After moving significantly higher on Wednesday and Thursday following the dovish monetary policy issued by both the Federal Reserve and the ECB, the precious metals were ambushed Friday morning by the Comex bank cartel. Right before the Comex gold pit opened on Friday, thousands of gold and silver contract were dumped wholesale into the Comex Globex computer trading system. The deluge continued for over an hour (click on image to enlarge):
The chart above is the July Comex paper silver. From 8-9 a.m. EST, 21,922 silver contract were dumped on the Comex. This represents 109.6 million ozs of silver – roughly 13% of the total amount of silver produced my silver mining annually. It also represents 40% of amount of physical silver allegedly held in Comex silver vaults as reported by the vault operators (primarily JP Morgan, HSBC and Brink’s). Friday was by far the largest volume day for the July contract going back to late April, when July became the “front-month” contract for silver. The same dynamic occurred in gold on Friday.
In the latest episode of “WTF Just Happened?” we discuss how and why the precious metals were smashed on Friday, as the Comex banks printed $10’s of millions in profits covering their enormous short positions in paper gold and silver ((WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at Facebook.com/EricDubin):
I recommended Arizona Mining in May 2016 at $1.26 to my Mining Stock Journal subscribers. It was acquired today for $1.3 billion, or $4.65/share. Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.
The BLS (Bureau of Labor Statistics) released its “hey man, lots of jobs open” report last week. The problem is that the credibility of the report is only as good as the credibility of the organization that prepares the report. In this case, the BLS and Census Bureau, both of which are notorious for highly suspect data collection and data “adjustment” techniques (true story: sometimes Census Bureau agents just make it up if they don’t have time to keep canvassing after lunch). Our take is that most of the job listings spit out by the BLS sausage grinder are fictitious.
In addition to this, and interpreted by the media spin-meisters and Government propagandists as evidence that “Trump’s trade war is working” and “the economy is running full bore,” the trade deficit report for April showed a large percentage drop in the trade deficit. Indeed, the trade deficit fell month to month the most since 2008. If you buy into the narrative that the economy is strong, you don’t want the trade deficit to decline in correlation with a similar decline in 2008. In truth, the trade deficit declined because imports fell more than exports rose. Imports are falling because personal consumption spending is now contracting per the latest GDP revision. It used to be, a long time ago, that the trade report was called the “U.S. International Trade in Goods and Services” report. Now it’s simply referenced as “the trade deficit report.”
Final, we believe that the best time to accumulate a winning investment is when no one else wants to hear about it. The U.S. investor sentiment toward the precious metals and mining stock sector is almost as bad as it was in late November 2015, which is when the 5-year bear cycle – which followed an 11-year bull cycle – came to an end. We explain why the next leg in the secular precious metals bull market is about to take off this week episode of, “WTF Just Happened?“:
Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal. The mining stocks are historically cheap and percolating for a big move higher. I recommended shorting Hovnanian at $2.88 in January – it closed at $1.95 on Friday and has been as low as $1.70.
The narrative that the economy continues to improve is a myth, if not intentional mendacious propaganda. The economy can’t possibly improve with the average household living from paycheck to paycheck while trying to service hopeless levels of debt. In fact, the economy will continue to deteriorate from the perspective of every household below the top 1% in terms of income and wealth. The average price of gasoline has risen close to 50% over the last year (it cost me $48 to fill my tank today vs about $32 a year ago). For most households, the tax cut “windfall” will be largely absorbed by the increasing cost to fill the gas tank, which is going to continue rising. The highly promoted economic boost from the tax cuts will, instead, end up as a transfer payment to oil companies.
The rising cost of gasoline will offset, if not more than offset, the tax benefit for the average household from the Trump tax cut. But rising fuel costs will affect the cost structure of the entire economy. Furthermore, unless businesses can successfully pass-thru higher costs connected to high the er fuel costs, corporate earnings will take an unexpected hit. Rising energy costs will hit AMZN especially hard, as 25% of its cost structure is the cost of fulfillment (it’s probably higher because GAAP accounting enables AMZN to bury some of the cost in the inventory account, which then becomes part of “cost of sales”).
