"Mettle"—the ability to cope with difficulties or to face a
demanding situation in a spirited and resilient way.
Given the performance of my beloved Gold and Gold Miners in the past
month, could there have ever been a more fitting word describing our sector
than in the word "mettle"? Insert the words "the constant and
unrelenting interference by the Fed/Treasury-sanctioned bullion banks"
for the word "difficulties"; insert the words "egregiously
overbought condition" for the words "demanding situation" and
the definition might be appropriately restated as "the ability to cope
with the constant and unrelenting interference by the Fed/Treasury-sanctioned
bullion banks or to face a(n) egregiously overbought condition in a spirited
and resilient way."
One of the advantages I have over the 40-something or 30-something gold
"advisor" is that, being a sexagenarian, I have little if any need
for adulation. The need for adulation in males approaching the onset of
quasi-middle-age is the result of their libidos producing an inordinate
amount of testosterone, a throwback to the days when post-pubescent males
were driven to violence from the absence of sexual release. It closely
resembles "Pon Farr," a condition affecting Vulcan men that was
famously acted out by the late Leonard Nimoy in the famous Star Trek episode
whereby he underwent a blood fever, became violent, and was about to die
before the screenwriters found an ingenious way to have him bypass the need
for fulfillment by substituting sex for beating the living shit out of Kirk.
(There's a message there somewhere.) Unlike Vulcans, the male body and brain
in humans have astounding mechanisms for dealing with advancing maturity; the
final burst of testosterone is what creates the "Middle Aged Crazy"
syndrome where men with perfectly sculpted families and wonderful wives
suddenly watch them fall from priority one to priority seventeen. It is not
their fault; they were given it at birth; they are innocent. Mother Nature
gave our species a survival tool called "male aggression" and when
it is underactive, our species dies from boredom; when it is overactive, our
species simply dies.
In the universe of the blogosphere, the dominance of testosterone causes
the 30-something and 40-something gold commentators to constantly and quite
annoyingly remind readers of just how wonderfully "right" they were
in making a bullish call on gold in May, fully forgetting that they ALSO
called the "bullish breakouts" in gold at the $1,350–1,375
resistance in August 2016 (it crashed to $1,125), September 2017 (it fell to
$1,225), April 2018 (it plummeted to $1,180), on February 20, 2019 ($1,330
back down to $1,283). There was about $400/ounce of drawdown AFTER these
"bullish breakouts" echoed throughout the digital canyons of gold
buggery before finally surging to the recent top at $1,442. Testosterone does
that, from time to time.
The point I make is that in the weeks and days leading up to the move in
gold from $1,267 to $1,440, I sent out no fewer than ten missives explaining
in detail what I was watching, why it mattered, how it might fail and where I
was putting my cash. As gold tentatively danced around the $1,350 level, I
sent out three tweets and four missives laying out my distrust in the move.
On May 10th, I sent out this chart clearly identifying the
"trade" with gold at $1,287 when the world was quagmired in USD
strength and recession fears and trade war jitters while the MACD quietly
completed its bullish crossover and RSI began to ascend toward 50 (en route
to nearly 90). It was a terrific trade and the leveraged ETFs (JNUG [Direxion
Daily Junior Gold Miners Index Bull 3X Shares] and NUGT [Direxion Daily Gold
Miners Index Bull 3X Shares]) generated 50% returns, which I nailed on the
initial run to $1,356 with the RSI at 72.
Like the cat that inadvertently jumps on a hot stove, I am absolutely
terrified of the lawlessness that prevails in the Crimex cesspool of paper
trading. I have been burned over the years by blind allegiance to the tenets
and fiber of technical analysis but only after several hundred thousand
dollars vaporized by bullion bank thievery finally sunk in, I decided to act
and think like a commercial trader in order to avoid these dramatic
drawdowns. Five out of the last six moves in gold to $1,350–1,375 and RSI
into the 70s, the bullion bank behemoths were able to cap the advance and
send gold reeling and each time that happened, I was flat all leveraged gold
positions while retaining all portfolio positions in the unleveraged ETFs
(GDX [VanEck Vectors Gold Miners ETF] and GDXJ [VanEck Vectors Junior Gold
Miners ETF]) and all physical gold positions (GLD [SPDR Gold Trust] and SLV
[iShares Silver Trust]).
By following the tools that have been successful, I was able to avoid that
$400/ounce drawdown that killed off so many aspiring gold bulls between
August 2016 and June 2019. The only trading I was doing was in the leveraged
ETFs and the associated call options and it was only ten days ago with the
RSI in the high 80s that I wrote about selling half positions in GDX (which I
did at $26) and the GDXJ (which I did at $35), which returned 19.12% and
23.28% respectively. Now, had I held onto all unleveraged positions, I would
have made an unbelievable score because NUGT advanced an additional $10 on
the RSI move from 73 to 89 as an orgy of panic-buying and short-covering
propelled the biggest advance since early 2016. However, the $60/ounce move
in gold that I "missed" in the leveraged vehicles by using 70-plus
RSI as the trigger point pales in comparison the approximate $400/ounce
haircut avoided five times in three years. I'll take that trade any day of
the week.
