If someone were to ask me my opinion precious metals tape action during the period between Jan. 28 and Feb. 1, 2021, two words would come to mind, with the first being "enlightening," and the second being "engaging."
The events of those three trading days enlightened me to just how many new, unsophisticated traders have now entered the world of financial speculation, thanks to the serial largesse of the central bank printing presses. It has also forced me to engage an entirely new opposing force, that being the arrival of "fake news" to the world of stock market rumor mongering and manipulation.
I say "fake news" because whoever planted the rumor of a Reddit/WSB assault on those short silver, and specifically those short First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE; the most heavily shorted of the miners these days) was most certainly the illicit purveyor of garbage information designed to liberate a once-losing position through prices massaged higher by the greed, fear and naivety of a virginal crowd of newbies.
Last weekend, I warned the world about taking on the bullion banks, described as the "wiliest, meanest, coolest and most formidable creatures you will ever meet in the trading pits." It was on the second trading day of the week that they dispatched legion after legion of #silversqueeze assault troops, armed with $5,000 stimulus checks, student loan money and granddad birthday money, all intended to vanquish the bullion banks. It was like sending the high school dance team to take on a troupe of Navy Seals as they let wave after wave of screaming Millennials spike the silver price to over US$30/ounce on massive volume.
Just as we saw back in April 2014, in the wee hours of the Western World morning, silver futures were decapitated with surgical precision, and by the time the Crimex opened later that morning, a rout of unimaginable breadth and impact laid to waste an army of undercapitalized kids, as silver futures did the predictable 360-degree round trip, resting back at US$26/ounce, where they began before the swindle began. And that is exactly what it was—a good, old-fashioned, barroom swindle.
Below, you will find a couple of charts that both illustrate the March silver contract, but I eliminated the #Silversqueeze tape action and instead present a chart that shows just how perfect the uptrend line was going into the middle of last week, when all the nonsense began.
Our silver market was never in need of any type of artificially induced adrenalin injection; it was flying in perfect "stealth formation," letting the "crazies" obsess over the Gamestop and AMC and Nokia and Blackberry short sellers and the lunatic fringe of Millennials and GenXers that sent a dozen hedge funds to the trash bin, all the while sailing under the radar screens of the Navy Seal traders that were busy handling that pit of viper-laden insanity.
Instead, in the 2021 version of Ted Mack's "Original Amateur Hour," the accordion players and the tap dancers with the gyrating batons decided to scream as loudly as they could that they were "COMING" (after the bullion banks), and totally forgot the number one rule of breakout passes in hockey: Never telegraph a pass and never fire it up your teammate's rear end or he winds up in St. Mike's with serious trauma.
Last Monday, egged on by their older and much wiser "mentors" (eyes rolling), they led with their chins (forgive my switching to a boxing metaphor from hockey) and received a Mike Tyson overhand squarely in the middle of their angry faces, proving once again that, as Iron Mike said in reply to Trevor Berbick's very public "fight plan," "Everybody's got a plan 'til they get punched in the face."
I am sure that most subscribers have seen all my tweets by now, and I apologize if I appeared someone overzealous in my angry responses, but the seasoned veterans out there with highly visible presences in the Twitterverse or Instagramia or on the blogosphere should not have joined into that orgy of silver cheerleading. They should have known better.
What also irked me to no end was on Sunday when I read a post by an extremely popular precious metals "guru" who has weekly interviews with everyone bullish to the cause. The guru was urging "caution," but this was after four consecutive days of "Join the cause!" and "We're in this together!" and "Tell all your friends!" A tad late to be telling the driver to hit the brakes when he is sailing through the air having gone over the cliff.
I told everyone to let the bullion bank behemoths have their fun on Monday and Tuesday, after which, on Wednesday, I began to add to silver and gold in a market that was about as painful to watch as you could imagine. I watched First Majestic get pummeled as the amateurs that piled in on the Monday opening at US$24 were regurgitating millions of shares in wave after wave of panic selling. I added small positions at $16.50 and $15.50, as well as call positions at the lows in both SLV and GLD. We had a great week, with Norseman Silver Ltd. (NOC:TSX.V) and Getchell Gold Corp. (GTCH:CSE) still sporting superb year-to-date (YTD) returns despite profit-taking late week in both.
The lesson for us all to learn and remember is that the most gratifying advances are in stocks that grind higher with little or no fanfare or hype. Smart money usually finds these types of trades early and is content to accumulate before it is highlighted by the superstars. We see at all the Precious Metals Conferences and in podcast after podcast, which are increasingly becoming meetings of the Mutual Admiration Society.
There is a great old horse chestnut that we sexagenarians were taught in the days before the internet: "Stocks rise on mystery and they decline on history." This is why the title of this missive deals with stealth investing.
Fly low and off the radar screens of the bullion banks, oblivious to the professional short sellers, removed from the clutches of the hedge fund community, which loves to buy into private placements only to strip out the stock, and go short against the remaining warrant position. These are the pariahs of the precious metals ecosystem, which can turn the best intentions of the long-term investor‚ the buy-and-hold shareholder, that is critical to funding the junior miners in either development of existing resources or exploring for new ones.
I close today's missive with a chart of the Gold-to-Silver ratio (GSR), which I have always treated as the best tool for judging the longer-term health of the precious metals markets. If the GSR trends up over an extended period, it is usually an omen of trouble for both gold and silver. Since the lunacy of the Covid Crash took gold and silver to Generational Buying Opportunities in miners and metals, once silver found its footing in late April 2020, the GSR has been in a powerfully bullish descent that continues to scream "New Highs" as the year unfolds.
One of the classic trademarks of a gold market gathering steam is a silver market outperforming gold, and that it has been doing without fail and without the need for pom poms, cymbals or megaphones.
Stealth is good.
Originally published Feb. 5, 2021
Follow Michael Ballanger on Twitter @MiningJunkie.
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 securities of the following companies mentioned in this article: Getchell Gold and Norseman Silver. My company has a financial relationship with the following companies referred to in this article: Getchell Gold and Norseman Silver. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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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 decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Getchell Gold, Norseman Silver and First Majestic Silver, companies mentioned in this article.
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.