Gold is holding up well vs. the dollar. The dollar is at its highest since mid-November and the price of gold is trading 2% higher than it was at in November. Also, don’t overlook that the Fed began its snail-paced interest rate hike cycle at the end of 2015. Gold hit $1030 when the Fed began to tighten monetary policy. I thought gold was supposed to trade inversely with interest rates (note sarcasm). Gold is up nearly 30% since the Fed began nudging rates higher. Despite that it might currently “feel” like the price of gold is going nowhere, beneath the surface gold (and silver) have been staging a very powerful bull market pattern.
Kerry Lutz invited me onto his Financial Survival Network Podcast to discuss these issues and more. We have a good time catching up on a diverse number of topics – Click on the link below to listen or download:
The mining stocks are more undervalued relative to the S&P 500 than at any time since 2005:
The mining stocks, especially the juniors, are more undervalued relative to the price of gold than at anytime in the last 18 years except late 2000 and December 2015. The poor sentiment and the constant price-capping of the sector by official entities has destroyed investor sentiment toward the sector. But the good news is that there are some incredible to be found right now. One of the stocks I recommended in my Mining Stock Journal is up 35% since May 17th, when I recommended purchasing it.
Bill Powers of MiningStockEducation.com invited me on to his insightful podcast show to discuss, among other topics, the precious metals sector and some specific mining stock ideas:
I truly believe that investing in certain stocks right now is the equivalent of buying into the internet stocks that survived the Dot.Com bubble. You can learn more about the Mining Stock Journal by following this link – Mining Stock Journal information.
Patrick Vierra of Singapore Bullion invited me to discuss precious metals, the stock market and the fiat currency-fueled asset bubbles that will blow-up sooner or later. I explain why investing in gold requires a long term perspective on investing and wealth preservation, why gold and mining stocks are extremely undervalued right now and why the world wants out of the U.S. dollar.
Singapore Bullion is Singapore-based bullion dealer and bullion storage facility with a wide-array of products and services – the podcast is ad-free:
01:37 Gold – A Long Term Perspective
08:14 Was 2015 the bottom for gold price?
13:14 Gold – One of the Best Performing Assets
14:45 Bullion vs Mining Stocks
17:10 Gold is very undervalued right now
19:20 The COMEX cycle that impacts the gold price
21:47 Silver will outperform gold
25:00 How overvalued are the stock markets
30:11 How every U.S pension funds will ‘blow up’
32:40 The ratio of paper to physical gold
35:01 Housing bubble rearing its head again
39:51 “Trump loves debt!”
41:09 Fed rate hike to prick the housing bubble?
45:25 The world wants out of the dollar
You can learn more about my research and stock idea newsletters here:
The Mining Stock Journal is twice per month, every other Thursday evening. The Short Seller’s Journal is weekly, every Sunday evening. The last mining stock purchase recommendation (May 17th issue) is up 10.5% in the last five trading days. It’s going higher – a lot higher. My Short Seller’s Journal subscribers have been raking in the profits in my homebuilder short ideas.
This analysis is an excerpt from the opening market commentary in my April 19th issue of the Mining Stock Journal.
I was looking at some charts with a colleague two weeks ago and was startled to discover that a very quiet bull move has begun in the miners. Like the move that began in late 2015, it seems that some of the junior miners per GDXJ have gotten the party going. As you can see in the chart above, GDXJ is up 12.8% since December 7, 2017. GDX is up 9.5% since March 1st. Some individual stocks are up quite a bit more than the indices: AEM up 18% since March 1st, EXK up 49.7% since Feb 9th, Bonterra up 25% since March 1st, etc.
