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The Comex Has Big Problems

An article from Bloomberg was published 2 days ago which alleged that “New York Gold Traders Drown in Glut…”  The Comex is now reporting there’s 26 million ozs of gold in Comex vaults, 17 million of which is in the “eligible” account.  This is up from 9 million total ozs at the end of March, 5.5 million of which was “eligible.”

I find it amusing that the mainstream media swallows the Comex data reports without fact-checking or insisting on an independent audit of the bars.   Ronan Manly of Bullionstar published a research piece in which he dug up a letter from the CME to the CFTC which stated that the CME believes the deliverable supply of “eligible” is 50% of the reported number.  That’s if we take the CME’s estimate prima facie.

The world was told 6 weeks ago that it was impossible to transport gold bars oversees and a scheme was rigged to make London gold (400 oz bars) available on a fractional basis to satisfy Comex deliveries at the option of the party taking delivery. But the bars were to remain in London. Suddenly the Comex “found” several million ozs of gold in its warehouse stock report. Bars that are unaccounted for and supposedly sitting in London vaults.

In all likelihood, the 17 million ozs of gold added to Comex vaults is a product of double-counting bars in London. I know many of those reading this might find this to be “conspiratorial,” but it’s been long acknowledged that the LBMA is running a fractional bullion system.

That said, assume the 26mm ozs of gold are real. Discount the 17mm “eligible” by the CME self-admitted discount factor of 50% and that leaves 17.5 million alleged gold ozs available for delivery.  But the gold contract open interest is 510,000 contracts, or 51 million ozs of paper gold. In relation to the 17 million ozs of gold that may be available for delivery, it’s highly misleading – and probably intentionally misleading – to call the supply of gold in NYC a “glut.”

Add to this deceptive Bloomberg article a report from Reuters that CME banks are pulling back from the Comex.  To begin with, HSBC attributed its $200 million dollar hit from gold trading to its London operations. The article also claims that 400 tonnes of gold have been shipped to NYC despite the narrative in April that gold couldn’t be moved from London to NY.  I surmise the “movement” of gold is digital-based.  As Bill Murphy commented, “we were told there’s trouble getting gold to NY – now they say there’s too much…Don’t believe any of it – they are scared to death about something.”

There’s a big problem at the Comex and that’s why the bullion banks are pulling away from it.  ScotiaMocatta is closing its precious metals operations and taking a loss to do it. Mocatta Bullion has been in operation since 1684 and was one of the largest operators on the Comex in gold and silver.

I’m not sure it’s even credible to say the bullion banks are pulling away from the Comex. The gold open interest was over 800,000 contracts (80 million ozs of gold) earlier this year. The banks have been working hard to reduce their open interest and short exposure – that much is true. But historically the open interest on the Comex for gold has ranged between 200,000 and 400,000 contracts. In that context how can a drop in o/i to 500k contracts be considered “pulling back?”

Since late August 2019, the activity on the Comex has been what many of us consider strange, if not engulfed with the scent of desperation. The fractional 400 oz gold contract and the two articles discussed above are a few examples out of many. Recall the CME introduced the “pledged gold” category back in October 2019. “Pledge gold” is just another form paper derivative gold. HSBC jumped on that designation immediately. We find out a few months later that HSBC had impaled itself on its gold trading and custodial activities and required the “pledge gold” designation in order to meet the collateral requirements as a clearing member of the CME.

As with the fiat currency fractional banking  monetary system, the bullion market in London and NYC has become a fractionalized system of derivatives and other forms of paper gold (leases, hypothecation, lending) backed by a tiny amount of real physical gold relative to the amount of paper claims.  This fractional bullion system is crumbling at its core and the propagandist articles like the ones above being disseminated through the mainstream media are a reflection that something is seriously wrong at the Comex.

If you don’t have possession of the gold you think you own, you do not own it.  The world will eventually understand why that assertion is true…

QE To Infinity Leads To A Systemic Reset Involving Gold And Silver

Scott Pelley, “60 Minutes:” “Where does it [money] come from?” Do you just print it?”

Jay Powell: “We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply…No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.”