In describing the current status of the gold (and silver) market, I have
to return to the title of this missive: "Precious METTLE" and the
phrase "in a spirited and resilient way" in reference to the
behavior exhibited by gold since the three-year cap at $1,350–1,375 was
vanquished. The finality of the move was underscored by such resiliency that
even a spine-tingling takedown by the bullion banks from $1,442 to $1,384 in
one weekend has not been able to deter the bulls which represents a departure
from the price-capping era. In my post-FOMC commentary
on June 19, I wrote:
"Last point on gold: The singular greatest danger over the
intermediate term is that there is no "breakout" on this run and
that it catches an entire generation of generalists long at the top. As gold
investors, we need a breakout above $1,375 that decisively surpasses that
band of resistance in increasing volume and momentum such that resistance
becomes support and the entire metals complex undergoes a structural lift in
valuation and sponsorship. I am currently hedging against that materializing
but praying that it indeed happens because the gold market since 2011 has
been like eight years of root canal surgery without any sort of sedation or
tranquilization. As I wrote about at $1,287 three weeks ago, we will have our
day and whether it is here in June or later on in 2019, it is coming."
That "greatest single danger" has not occurred (thus far at
least) and gold now resides comfortably above the three-year band of
resistance and that singular event has changed the landscape and my trading
strategies moving forward. With apologies to John Maynard Keynes, when
conditions change, I change and since conditions are now unequivocally
bullish for all things golden, I am now looking to buy back the half
positions in GDX and GDXJ sold a few pennies higher than where they reside
today. As for the leveraged ETFs (NUGT and JNUG), I will stick to my guns and
only initiate new positions when RSI approaches 30. As for gold and silver,
all indications favor silver over the short-term horizon as it carries far
less downside risk and far less vulnerability to massive profit-taking due to
the fact that with the gold to silver ratio (GTSR) above 90 (eyes rolling
while stomach turning), silver has been an absolute dog in any and all
analysis. They used to refer to silver bulls as "gold bulls on
steroids" but with the manner in which the silver bullion banks, the
most notable being JP Morgan, have capped, sat upon, choked, muscled, and
generally manipulated the price of silver, the silver bugs are now hiding in
the dark sanctuary of silence. In fact, any time a silver
"luminary" posts his or her bullish opinion, the comments range
from vitriolic to laughable in their assault and ridicule.
With that in mid, I am initiating a 100% position with all profits from
the June long position in JNUG and NUGT in shorting the GTSR at 92.40. I will
target a drop back below 80 as an initial reassessment zone but the true 2019
target is 60 or under. It traded briefly under 40 in 2011 and down to 65 in
mid-2016 but has bounced around in the 75–82 range until gold made its June
2019 explosive move shockingly unaccompanied by silver. In over forty years
of covering silver from the periphery of gold, I cannot recall a worse period
of underperformance and it is evident from the sentiment numbers that someone
or something has silver on a rope with the investment world finally shuttered
into a Pavlovian trance that places a radioactive fence around all things
silver. With retail attitudinal conditioning so acute, I am opting to fade
that prevailing concept and go long silver by way of limited-risk SLV August
$14 calls (@ $0.55) and by shorting the GTSR.
You have all read my missives over the years and been exposed to my
unfailing belief that 5,000 years of historical utility as protection against
currency debasement and monetary inflation would prove trustworthy for gold's
true portfolio role. The world as we used to understand it would have allowed
a move to well above the old highs by now but the 2007–2008 banking crisis
and gold's responsive move to over $1,900/ounce frightened the elitist,
policy-making bankers and pols so viscerally that they have spent the past
eight years doing everything in their power to keep the brakes on it by
discouraging retail speculation and institutional participation by way of
relentless interference and intervention. On that note, something very
significant happened in June when gold shrugged off the expanding open
interest of bullion bank shenanigans, shattering with unparalleled force the
shackles of repression and launching itself into a new phase of the bull
market which we all know began on December 4, 2015 at $1,045/ounce. It can
only be described as a "watershed" move and one that will be
remembered decades from now.
For now, the next major resistance appears to be the April 2013 breakdown
level at $1,525 gold which, by the way, saw a silver breakdown but from the
unimaginable level of $25/ounce. However, of the fifty or sixty bloggers
chortling on about the next few hundred dollars in gold, the key actionable
event should be to identify that point where gold can be bought without the
risk of a major drawdown and until it approaches oversold status with RSI
around (or under) 30, I am sidelined with the full knowledge and acceptance
that I might be left behind, bereft of all of my beloved leveraged ETFs that
can at once make blood boil, then curdle, at the pressing of a bullion bank
sell button. For now, the operative word for gold remains "mettle"
and I pray that gold can continue to perform in a spirited and resilient way.
Now for my monthly testosterone shot…
[NLINSERT]
Charts provided by the author.
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.
