Hallelujah!
It was only a week ago that I was opining that there was nothing ominous
in the technical picture for gold and silver that was altering my bullish
stance; RSI and MACD were trending up and price was stubbornly refusing to
yield to the myriad of bullion bank attacks mission-driven to force a crack
of the critical $1,260.90 50-dma level so widely discussed in past weeks. As
I show in the chart posted below, the first major up-gap in gold pricing
occurred in the days back in October after the ratings agencies decided to
"downgrade" the bonds of GE, a company that is now being seen as
serially deficient in its reporting practices and masterfully adept at
avoiding the long arm of SEC "law" (that's a joke 😊) while
using the stock price performance to advance book deals for the two rock star
CEOs of the '90s and early 00s, Jack Welch and Jeff Immelt.
I actually wrote about GE back in 2005 after listening to a promotional
video on the "unparalleled brilliance" of GE Financial whose use of
leverage was deemed "second to none." Immelt was regurgitating the
company line of "Growth without Regret" that Welch was spewing all
through the mid-to-late-1990s with the objective being not an advancement in
the "E" part of the price-to-earnings-ratio but rather a simple
advancement in the "R," which does not (and most certainly DID NOT)
involve any real growth whatsoever. All that Welch and Immelt cared about was
the stock price; Welch was obsessed with advancing it while Immelt was
obsessed with defending it. In the end, they have both faded off into the
sunset and are rarely seen on CNBC anymore while long-term GE shareholders
are now seriously underwater and searching for answers as to why-oh-why their
retirement nest eggs went into the tank.
While not terribly simple on the outside, it is monstrously simple on the
inside as to why GE is now a walking-wounded member of the S&P 500 and it
is based upon one simple word: LEVERAGE. If you use LEVERAGE to finance
acquisitions and if cash flow from acquisitions fails to cover interest
expense, you have a serious structural flaw in your "model" (Gawd,
how I absolutely HATE that word!). Literally ALL GE acquisitions, from the
time Jack handed off the reins of control to Prodigal Son Jeff, failed to
meet that benchmark. The acquisition must be "accretive"—in that it
adds to the profitability of the company—and if it fails to meet that test,
heads should roll, which they did as Immelt resigned in 2017. Equity holders
are somewhat frightened but one look at the bonds tells us that this is
anything but a simple "setback.," it is a full-blown raid on the
vault and if the holders of GE debt are demanding restitution, then holders
of GE equity are in need of Valium as a modern version of defense.
However, I digress.
Gold had its best week of 2019 due to a similarly disruptive event with
the POTUS' declaration of a 5% per month tariff on Mexico for failing to
monitor (and prevent) illegal immigration into the U.S. Compared to trade
with China, this will have a much bigger (negative) impact on the states of
Texas, Michigan and Arizona, all Trump states in 2016. It is also quite
possibly a brilliant political move because POTUS campaigned in 2016 on
getting to Mexico build the wall and while people scoffed at it, the leverage
he has over Mexico is immense and if the Mexicans decide that a depression
brought about by these tariffs would be a less-favourable outcome than
getting Goldman Sachs to debt-finance a wall, then the U.S. wins and Trump is
a genius.
To repeat for the fourth time in a month, there is absolutely NOTHING
wrong with either the tape action nor the technical set-up of gold. On each
pullback under $1,270 (three of them), I added to my JNUG (Direxion Daily
Junior Gold Miners Index Bull 3x), NUGT (Direxion Daily Gold Miners Index
Bull 3X), and GLD (SPDR Gold Trust) call positions, and while GLD has been a
champion, the leveraged gold miner ETFs and the June calls only just moved to
marginal profitability late last week and mainly because of the 4.34% burst
in the HUI (NYSE Arca Gold BUG Index).
I don't elect to discuss silver in this missive because, quite frankly, I
am embarrassed. I am embarrassed that I have had the unmitigated gall (or
"cheek" as my U.K. friends say) to actually think that I (or anyone
else) could predict the price movements of a substance deemed crucial to the
national security of all G20 nations and, led by JP Morgan and the U.S., who
have it on a digital ball and chain and in total, absolute lockdown. Silver
trading volumes are pitiful, retail interest in silver is non-existent, and
all the result of blind-eyed regulators. Why should I feel motivated to write
about a commodity that has pitiful volumes, zero retail interest, and
abominable upside momentum yet respectable DOWNSIDE volume? Silver bulls in
June of 2019 are like the guys at the high school prom with no dates that
showed up in the parking lot at midnight to pick fights with the guys that
HAD dates.
