Before we go any further, let it be known that in the days leading up to this missive, i have gone from "net long" to "net short" on gold, silver and the miners. Those receiving my email blasts and those following me on Twitter (@Miningjunkie) have been put on notice that this advance, while impressive in its blunt-force trauma, lacks the perfection of the Q4/2015 advance, which arrived from multiyear polar extremes in sentiment and COT structure setups.
All last week I was emailing and tweeting how frail this advance looked and why I was a seller. With Friday's COT, you have the reason:
Now, I could spend the rest of the day explaining where they got 58,773 new longs representing 5,877,300 ounces of gold bullion—which they claim to have sold. But I won't. You all know the drill. There is zero defense nor advanced warning from a Cartel raid with exception of the COT report, which is, while helpful, nowhere near a perfect indicator. Even when the number looks favorable, it is still highly subjective. Because of the incessant flow of intervention and interference, interpreting the COT and acting upon it is at once both difficult and imperfect, and while it is relatively easy to short Goldman Sachs, it is painfully difficult to short precious metals because, for hard money advocates like me, it is like selling a family member.
Monday morning is going to bring about a violent sell-off in the precious metals because they are considerably overbought as the chart below was clearly screaming late last week.
Gold miner ETFs (NUGT/JNUG) were both wildly overbought by last Friday, and while I was in awe of the impact of the buying, I added to the DUST and GLD July $125 put positions late week (confirmed by multiple tweets when action was taken), and now remain comfortably short with gold down $15 going into the Monday opening.
I will be adding to shorts on Monday, on any type of bounce in both the GLD and the miner ETFs. The DUST was bought at the $16.47 and $15.90 for an average of $16.18 and will probably open in the low $17s on Monday.
We have all seen this movie before, and while it is both maddening and infuriating, it in no way alters my longer-term bullishness on gold and silver. What this does illustrate is just how corrupt the Comex ("Crimex") has become and how important it is that you turn off CNBC and ignore the table-pounding gold bugs that would have us leveraging up at precisely the wrong time (like last Thursday/Friday), with RSI (relative strength index) readings in the mid-to-high 70s and the investment conference rock stars all feverishly tweeting out targets of $1,400-plus by July 4. When the bullion banks are sellers, you do not want to be long. Period.
Originally written on Friday, June 7.
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 and images provided by the author.
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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.
