dog-harassing self
to normalcy, I am going to tiptoe back into the GDXJ market by buying the
opening this morning with 25% of allocated capital. I might be early or I
might be dead on, but the only "technical" tool I am using is the
RSI numbers. Every other technical "tool" is veritably useless, as
are the geeks that read tea leaves from the bottom of the cup.
Now I have to go drag Fido out from under the shed and
unscrew the bolt locks on the powder room door. We need normalcy in order to
allow the Gold and Silver Gods bless us with $1,400 gold by Christmas.