I almost fell off my chair after I reading Powell’s comments on “60 Minutes” public relations stunt on behalf of the Fed. There’s two important points that stand out like like silent screams in Powell’s words: 1) 99% of the currency – not money – printed by the Fed goes directly to the banks or funds Government debt; a small trickle might get to Main Street to “support the economy;” 2) the Fed is willing to print an infinite amount of currency to keep the financial system propped up. In other words, the Fed is indeed printing helicopter money but it’s dropping it on the banks and not the economy at large.

This is why gold soared during and after Powell’s interview and it’s why the gold/silver price management team (Fed, ECB, BoE, BIS) has been working overtime in an effort to prevent gold and silver from going parabolic. That effort is doomed to fail.

Chris Marcus from Arcadia Economics and I discuss the Fed’s money printing and the likelihood that it will lead to an eventual reset of the global monetary system:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

As The Fed Goes “Weimar,” Gold, Silver, Miners Will Go Parabolic

The chart above speaks for itself. You could not find a more bullish chart set-up in the stock market. Note that the HUI/Dow ration bottomed out in late 2019 at the same level where it bottomed in late 2000. Most investors in this sector were not around for the beginning of the precious metals bull market in late 2000. But you can see the big move that started in 2008 – for which many of you were around – actually began 8 years early at a much lower level. I believe there’s a good possibility, because of the amount of money that has been printed by Central Banks globally, but especially by the Fed, that the scale of the next bull move in this sector will be larger than the 2000-2011 move.

The precious metals sector continues to be glaringly ignored by the mainstream financial media and most “alternative” forms of media. This is a “loud” indicator that the fattest part of the bull move is yet to come. YTD gold is up 15.4%, GDX is up 25% while the SPX is down 6.5%. If the SPX were up 25% YTD, they’d be doing naked cartwheels on CNBC.

M&A activity kicked up again in the mining stocks over the past two weeks. But the deal that caught my attention was the acquisition of TMAC Resources by China’s Shandong Gold Mining Co. for C$207.4 million. TMAC operates the Doris gold mine in Hope Bay. Shandong is 47% owned by the Chinese Government.

China has been aggressively buying gold mines in Africa and South America. It was just a matter of time before it turned its sights on North American mining companies. I will be interested to see if Chinese mining companies ramp up their M&A activities in Canada, Mexico and the U.S. Most of these junior mining companies that have highly prospective projects, transitioning into production or currently produce, especially the smaller ones, are extraordinarily cheap relative to the price of gold/silver and especially relative to where gold/silver are going. It’s also another way for China to convert US dollars into gold.

A new subscriber wanted to know if he should start buying mining stocks now or wait a few weeks for a possible pullback. Here’s my response: “Regarding market timing, it’s impossible to time peaks, valleys, ebbs and flows. The key is to find ideas you like and start building positions. Always always always leave plenty of cash to take advantage of sell-offs, pullbacks, corrections. And it’s usually a good idea to sell part of your position if/when the stock runs up sharply in a short period.

If you are not invested in the sector yet, start wading in with maybe 10%-15% of what you plan to allocate to mining stocks. Yes they’ve had a big run up since mid-March but they could work off the “overbought” technical condition by going sideways for a bit and then head higher again. A lot of cash is starting to flow into the sector and you don’t want to be left standing at the station when the train pulls away. It’s not a good feeling chasing stocks which I had hoped would pullback – been there, done that.

The above commentary is from the latest issue of the Mining Stock Journal.  I focus on lesser followed “venture capital” junior exploration companies but include ideas for my favorite large cap stocks, along with options ideas for those. Several of my junior mining stock picks have doubled or tripled since mid-March.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information

GLD / SLV Are Frauds – If You Want Gold And Silver Buy Physical

“If you want to buy gold and silver, why are you buying GLD and SLV? The best case if that you are going to index the price movement in gold and silver. But when you sell GLD they don’t  send you bars of gold, you get dollars in your account  – devalued dollars.  The dollar is being devalued everyday by the Fed. All fiat currencies are being devalued by Central Banks.”

GLD and SLV are “Enrons” waiting to happen. The ratio of paper gold liabilities to the availability of physical gold and silver is minimally 100:1.  The fraud in the paper gold/silver market is mind-blowing in its proportion.