The chart below is two weeks old but the bull pattern in GDX (and GDXJ, HUI, etc) has continued after a brief pullback (which in and of itself is bullish):
In my opinion, the charts in the sector are beginning to look quite bullish. I would like to see the Comex gold futures open interest drop 70-80k contracts – it was 499k as of Friday’s close. However, if a bigger move than has occurred already starts now, the big Comex banks will be forced to cover their large short position in gold futures. This will “turbo-charge” the move [in fact, per the latest COT report, the Comex banks continue to cover shorts and reduce their net short position and the hedge funds continue to dump longs and add to shorts – historically this shift in trader positioning has preceded big bull moves in gold/silver].
Silver is also starting to form a very bullish base:
Wholesale silver eagle premiums are creeping higher, as are retail premiums. Perhaps the big inventory overhang that had formed over the last year is starting to clear out. Also, silver mining stocks, especially the ones that actually produce and sell silver, have been quietly outperforming just about every stock sector (I have had a buy recommendation on a smaller silver producer since early October 2017 – the stock is up 20% since that buy recommendation (I own it) and it’s up 47% since it bottomed in December.
From a fundamental standpoint, given the deteriorating financial condition of the U.S. Government and the escalating rate of inflation and geopolitical risks, the planets are aligned for a big move in the precious metals sector. If the banks continue to reduce their net short position in Comex paper gold – and concomitantly the hedge funds continue to reduce their net long position – then both the planets and the stars will be aligned for a move in the sector that I believe will take a lot of market observers and participants by surprise.
The Mining Stock Journal is a bi-weekly (twice per month) newsletter that offers in-depth precious metals market commentary and, primarily, junior mining stock ideas. My goal is to find the hidden “gems’ ahead of herd. You can find out more here: Mining Stock Journal information.
Wow great report…by the way I have cancelled most of my precious metal subscriptions except your’s…. You do a treat job for us! – from “Robert,” received last week
Since the beginning of 2018, gold has been stuck in a trading range between $1310 and $1360. Silver has ranged between $16.20 and $17.50, though primarily between $16.80 and $16.25 since February. So what’s next? While most analysts base their views largely on chart technicals, I have found – at least for me – the Commitment of Trader “tea leaves” is a more reliable forecasting tool. Friday’s COT report showed a continuation of the trader positioning pattern that I believe will support the next big move higher.
Elijah Johnson and James Anderson invited me on to their weekly Metals and Markets podcast to discuss why I believe the metals may be bottoming. In addition, we discuss the why Amazon.com and Tesla are horrifically overvalued:
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Below is a must-read essay from a friend and colleague of mine, Chris Marcus, who is a former options trader (Wharton MBA) that now lives in Denver. Many of you may not be aware, but Mark Cuban made his fortune the old fashioned way – he was lucky to be in the right place at the right time. Cuban owned Broadcast.com (a relic of the 1990’s tech bubble). Yahoo.com used tech bubble stock “wampum” to acquire Broadcast.com. Broadcast.com was no longer around a few years later.
If anyone knows how to get lucky off a worthless asset, it’s Mark Cuban. Currently he spends his time running the Dallas Mavericks into the ground. Chris Marcus eloquently presents the counter-argument to Mark Cuban’s absurd comments about gold in a Kitco.com interview.
During my time training to be an equity options trader, the shop I worked for required that I log 100 hours of poker training. Under the belief that there are great similarities between the decision-making required for poker, and that required for successfully trading the financial markets.
Along those lines, there was a particular lesson that always stood out to me. That while the numbers and percentages are important in both sciences, understanding the people you are playing against is equally, if not a more important element of the game.
Because you might think you’re right, and the person you’re trading against might think they’re right. But if you can identify why they’re wrong and spot the flaw in their thinking, that can really arm you with some confidence in your bet.
If you’ve seen the movie The Big Short, you may remember the scene where right before one of the funds was getting ready to increase the size of their bet against the mortgage industry, they were a little bit concerned.
