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:
CLICK ON IMAGE TO LEARN MORE ABOUT EACH NEWSLETTER:
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.
I’ve been writing about the rising consumer debt delinquency and default rates for a few months. The “officially tabulated” mainstream b.s. reports are not picking up the numbers, but the large credit card issuers (like Capital One) and auto debt issuers (like Santander Consumer USA) have been showing a dramatic rise in troubled credit card and auto debt loans for several quarters, especially in the sub-prime segment which is now, arguably the majority of consumer debt issuance at the margin. The rate of mortgage payment delinquencies is also beginning to tick up.
Silver Doctor’s Elijah Johnson invited me onto his podcast show to discuss the factors that are contributing to the deteriorating fundamentals in the economy and financial system, which is translating into rising instability in the stock market:
If you are interested in learning more about my subscription services, please follow these link:Mining Stock Journal / Short Seller’s Journal. The next Mining Stock Journal will be released tomorrow evening and I’ll be presenting a junior mining stock that has taken down over 57% since late January and why I believe, after chatting with the CEO, this stock could easily triple before the end of the year.
“Thanks so much. It was a pleasure dealing with you. Service is excellent” – recent subscriber feedback.
It feels like were at the point in the “correction” cycle in which the mining stocks are reluctantly going lower. I also believe that aggressive hedge funds looking to buy at this level are trying to push the stocks down in early trading in order to induce remaining weak hands to sell in their bids. Tuesday (March 20th) is a perfect example. Several of the stocks I own were hammered early and then snapped-back during the course of the day. As an example, USAU opened at US$1.84 but was slammed down to $1.75. It rebounded to close down only 2 cents at $1.80. This was despite sideways movement in gold after gold was hit in early morning trading.
The graph above is a 1-yr daily of the GDX. You can see that it’s been trending sideways since early February this year. You can see also that it’s managed to hold the 52-week lows on several occasions. It just “feels” like the miners do not want to get lower. Similarly, the sentiment regarding, and interest in, the mining stocks is at a low level seen at cyclical bottoms in the precious metals sector (Oct 2008, Dec 2015):
I sourced the chart at the bottom of the previous page from Turd Ferguson (TF Metals Report). It shows a timeline of Google searches on “gold mining stocks” over time.
The trading patterns and sentiment indicators are thus at levels that is typically associated with market bottoms. The best time to buy into a stock sector is when it’s at its most unloved. I would argue that were are at that point right now.
As far as the timing on when the sector will begin to take-off again, I’m loathe to assign a time-frame other than that I expect a big move to begin before the end of the summer. A subscriber emailed me to discuss the sector and expressed frustration over the fact that the enormous physical off-take in the eastern hemisphere has not stimulated a big move in gold. I responded by explaining that I’m not relying on the Chinese to squeeze the market.
I think the market will move higher on its own accord. As things fall apart more quickly in the west, gold will soar. Look at Wednesday’s FOMC rate hike event. Gold’s response to the Fed’s rate hike completely surprised me. We put on a trading hedge this morning thinking that gold would get hammered when the rate hike news hit the tape. Gold did just the opposite. This is bullish.
The commentary above is from the latest issue of the Mining Stock Journal. My goal is to find junior mining stocks with huge upside potential before the get discovered by the “heard.” You can learn more about the MSJ using this link: Mining Stock Journal.
MSJ to the rescue! (of my mining stock portfolio). I’m up 198% currently on a significant stake @ .18 cents.
Thank you for all you do! – Subscriber “Phil,” in reference to Mineral Mountain Resources, which I presented July 7, 2016
Jim Rogers stated in an interview with Bloomberg that “the next bear market will be worst in my lifetime,” adding that he didn’t know when that bear market would occur. The stock market has become insanely overvalued. Before last week, several market-top “bells” were ringing loudly. The stock market could easily drop 50% and, by historical metrics, still be overvalued.
Gold, silver and the mining stocks have been pulling back since late January. In fact, I warned my Mining Stock Journal subscribers in the January 25th issue that the sector was getting ready for bank-manipulated take-down. In the latest issue I offered a view on when the next move higher could begin. Mining stocks in relation to the price of gold and silver have become almost as undervalued as they were in December 2015, when the sector bottomed from the 4 1/2-year cyclical correction. In a recent issue I listed my five favorite junior mining stocks.
I was invited to join Elijah Johnson and Eric Dubin on Silver Doctors’ weekly Metals & Markets podcast. We discussed the stock market, precious metals and the Fed’s next policy direction:
I also publish the Short Seller’s Journal, which is a weekly newsletter that provides insight on the latest economic data and provides short-sell ideas, including strategies for using options. You can learn more about this newsletter here: Short Seller’s Journal information.
There is no history to suggest this is sustainable. This price move remains the most extreme technical disconnect in the $DJIA ever. – Northman Trader
The U.S. dollar has had the worst January since 1987. There’s a lot of reasons why the stock market crashed in October 1987, but the declining dollar was one of the primary catalysts. The rest of the world, led by China, is methodically and patiently removing the dollar as the world’s reserve currency. The cost for the U.S. Government to fund its rapidly expanding spending deficit is going to soar. Absent the ability to print unlimited quantities of electronic dollars, the U.S. Government’s credit quality is equivalent to that of a Third World country.
Silver Doctor’s invited me to join Elijah and Eric Dubin for their weekly Metals and Markets podcast. We discuss the issues above plus have a little bit of fun:
The cost to buy down-side protection has never been cheaper. No one, I mean no one is short or hedged this market. When slide starts, it will quickly turn into a massive avalanche. You will have to be set up with hedges and short positions or you will miss the money that will be made from taking a lonely contrarian view of the market.
My subscribers who shorted my homebuilder stock idea two weeks ago are now up 17.7%. That’s if they shorted the shares. They are up even more if they used puts. If you are interested in learning how to take advantage of the coming stock market crash, you learn more about the Short Seller’s Journal here: Short Seller’s Journal information.