When asked about the dominant theme for the markets last January, I said
that the one thing I looked forward to was a return of "VOLATILITY"
as the Federal Reserve Board moved to "normalize" the interest rate
structure, now commonly referred to as quantitative tightening. What has
actually transpired since then was a brief volatility spike in February
during which the UVXY tripled in ten days but other than that, markets
screamed higher, hitting new high after new high with annoying complacency
and irritating certainty while "VOL" collapsed.
Despite the U.S.-China trade friction, rising yields, weak overseas
markets and increasing geopolitical tensions, the NASDAQ has been on fire
while Canadian weed deals have dominated water cooler conversations for most
of 2018. Volatility has been largely absent – until last week, when it snuck
into the upstairs bedroom under cloak of darkness and removed all cash and
jewelry from the room. The S&P 500 (after Thursday's close) had given
back 7.2% from its 2,940 peak seen in September when every anchor or
commentator in the financial media was breathless with glee. S&P began
the Friday session up a mere 2.05% YTD, which is still positive for the year,
and remains superbly superior to gold's 6.24% decline since 2018 arrived.
In February and in May, gold and stocks were neck and neck but once the
Donald decided to ratchet up the trade war, interventions became epidemic and
the S&P quickly took off with gold doing the reverse. The gold gurus
point to the "China Peg" as the bogeyman in the precious metals
bedroom but the reality is that the algobots picked up the correlation and as
they did with the gold-yen and the gold-euro pairs in earlier times, they tend
to stay with the correlation "that is working" for longer than you
can say "rational." I will refrain from debating whether it is a
Chinese "policy" peg or an "algo-gone-anal" peg but the
reality is that IF the West wants the Chinese currency UP versus the U.S.
dollar, all it needs to do is move gold to $2,000 per ounce and the currency
issues will be summarily corrected. (As will my net worth issues as well.)
Thursday's $34 move in gold was a reaction of classic proportions to stock
market routs occurring around the world with alarming frequency but what was
bothersome was that silver failed to catch the slightest of bids closing up a
tad despite the impressive move in gold. As you all know by now, precious
metals advances that have "teeth" include silver outperforming gold
and the miners outperforming the metals so Thursday's action was incomplete
in firing up the adrenalin. I tweeted out my intention to add to my holdings
on Friday in selected junior explorcos as well as buying the GLD Dec $115
calls for under $3.00. I wanted to see the silver market outperform the gold
market Friday (which it did) AND I needed my trusty canine Fido to come out
from under the tool shed (which he did) in order for my bravery level to
allow me to pull the trigger on these positions.
Back on August 27, I published my letter under the title of "Back up the truck..." in response to the terrific
technical action of gold as it was coming off the $1,167 lows since from
August 16 with a proviso that I needed the market to remain above the $1,200
level for more than a millisecond in order for me to go "ALL-IN." For
the next five weeks, gold meandered over and under $1,200 a dozen times with
the lows being in the mid-$1,180s while the omnipotent COT Report (tongue
firmly planted "in cheek") failed to ignite anything more than a
yawn despite the more-than-often-right Commercials actually long gold for the
second time in 20 years and amazingly long silver for the first time ever.
Coupled with record shorts held by Large Speculators in both gold and
silver, the potential for a short squeeze was high and rising then and even
higher and rising now. However, I still need to see the dips be bought and
the rallies left alone in order to convince myself that this is finally the
point where money flows back into the U.S.-dollar denominated price of gold,
which in turn will send the stock jockeys piling into the Junior and Senior
Miner ETFs as well as the little explorcos. I believe this is an ongoing
process that will accelerate as returns in the NASDAQ fade and money moves in
search of alternative returns as happened in 2002 and late 2015. In Canada,
as soon as the weed deals get crushed, money will also gravitate back to
mining so the right course of action is to accumulate physical gold and
silver in advance of this "Great Rotation" out of paper assets and
into hard assets.
This past week's highlight was Thursday's big rally in gold but as of
Tuesday, the bullion banks had accumulated the largest long position in gold
futures since the CME began reporting the COT numbers. Up until this week,
COT structure extremes had gone largely unnoticed as the algobots continued
to press their short bets while the Commercials were tickled pink to
accommodate. Thursday's action was terrific in that I got a chance to witness
what happens when a large amount of emotion spills over into the relatively miniscule
precious metals markets and catches the 'bots on the wrong side. Being devoid
of emotion, the 'bots simply follow the signals and if it is time to cover
shorts or initiate new longs, they do it "at market" and will keep
at it until either the software commands it or the price managers pull the
plug.
To have a $6 pullback after that massive move on Thursday was a large
"NOTHING" but next week I will need to see (and EXPECT to see) a
follow-through surge with silver coming out of the starting blocks on fire. I
cannot stress enough the significance of this COT report; it is historic. The
net long position of the always-short Commercials is 42,617 contracts and
that compares with the December 2015 bottom at $1,045 when they came in at a
wildly bullish net short of "only" 2,911 contracts. What followed
was a truly massive rally in bullion (37%) and a 280% advance in the HUI. We
are coming off an August/2018 low that is $122 above the December/2015 low
with the HUI 54 points above the January 2016 capitulation low of 99.17.
With sentiment so drastically negative, the potential exists for a
multi-quarter advance that can resemble that spectacular eight-month rally in
2016 but if you want to know the truth, I say it will be more akin to 2002,
where those positioned in silver at $10 even after it was up 300% saw another
500% advance by 2011. As for the outlook for the miners, Goldcorp was a $4
stock in 2002; it peaked at over $45 in September 2011. Think about it.