But to ease those fears, the Deutsche Bank character played by Ryan Gosling took the fund managers to meet the people they were actually trading against. Because once they heard how the people they were trading against were completely caught up in the mania and missing the bigger picture, it gave them the confidence to pile on their trade in even bigger size.
Along those lines, for those investing in gold and silver, there were some interesting recent comments from Dallas Mavericks owner Mark Cuban. That are somewhat reflective of the mainstream view of gold, and similar to the rhetoric you hear out of the central banks.
Which in my own personal opinion comes as extremely fantastic news for those who own precious metals and wonder whether there is still upside to the pricing.
Cuban was interviewed by Daniela Cambone of kitco.com. And with all due respect to Mr. Cuban, some of his answers were so far detached from the reality I’m living in that the more I heard him talk, the more I was tempted to dial Andy Schectman and buy more gold.
Consider the following:
Cambone: Where do you think are some of the safest bets for your money right now?
Cuban: If you need safe, just put the money in the bank. (Editor side note – seems safe to say at this point that Cuban likely hasn’t been reading Von Mises during halftime at the Mavs games).
Cambone: Gold, up 2.5% for the first quarter. I know in the past you’ve seen it as a speculative bet. How do you see it today?
Cuban: I hate gold. Gold is a religion. There’s some fundamental value to gold, but everything else…it’s a collectible.
Cambone: Well hate is a strong word. The miners too?
Cuban: Individually as people, I heard they’re great people (he says giggling). But as an investment, hate is not strong enough. Hate with an extreme prejudice.
Cambone: So you don’t see gold as money.
Cuban: I do not see it as an alternative to currency. No not at all.
Cambone: Do you feel the same about silver, palladium, or platinum?
Cuban: I don’t know those others as well. But those are pretty much based off their intrinsic value as much as I can tell.
Cambone: So you’re in the camp of gold is just a pet rock.
Which makes his current comments all the more baffling. Although perhaps Cuban doesn’t see any cause for concern with rising interest rates and foreign creditors walking away from the dollar system.
Ultimately what Cuban thinks about gold may be irrelevant. Yet to the degree that there are many in the markets who share a similar line of thinking, it’s worth registering that if you own gold, this profile and argument is essentially what you’re betting against.
Personally I receive it as great news. Because in my career, the best trades are not when a person thinks they’re right and puts the trade on. But when a person thinks they’re right, knows why the other person is betting against them, and can spot the flaw in that person’s logic.
I’ll leave it up to you to decide whether Cuban’s argument makes much sense. But his views are generally reflective of what the anti-gold crowd is thinking, and it makes me feel better than ever about owning physical gold and silver. (Article LINK)
The recent stock market volatility reflects the beginning of a massive down-side revaluation in stocks. In fact, it will precipitate a shocking revaluation of all assets, especially those like housing in which the price is driven by an unchecked ability to use debt to make the “investment.” This unfettered and unprecedented asset inflation is resting precariously on a stool that is about to have its legs kicked out from under it.
The primary reason the U.S. is now holding a losing hand at the global economic and geopolitical “poker table” is that this country has been committing too many sins for too long for there not to be a price to be paid. With bankrupt Governments (State and Federal), a bankrupt pension system, a broken healthcare system, all-time high corporate and household debt levels and a broken political and legal system, the U.S. is slowly collapsing. This is the “perfect storm” for which you want to own plenty of gold, silver and related stocks.
Eric Dubin and I are producing a new podcast called, “WTF Just Happened?” The inaugural show discusses the topics mentioned above:
“WTF Just Happened?” w/ Dave Kranzer and Eric Dubin is produced in association with Wall Street For Main Street – Follow Eric here: http://www.facebook.com/EricDubin
There’s been an abundance of commentary on the net long position of the “Swap Dealers” in Comex silver futures per the COT report. As of the latest COT report, the Swap Dealers are net long almost 22k silver contracts. This is unprecedented. At the same time, the “Large Speculators,” the majority of which is comprised of the “managed money” (hedge funds) sub-component, are net short nearly 17k silver contracts. The data my business partner tracks goes back to April 2004. In that period of time, the Large Speculator category has never been short until February 2018.