Chris Marcus of Arcadia Economics and I discuss the why the bullion banks and the modern London Gold Pool is collapsing:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Infinite QE, Bear Market Rallies, Gold, Silver And Mining Stocks

The precious metals sector continues to be glaringly ignored by the mainstream financial media and most “alternative” forms of media. This is a “loud” indicator that the fattest part of the bull move is yet to come. YTD gold is up 11.8%, GDX is up 16.4% while the SPX is down 12.6%. If the SPX were up 16% YTD, they’d be doing naked cartwheels on CNBC.Mining Stock Journal – May 14, 2020

The stock market is reflecting the expectation of a “V” recovery in the economy. The Trump Government, specifically Treasury Secretary, Steve Mnuchin, believes economic activity will be largely restored by the end of August. It’s nothing but propagandist fantasy.  I’d be stunned if he really believes that.  This bear market rally is a just that – a bear market rally. The same pattern occurred after the tech bubble popped in 2000. The Naz plunged 40% followed by a 42% rebound rally. When the bear rally ran out of steam, the Naz declined 42% over the next four months.

A lot of money is flowing into mining stocks, especially junior exploration companies. More investors are aware that the cat is out of the bag w/regard to the physical vs. paper situation in London and NYC. The money flowing into mining stocks – especially speculative juniors – is starting to go from a trickle to a heavy current.  A lot of stock deals that have been announced in the last couple of weeks have been up-sized by a considerable amount. This is highly bullish indicator for the precious metals sector.

Silver Doctors / SD Bullion invited me back to discuss the insanely overvalued stock market and the precious metals market:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

“I’ve always thought your newsletter is the best value in the junior mining world. It’s great to get your insight as things get moving here. Some of your suggestions are among my best performers.” – subscriber, “James,” to the Mining Stock Journal

A Hopelessly Corrupt Financial System Plus Historic Bubbles – Got Gold?

“At the parabolic top of every financial bubble, thrilled investors lose their tether to
reality, and as the price of the speculative instrument rallies ever higher, investors’
expectations for additional price appreciation inflate ever more. Whether its Cisco Systems at a trillion-dollar market value, Qualcomm at $1000 a share, Oil at $200 a barrel, Bitcoin at a million dollar a piece, or Tesla at $7000 a share, these far fetched price fantasies are the fuel with which bubbles, and their beneficiaries, attempt to sustain themselves.

To the chagrin of the bubble chasers, history is categorical in this regard, the combination of a parabolic price move, a hype narrative, and the proliferation of wild price projections, is highly indicative of a topping bubble and an impending price collapse. Of course, Tesla shareholders will dismiss this article as irrelevant since history count little in the eyes of those who believe their company to be at the forefront of a new transportation and business paradigm.” – Nawar Alsaadi, “Is The Tesla Bubble About To Burst?”“Is The Tesla Bubble About To Burst?”

The Fed has re-inflated the biggest stock and asset bubble in history after the previously biggest stock bubble was punctured in March. Today the Fed will begin buying junk bond/leveraged loan ETFs using Blackrock as its front. There’s two obvious problems with this. First, how does this help the economy?  The money printed and used to purchase the ETF securities will never flow to the companies issuing junk bonds. Ask United Airlines, which had to abandon plans to raise a couple billion in the junk bond market after the market rejected its attempt to issue 11% coupon bonds.  Why didn’t the Fed just buy up that issue? It’s an odd-lot compared to what it’s printed and thrown at the big banks up to this point.

The second problem is Jay Powell’s conflict of interest. Powell has an $11 million equity stake in Blackrock. For its riskless efforts in buying ETFs for the Fed, Blackrock will be paid $15 million.  And guess what? The taxpayers are on the hook for the money the Fed prints and transfers to ETFs and to Blackrock when the trade goes bad – which it will.

“A recurring feature of a bursting investment bubble is the culmination of absurd statements and assertions by an otherwise seemingly reasonable individuals right around the parabolic top of such phenomena.” (ibid)

Shopify (SHOP) closed at an all-time high yesterday. SHOP now sports the largest market cap on the Toronto Stock Exchange.  SHOP didn’t start filing SEC financials until 2015. But going back to at least 2013, SHOP has yet to produce an operating profit.

The clowns on Wall Street and the financial media gushed over SHOP’s Q1 “blow-out earnings.” There’s just one glaring problem with that assertion.  SHOP didn’t even come close to anything that resembles “earnings.”  SHOP’s net loss before taxes more than doubled to $60 million from $24 million in Q1/19.  It’s operating loss also more than doubled to $73 million from $24 million in Q1/19.

