Time to Load up on Gold and Silver
Contributed Opinion

Gold and silver sentiment is at an all-time low — time to load up.

Over the past forty-five years, I have gone through every imaginable market cycle, including the Stagflation Seventies, the Crash of '87, the Roaring Nineties (for mining and dotcom stocks), the Terrible 2,000's; and finally, the post-GFC (2008-2023) bizarro era of unbridled money printing and currency debasement.

Along the way, the gold and silver sector, which includes everything from senior producers to junior developers to wildly speculative "penny dreadful,"  has behaved like a manic-depressive movie starlet, metamorphosing from wild elation to the darkest funks. I have watched discovery stocks associated with major gold discoveries like Hemlo and Eskay Creek become targeted by panic buyers that would take 100,000-share blocks out of the market in seconds, moving the market cap northward by many multiples of their former values. I have also seen those same companies go "No bid" and lose 95% of their former value during market panics brought on by crashes or disappointing results.

The divergence between the gold price and the gold mining stocks is glaring, and whereas in other years I would follow the strategy of "miners lead bullion," gold miners are ridiculously cheap right now, although energy costs are throwing a crimp into margins as diesel fuel is a major cost input.

The junior exploration and development deals have always been volatile, rarely predictable, and never for the "faint of heart." They have been dispensers of life-changing enrichment and catastrophic despair.

They have also been my focus for most of the past three decades, having been involved in more than a few of those major mineral discoveries. Over the years, I have found the people who dominate the mineral exploration business also a manic-depressive cocktail of unparalleled courage coupled with devious agendas.

Mark Twain once described a gold mine as "a hole in the ground with a liar at the top." He was not entirely wrong because it is the prospect of "life-changing enrichment" that lures the unsuspecting man or woman into becoming an "investor" when, in reality, it is not a lot different than the casino operator offering them a seat at the blackjack table.

However, just as there are individuals around the world who make an obscene living as professional gamblers, honing their trade in the study of probabilities and statistics, there are also professional mining speculators who have just enough knowledge of geochemistry and geophysics to become "dangerous." They specialize in knowing the people who find and build mines around the world, and they follow their exploits, placing bets along the way in whatever public company houses their talents. In the same manner that a bookie handicaps a horse, mining speculators use essentially the same tools to predict the likelihood of a certain geologist making a discovery and, as such, make it a profession and a very exciting one at that.

I came across a tweet this week from an attendee of the Denver Gold Forum at the legendary Broadmoor Hotel in Colorado Springs. In the tweet, the sender included a picture of the main lobby of the hotel on Monday, usually the busiest day of the conference, and one that finds that lobby crammed with attendees jostling about muttering "Excuse me's" left and right as they squeeze past people standing in groups swapping stories about properties and drilling programs and deals. This year, the lobby was empty.

A few moments later, another tweet containing a picture of the exhibitor floor of the conference arrived. I was stunned to see no exhibitors manning booths that, in prior years, were packed with executives peddling their wares while eager investors stood by agog.

Just as record attendance at conferences such as PDAC in Toronto or the New Orleans Gold Conference founded by the legendary James Blanchard back in 1974 could be viewed as signs of a market top, sparse attendance has always signaled market bottoms. Now, when describing attendance at gold conferences as "heavy" or "light" as countertrend indicators based on sentiment, I have never used the term "empty" to characterize attendance at one of these shows. In fact, I am having a difficult time explaining why a metal with five thousand years of history as a time-tested store of value is so universally reviled here in 2023.

Perhaps gold and silver were tools of earlier generations that had no other alternative to which to flee with their savings, while today's world of financialization of everything has rendered gold and silver irrelevant in the minds of the Millennials and Gen-Exers. It was only fourteen years ago that a young programmer invented Bitcoin as an alternative to government fiat, with the result being a wave of new generational investors flocking to their computers rather than a vault to protect their savings. Perhaps the cultural divide in demographics has something to do with the current malaise for the gold bugs.

The same applies to silver, which has me ready to take a ball-and-chain hammer to first my computer and then to the U.S. Justice Department and CFTC that continue to turn a blind eye to the shenanigans that prevail today as they have since the 1980s.

It has been said that the Baby Boomers were dreamers and philosophers who believed in the coming of a "Brave New World" and would invest in unheard-of ideas like nuclear fission and personal computers and cellular phones while creating a new culture with the arrival of the internet.