On the surface, the silver COT report appears to be extraordinarily bullish. However, there’s a bigger picture not discussed by “COT” analysts that includes the other segment of the large “Commercial” category and the COT structure of gold.
The other “commercial” segment includes producers of silver, commercial “users” of silver (jewelers) and “merchants.” It would be naive to assume that the Comex banks do not throw a large percentage of their gold/silver short positions in to the this category. That would be within the CFTC regulations. Hell, JP Morgan was fined a little over $650k a few years when it was caught by the CFTC putting a portion of its trades into the “speculator” category of trader. This was not within regulations. $650k is a joke and would not deter Jamie Dimon from speeding on the Long Island Expressway let alone manipulating the silver market.
Currently the “Commercial” segment per the latest COT report is net short 2.6k contracts. Again, this is by far the lowest net short position in the Commercial category going back to at least April 2004 and likely ever. The closest the net short position has been before now was for the June 3, 2014 COT report, when the Commercial category net short in silver was down to 9.6k. Back then silver was trading at $18.80. It bounced briefly to $21 by early July then headed lower from there.
While the silver COT appears to be exceptionally bullish, it needs to be analyzed in the context of the gold COT structure. The gold COT structure currently, based on historical statistics, is neutral but trending toward bullish. I looked at data going back to the beginning of the current bull market cycle in the metals, which is commonly considered to be early-December 2015.
From the beginning of December to the latest COT report, the average large spec net long position in gold is 171k. The high was 315k (bearish) and the low was 9.7k (very bullish). For the Commercials as a whole, the average net short during that time period is 209k contracts. The high was 340k (bearish) and the low was 2.9k (very bullish). The low net short in gold for the commercials banks occurred in the December 1, 2015 COT report. This also corresponded with the low print in the large spec net long. This type of COT structure is the most bullish for both gold and silver.
Currently, the large specs are net long 166.5k gold contracts and the commercials are net short 188.8k contracts. You can see vs the averages over the time period that this is still neutral to bearish, but it’s trending in the direction of becoming bullish.
The other element for a bullish gold COT structure is open interest. A high open interest tends to correlate with a bearish COT structure – i.e. a high commercial bank net short – and a low relative o/i correlates with a cyclical low-point in gold. From December 2015 to present, the average o/i in gold has been 492k contracts. The high was 652k and the low was 357k. The net short of the commercials as percentage of the total o/i at the low-point in total o/i was 0.74% – again in the December 1, 2015 COT report. Currently the open interest is 493k which is about average. The commercial short position as percentage of total o/i is 38%. Again, about average for the time period.
I have noticed that the last two moves higher over the last two years have occurred with the total gold o/i in the 420-440k range. This would suggest that, minimally, the open interest needs to drop by 60-70k contracts before the gold COT structure can be considered favorable for a rally in the price of gold.
On average and in general, gold and silver are highly correlated in their directional movements, especially over long periods of time. Since 2001, it’s been my experience that major moves higher in the precious metals sector begin with gold taking off and tend to end with silver outperforming gold by a substantial margin. The numbers presented above would suggest that both gold and silver will not be set-up to embark on a major move higher until the both the total open interest in gold and the net short position in gold of the commercials banks declines by another 60-70k contracts.
In the context of my analysis and my view on methods used by the banks to manipulate the paper price of gold and silver on the Comex, in my pinion the silver COT report – though remarkably bullish on a stand-alone basis – is not as bullish as some analysts are presenting when both the gold and silver COTs are considered in tandem. At this point, I believe gold will lead both metals higher when the next big move begins. Once that move is underway, I’m highly confident silver contract short-covering by the hedge funds will send silver soaring.