EVEN IF you add back the non-cash expense from stock compensation, SHOP’s “adjusted” operating loss increased over 400% to -$20mm from -$4.6mm.  SHOP’s operating expense margin jumped 300 basis points to 70.2% from 67.5%. A lot of that is probably the extension to new customers of the free platform access beyond 90 days. This horrible financial performance is reinforced by the fact that insiders are dumping massive quantities of shares. The time from vest to sale happens so quickly one might think the share certs are infected with coronavirus. In fact, two days after SHOP reported, insiders unloaded another flood of shares.

SHOP now trades at 52x trailing sales and 28x book. Its trailing P/E is infinite (i.e. no earnings to use in the denominator). Wall St./ Bay St. shills are projecting a small net income for 2020. There’s just one problem with this – even the Company has withdrawn guidance. In other words, the “analysts” are merely making shit up.

Eventually the gap between SHOP’s valuation and reality will converge. Those who rented the shares to sell at a higher level will be burned badly. Those holding SHOP shares because “it’s a new economy and it’s different this time” will watch the value of their shares sink well below their cost. Want an “expert’s” view on this?  Ask Bill Miller (@B3_MillerValue) how quickly he ended up losing money for the investors in his Legg Mason Value fund in 2008. His fund, after 15 years in a row of beating the SPX fell below its value at the start of the 15-yr run.

“It’s all so openly corrupt but once again a smashing of gold couldn’t last more than a day.” – Chris Powell, GATA Treasurer

There’s a way to protect yourself from the interminable corruption at the Fed, Wall St and Capitol Hill. Move a large percentage of your investible cash into physical gold (and silver) – not GLD, not a gold investment account – that you safekeep yourself.  Gold has run up 16% since March 19th and 41% since May 22nd.  If the SPX put in a performance like that, they would be doing on naked cartwheels on CNBC, Fox Business and BloombergTV.

The LBMA Is Just As Rigged As The Comex

Gold is going a lot higher, especially once India  – which has been absent from the gold market since the virus crisis started  – re-opens its economy . Silver is starting to wake-up and should outperform gold by a substantial margin going forward.

Chris Marcus (Arcadia EconomicsArcadia Economics) and I discuss the dubious credibility of the LBMA and evidence that it’s just as rigged as the Comex now:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

“I’ve always thought your newsletter is the best value in the junior mining world. It’s great to get your insight as things get moving here. Some of your suggestions are among my best performers.” – subscriber, “James,” to the Mining Stock Journal

LBMA Uses Unallocated Gold To Manipulate the Fix

“If you own gold, you have money. If you don’t own gold, you have a problem”  – (James Turk).  To that I’ll add:  If you don’t have physical possession of your gold, you do not own gold

A significant amount of gold is held as “unallocated,” which is when an entity buys gold and establishes an account that is credited with value of the gold purchased.  A gold bar is not actually stored on behalf of the “buyer.”  Rather the buyer has a “promise” from the bank vault custodian to deliver the bar or its cash equivalent when the entity decides to either take delivery or “sell” the bar.

Because an actual bar in the buyer’s name is not sitting in the custodial vault, the buyer does not incur storage or other related fees. BUT, the buyer does not have legal title of ownership to anything other than an account  showing the value of the “gold.”  Like a checking account, the bank is entitled to use the proceeds from the gold “purchase” for its business operations.

This arrangement is really no different than than Comex paper gold contract long position. In other words, an unallocated gold account is nothing more than security interest in the account – it’s a paper derivative.

In this regard, the LBMA is little more than a fractional gold banking system, just like the Comex. The advantage of the unallocated gold account system is that the entities that run the a.m./p.m. London price fix can use unallocated gold offerings to give the illusion that the price fix is based on bona fide demand and supply of actual physical bars. Yet, very little physical gold changes legal ownership or is moved from the unallocated accounts to allocated accounts when the fix process clears.

Ronan Manly has been knocking the cover off the ball with his research and analysis which exposes the fraud and corruption engulfing the  London gold market.  In this must-read article, Manly explains the process by which the LBMA uses its twice-daily price “fix” – which is indeed a “price fixing operation” and little more –  to artificially suppress the spot “price” of gold:

As the gaping spread between London (LBMA) spot gold prices and front-month COMEX gold futures prices persists for a sixth week triggered by the bullion bank EFP liquidity blow up on Monday 23 March 2020, one unappreciated aspect of this gold price discovery scandal is that daily London LBMA Gold Price auctions are deliberately ignoring COMEX gold prices when setting the Opening Price (starting price) in the twice daily gold price auction.

