At the beginning of this week, almost every so-called gold market analyst was predicting a wash-out in precious metals because of the huge bullion bank short being reported in the COT report. A few of us believe that character of the market has changed and paper market price manipulators are losing traction – for a lot of reasons.
This week shows that the banks covered a portion of their shorts and the hedge funds and little guys sold down longs and increased their shorts. This information may be largely irrelevant. Interestingly, in data I’ve parsed and presented in a previous blog post, the beginning of two of the best gold/silver rallies since 2001 occurred at a time when the bullion banks held their biggest short position in gold futures (expressed as a ratio of total open interest).
The latest issue of the Mining Stock Journal was released last night. In it I discussed the use of JNUG (the 3x junior mining stock index ETF) and I explain why we could be on the cusp of the best move yet in the sector. And of course I present a remarkably undervalued junior mining company (a royalty company) in which insiders bought a boat-load of shares in January and now control over 30% of the equity. You can access the MSJ here: Mining Stock Journal.
A subscriber had an interesting question that is a common question I get currently: I really enjoyed this latest edition of your newsletter. I find myself getting less and less nervous about a price smash as it feels that the powers that be can no longer stem the tide of reality. One question I do have is whether you think a massive asset deflation event (similar or greater than 2008-09) will have a negative or positive impact on the shares
My reply: I think there’s is going to be a collapse in all “assets” that have been inflated in price by the use of debt: housing, NYSE stocks, bonds, etc. That is different than general price deflation. We may see a LOT more money printing as the Fed/Government attempts to prevent a debt-driven asset collapse. This will could drive the price of necessities up a lot. But this will really fuel the entire precious metals sector, especially the junior miners which have proved gold/silver/poly-metallic deposits. (click in image to enlarge).
Any asset valuation collapse because of debt implosion will act like a heavy dose of Viagra on the value of mining stock shares. Look at what happened in the 1930’s to stocks like Homestake Mining when the Dow was crashing. When the initial stock plunge occurs, the miners might correlate lower for a bit but then they’ll do a life-style changing moonshot.