Those dreamers are now being replaced with a new generation of cynics and realists that all claim to live by the "I'm from Missouri" philosophy of "Show me" versus the idealistic platitudes worshipped by their bell-bottomed elders.

After all, it is no surprise that a generation of kids raised on video games and social media find more faith in a computer-hosted savings vehicle than holding a metal hated by governments whose price is at the whim and order of the elite baby boomer elders that control it.

As has always been the case, there will be a seminal event that will once again restore physical gold and silver to their rightful thrones as defenders of personal wealth. I have no idea what that event will resemble, but you can be certain that whatever event destroys the efficacy of stocks, bonds, and cryptocurrency as wealth protectors will not be a pretty one. People have asked me for decades what I thought would need to happen for gold to hit $5,000 an ounce, and my response has always been the same.

 "When the USS Nimitz pulls into Gibraltar for a refit, and they refuse the credit card."

What that infers is the total loss of confidence in the U.S. dollar as the world's reserve currency, and with eleven BRICS nations now moving away from the U.S.-based "SWIFT" system, such an event deemed to be fantastical ten years ago looms eerily on the horizon. Every enemy of the West knows full well that the Achilles Heel of the U.S. military is the dollar because if they destroy the dollar, they defund the war machine.

Therein lies the latent value of gold and silver in this ever-changing world of danger and subterfuge.

Gold and silver

Gold prices are locked in a trading range between US$1,925-1,975 for spot gold and $175-180 for the SPDR Gold Shares ETF (GLD:NYSE).

The divergence between the gold price and the gold mining stocks is glaring, and whereas in other years I would follow the strategy of "miners lead bullion," gold miners are ridiculously cheap right now, although energy costs are throwing a crimp into margins as diesel fuel is a major cost input.

Looking back twenty years, one can easily see how valuations have been grinding their way lower, with valuations today less than a quarter of where they were in 2006.

Portfolio allocations by professional managers are at a generational low because of the relatively dismal performance of the gold miners (creating potential career risk) and because of the misnomer that the group is a poorly managed one, which was true in the last cycle but since the 2015 lows, is no longer true.

Balance sheets are in superb shape across the board.

I rate gold as "neutral" right now and have elected to stand aside from a trading perspective until evidence presents itself that sentiment has shifted to the bullish camp.

The same applies to silver, which has me ready to take a ball-and-chain hammer to first my computer and then to the U.S. Justice Department and CFTC that continue to turn a blind eye to the shenanigans that prevail today as they have since the 1980s.

Stocks

The S&P 500 reacted horribly to the FOMC meeting on Wednesday and is now trading below its 100-dma at 4,375, with the next major support level at 4,191. Invesco QQQ ETF (QQQ:NASDAQ) is also under its 100-dma at 360.37, with the next support down around 327.51. The problem with these bearish hypothecations lies in seasonality because we all know that fund managers are universally underperforming the major averages and will be forced to buy large chunks of the Maginificent Seven (stocks that constitute the majority of the annual gains for the S&P) and that always begins in the last two weeks of October, especially in a year where the market is up over 15% YTD.

The momentum analysts are all calling for a melt-up, with most of the CNBC commentators all talking about a "year-end rally." In fact, every guru I hear or read about is talking about "seasonal weakness in September to early October," followed by performance-chasing hijinks into November and December. If I go with the odds, I am forced to join that very crowded group and assume a bullish result for 2023, but what if it is more like 2018?

In 2018, stocks fell 20% from the first day of October until Christmas Eve, when Treasury Secretary Mnuchin and Jerome Powell met on a Sunday night to pump the markets back up. Year-end rallies are not an "ordained right," and the fact that so many "experts" are calling for one for all of the right reasons is in itself a strong reason to fade the consensus.

I am currently long volatility until the first week of October, after which I will move to the sidelines. The danger between now and year-end is that the economy rolls over and starts heading south faster than anyone imagined possible, in which event we have a 2018 scenario.

I am off to the north country to try to enjoy the last ebbing days of the 2023 Boating Season, which has been a short and difficult one due to weather and family issues.

I am going to catch a fish or two, drink a beer or two, and try to formulate a strategy for 2024, which is going to be upon us before one can say "data dependent."

Hail the Fed.

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Michael Ballanger Disclosures

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.