If we get a move north of the 100-dma at $1,240 next week, the stage will
be thoroughly set for an advance to 200-dma at $1,295 where it will need to
spend a great deal of time consolidating as the magic $1,300 was a major area
of support in May until it got crushed on June 21. For now, I am confident
that the mid-August lows are your stop-loss floor and the assault on $1,400
is now officially underway. I backed up the proverbial truck and filled up
the bed back in August-September but with the weekly chart looking so
positive, it is finally time to find something with a tad more cargo space
and just to give you an idea of how bullish I am for Q4/2018 and beyond, the
appropriate vehicle to be loaded this time is a large ocean liner or an oil
supertanker.
One final note: You may have noticed a trace of exasperation in my
writings of late and if indeed you did, you are distinctly on the money as
there is no question that my affinity for gold hit a career low last month
but it had nothing to do with gold or silver. It had to do with an almost
perverse sense of regret in recommending and investing in Western Uranium. I
have consistently made above-average returns in trading gold and silver since
I entered the securities industry in 1978 but the recent arrival of the algos
into the gold pits have taken away from me the ability to use gut feel or
tape sense or pit instincts to make decisions and execute. I liked Western
Uranium in 2016 after meeting the principal investors in the deal but the
timing was wrong and I saw my $1.70/unit investment go into terminal
crash-dive mode as uranium continued its death spiral to $18/lb. I assisted
with the financing effort six weeks ago at $0.68 per unit (including a
half-warrant at $1.15) and watched with amazement as investors decided out of
nowhere that vanadium was undervalued and then followed it up with a similar
revelation for uranium.
Call it morbid curiosity or outright cynicism but I have become so
engrained with the dismal action in gold and silver and the miners that to
see WUC scream out of the gate and quintuple eight weeks after the placement
closed put me squarely into a state of disbelief. Since the financial crisis
of 2008, we have watched no fewer than twenty-five events that should have
taken gold through $2,000 per ounce but constant interventions and
manipulations continually to plagued precious metals price performance in
truly maddening fashion. As gold investors, when was the last time that we
had a gold stock go from $0.68 to $3.32 in two months on a valuation reset?
Therein lies the root of my angst. After all I have tried to convey over the
years, when was the last time a gold (or silver)-related security actually
became a brilliantly successful trade? A few have, but the majority are
usually doomed to the mediocrity of shitty markets or shitty management, both
of which I deem a most-convenient cop-out.
The frustration I feel lies in the truth that underlies the 2018
landscape; the elite class want the bankers, politicians and regulators to
ignore 5,000 years of history. They would instead prefer to demand that their
appointed central banker like Greenspan or Yellen or Powell simply follow the
plan that was originated after the 1987 market crash and ensure that markets
behave according to the carefully crafted script, which means gold and silver
are the enemy, stocks are our saviors, and bonds don't count. As stated
earlier, the bullion banks that have been pointed to as the major culprits in
the gold and silver rigging scheme are now heavily positioned for an up move
and have been since August. The inevitability of the Commercials crushing the
hedge funds is the reason I expect the miners to begin to perform like the
uranium/vanadium stocks, where REAL supply and REAL demand ex-interventions
create a free and natural upward hydraulic so absolutely critical to
properly-functioning markets.
This coming week will tell us whether can welcome a new paradigm for the
precious metals or whether we simply devolve back into the status quo. Stay
tuned and cross your fingers.
It is time.
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.
[NLINSERT]
Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family,
own shares of the following companies mentioned in this article: Western
Uranium & Vanadium Corp. I personally am, or members of my immediate
household or family are, paid by the following companies mentioned in this
article: None. My company has a financial relationship with the following
companies referred to in this article: Bonaventure Explorations Limited is
owned by me and my wife and has earned consulting fees from Western Uranium
& Vanadium in the past. I determined which companies would be included in
this article based on my research and understanding of the sector. Additional
disclosures are below.
2) The following companies mentioned in this article are billboard sponsors
of Streetwise Reports: None. Click here
for important disclosures about sponsor fees. As of the date of this article,
an affiliate of Streetwise Reports has a consulting relationship with Western
Uranium & Vanadium. Please click here for more information. The information provided above
is for informational purposes only and is not a recommendation to buy or sell
any security.
3) Statements and opinions expressed are the opinions of the author and not
of Streetwise Reports or its officers. The author is wholly responsible for
the validity of the statements. The author was not paid by Streetwise Reports
for this article. Streetwise Reports was not paid by the author to publish or
syndicate this article. Streetwise Reports requires contributing authors to
disclose any shareholdings in, or economic relationships with, companies that
they write about. Streetwise Reports relies upon the authors to accurately
provide this information and Streetwise Reports has no means of verifying its
accuracy.
4) This article does not constitute investment advice. Each reader is
encouraged to consult with his or her individual financial professional and
any action a reader takes as a result of information presented here is his or
her own responsibility. By opening this page, each reader accepts and agrees
to Streetwise Reports' terms of use and full legal disclaimer.
This article is not a solicitation for investment. Streetwise Reports does
not render general or specific investment advice and the information on
Streetwise Reports should not be considered a recommendation to buy or sell
any security. Streetwise Reports does not endorse or recommend the business,
products, services or securities of any company mentioned on Streetwise
Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers,
employees or members of their families, as well as persons interviewed for
articles and interviews on the site, may have a long or short position in
securities mentioned. Directors, officers, employees or members of their
immediate families are prohibited from making purchases and/or sales of those
securities in the open market or otherwise from the time of the interview or
the decision to write an article, until one week after the publication of the
interview or article. As of the date of this article, officers and/or
employees of Streetwise Reports LLC (including members of their household)
own securities of Western Uranium & Vanadium Corp., a company mentioned
in this article.
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.