That being said, I am a holder of a ton of silver bars in safe places
because if you have ever wondered where the supply is coming from that has
scuppered the U.S. dollar price of silver, look no further than the nation of
Venezuela. In the good times before "criminals" pretending to be
"socialists" took control, the average member of the Venezuelan
Middle Class had put away 3,000–4,000 ounces of silver as a protection
against disaster. Now, remember that in the 1980s, vast oil reserves were
discovered in Venezuela and there was every indication that its citizens were
about to be blessed by prosperity. However, as seems to be the norm in South
America, the essential freedoms granted to American entrepreneurs to make
obscene amounts of money in a "free-market" economy were not
bestowed upon the good people of that oil-rich nation and once the military
was advised of the—ahem—"business opportunity," the guns and tanks
all miraculously fell into line behind first Hugo Chavez and later Nicolás
Maduro. Once the "thugs" took control and began to thumb their
noses at the United States, things (such as inflation) started to affect them
and over the years, what was once one of the most sought-after Canadian and
American tourist destinations suddenly became a hell hole.
That was the exact moment where the Venezuelan doctors and lawyers and
accountants looked beneath the floorboards of their cars and SUVs and homes
and sought out those silver coins and silver bars and "ware"
(forks, knives and spoons) and MOBILIZED that asset into a modicum of
"trade" where their "EXIT VISA" from the Zimbabwean hell
hole was a silver coin, a silver fork or a steel crowbar unnoticed by the
authorities. Today, citizens of countries outside of North America and in all
continents across the globe are finding that physical ownership of silver has
allowed them to be liberated from the oppression brought on by collapsing
purchasing power of their respective currencies.
Through the debasement of domestic currencies, governments have
effectively enslaved citizens by removing the practice of "saving"
where sums of saved income provide the freedom to exit. Now we are seeing the
utility of silver manifesting itself by way of liquidations that are
providing the lira and baht and rupee and rubles required to pay for the
basic needs such as food, lodging, and most importantly, TRAVEL where a few
silver coins or a well-crafted silver goblet earns a family a berth in
steerage on ships destined for North American or Western European ports.
Stories from pre-war Germany and the former Soviet Union document silver's
utility and the exact replica of this is ongoing today wherever human
suffering and societal breakdowns are evident, which, in today's geopolitical
landscape, are plentiful.
As a result, I have opted to stick with gold and avoid the shenanigans of
the Crimex silver pits where JP Morgan and its proprietary trading desk
dominate price without the slightest fear of retribution or censure. Casinos
like that are to be avoided and while it is also present in the gold pits,
liquidity and volatility are ample and thus allow me to trade the swings in a
manner in which I try to align myself with the positioning of the criminal
bullion banks. While not exactly perfect, it was precisely what got me out of
gold in mid-February and back into it in May such that I now scramble for
clues that the behemoths are lurking. They are undoubtedly waiting ever so
patiently for the Large and Small Speculators to cover all of the shorts they
put on in May with gold in the $1,270–1,280 range and switch to "net
long" here in June at which time all of the buy-side volume created by
this switch will have been supplied by the Commercials thus capping the
advance and setting up the next takedown.
The COT was non-descript this past week and gave me few clues as to any
potential bullion bank ambushes looming on the horizon so enjoy the ride on
the leveraged ETFs that have gapped even higher Monday morning with JNUG
pressing the $8.20 level and NUGT north of $18, I am now looking to exit the
all of the calls I own (JNUG June $6 from $1.10 – now $2.20/ NUGT June $15
from $2.55 – now $3.40) and the price points are JNUG $8.50 and NUGT $19.50.
I will also sell half of the ETF share positions in both while putting stop
losses on the balances at JNUG $8.05 and NUGT $19.05.
Once again, my dislike for "all things Goldman" has paid off
with the recent purchase of the GS July $180 puts @ $2.20 reaching a triple
this morning at $6.72. With the shares having filled most of the gap between
$178 and $185, I will take the triple and see if the squid can close under
$178 over the next few days, at which point I will short it again looking for
a test of the December lows approaching $150.
With stocks under pressure and gold and the miners now charging, the
momentum players will be looking to jump on the precious metals bandwagon but
I want to buy the miners with RSI nearing 30, not in the 60s and certainly
not in the 70s where they have been ideal shorting candidates. Nowhere is it
more obvious than in the precious metals arena the necessity of buying on
weakness and preferably EXTREME weakness. The best way to follow this is by
way of the RSI and MACD indicators and thus far it has been working. I was a
tad early this time in the JNUG and NUGT entries because I elected to pull
the trigger with RSI nearing 30 but unforeseen additional liquidation in
early May actually saw a price bottom ten days later with RSI in the mid-high
30s. However, it has all worked out beautifully and I now have Fido sleeping
peacefully at my feet (one eye open, of course) and that menacing rolling pin
is back in the drawer, the smell of baked goods wafting through the rooms
confirming that all is well in the world once again.
For now, anyway. . .
[NLINSERT]
Charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
consult your registered advisor to assist you with your investments. I accept
no liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options
trading and we recommend consulting a financial adviser if you feel you do
not understand the risks involved.