His work explains the factors which have caused the unprecedented price differential between the “spot” price and the Comex futures price curve. You can read the entire piece here: LBMA Gold Price benchmark ignoring market conditions, short-changing investors.

Wayfair: Extreme Stock Market Insanity

Wayfair is one of the tech-borne “unicorn” style companies which has become a  symbol of the most over-inflated stock bubble in U.S. history. The dot.com bubble on steroids.  Its business model is geared to generate sales growth as a device to inflate the company’s market cap by enticing  enough volume from momentum chasing gamblers to enable the insiders to dump shares in copious quantities.

The problem for anyone holding the stock as an “investment,” as opposed to renting the stock long enough in hopes that another stock renter will come along and pay a higher rental rate, is that the business model is hopelessly unprofitable and the operations now burn an increasing amount of cash every quarter.

For the full year 2019, Wayfair lost $929 million on an operating basis. Its pre-tax net loss was nearly $1 billion and nearly double the pre-tax loss in 2018, which was more than double the pre-tax loss in 2017.  W’s operations burned $196 million in cash (from the cash flow statement) in 2019 (these numbers include the add-back for non-cash stock comp).  In those three years long term debt more than quadrupled from $333 million in 2017 to $1.5 billion by the end of 2019.

In its first quarter 2020 reported today, Wayfair’s operations lost $284 million, this was  a 36% increase in its operating loss from Q1 2019.  Its operations burned $256 million in cash in Q1 2020, inclusive of the non-stock comp add-back, more than triple the cash burn in the year earlier quarter.

After the quarter ended, just 7 days into Q2, Wayfair issued another $535 million in debt to bring its debt-load over $2 billion.  Granted its debt consists of convertible bonds, but the Company still incurs cash interest expenses plus principle accretion.  This is notwithstanding the potential massive share dilution if/when the converts convert.

And management wants the market to believe that  the business model will “turn positive this quarter.”  Hmmm…Management also gushed over the increase in traffic to its website and increase in sales.  This assertion from the CEO, Niraj Shah,  is absurd:  “all incremental revenue will be additive and we would expect it to generate additional profitability this quarter.”

What?  To begin with “incremental revenue will be additive” is a redundancy. If corporate CEO’s are going to rip off public shareholders, at least learn proper use of the language.  How can this added x 2 revenue generate “additional profitability?”  W has not been profitable in over two years.   If it were the case that W was going to generate profitability from the increase in sales, why did Company roll out an 80% off sale in April?

Funny thing about management’s confidence. It’s not putting its money where its mouth is.  Over the last three months insiders dumped over 1 million shares right up to five business days before Q1 earnings were released.

Wayfair clearly drives its revenues by selling its products at a price which is highly competitive in cyberspace but not nearly high enough to cover the all-in cost of operating its business model. If it charged prices which enabled it generate an operating profit, its sales would be hit hard. If it continues forward using the same revenue generation strategy, the Company will hit the wall when it runs out of cash.

Wayfair’s existence is attributable exclusively to the money sloshing around the financial system from Fed money printing. At some point the market will no longer be willing to risk throwing capital into W’s black hole and it will be lights out,  with shareholders left holding the bag.

Why Did The CME Secure A $10 Billion Credit Facility?

The credit facility was put in place in November 2017. It was brought to the public’s attention when Marketwatch picked up on an SEC filing which renewed the credit facility.  I don’t know if there’s any correlation per se, but the credit facility was established after it was clear that the price of gold and silver had started their next big bull market move with several Comex clearing member banks potentially catastrophically short gold and silver futures contracts.

Ultimately, the CME has 2 or 3 “safety nets” to guard against a default from any one CME clearing member from disrupting the entire CME house of cards. The fact the CME was compelled to establish another $7-10 billion “cushion” tells me that the central counterparties should be held responsible for their trading decisions by putting up a much bigger performance bond. Chris Marcus of Arcadia Economics and I discuss what’s going with the CME, Comex and precious metals market:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information