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. . .
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.
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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.
