Category Archives: Precious Metals

MSM Gold Reporting Becomes More Absurd By The Day

I sent this article linked to Chris Powell and Bill Murphy at GATA for a good chuckle.  Chris has turned it into worthwhile commentary:

Practially every day prompts those who consider themselves market analysts to contrive explanations for movements in the gold price, no matter how implausible. Zaner Metals in Chicago attributed today’s slight decline in the gold price to concerns about the new virus that has appeared in China:

Investors in gold are undecided about the coronavirus, with early indications that it could hurt bullion demand in China as much as boost safe-haven buying. So the yellow metal dipped again today, while palladium rebounded, making a new record high in futures trade…

“The world is reacting in a deflationary manner to the news of a spread of the pneumonia-like virus in China,” Zaner Metals said in a note. “The trade is justified in factoring in some slowing fears and that in turn has applied pressure to gold, silver, and nearly every physical commodity.

There is no indication in Investing.com’s story that Zaner Metals talked today with anyone buying or selling gold.  [I’ll add that, notwithstanding the poor quality of reporting, the idea that the spread of a virus in China is “deflationary” is outright silly.]

More important, there is no indication that before drawing any conclusions about the gold price Zaner Metals inquired with, for example, the Bank for International Settlements about any surreptitious intervention undertaken in the gold market this week by the bank or its member central banks, though such surreptitious intervention can be discerned in the footnotes of the bank’s monthly reports, like the most recent report, November’s, analyzed by GATA consultant Robert Lambourne here:

http://www.gata.org/node/19693

Central banks are the biggest participants in the gold market and yet rare is the gold market analyst who ever puts a critical question to them or reports that they refuse to answer questions about their interventions.

Rarer still is the journalist who poses such questions himself instead of merely repeating the silly contrivances offered by the market analysts. The power to create and dispense infinite money in secret helps central banks rule the world, but most of all they require the negligence of financial journalism.

Bullion Shortages Will Push Junior Mining Stocks Higher in 2020

The chart above shows the ratio of GDXJ/GDX. Although I don’t consider GDXJ to be a junior ETF per se, the GDXJ index does contain smaller cap, later-stage juniors and smaller cap producers. In that sense, it offers slightly higher risk/returns than GDX. That ratio has popped above the downtrend line that was established at the peak of the last bull cycle in the sector.  Prospectively, as long as it stays above that trendline and moves higher, it’s a great indicator that the precious metals sector will stage a big move higher for the next couple of years.

Trevor Hall and I discuss the physical bullion shortage developing in London and New York and why the precious metals sector will likely make a big move in 2020 – click on the graphic below or this link to listen:

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I cover several junior exploration stocks with upside that is several multiples of their current price. I also specialize in looking for value plays in larger cap producing miners as well as reviewing stocks to avoid.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

NOTE: I do not receive compensation from any mining stock companies and I do not accept any precious metals industry sponsors. My research and my views are my own and I invest my own money in many of the stocks I present.

Time To Buy Gold And Silver On Every Pullback

The soaring paper gold open interest on the Comex is just one indication of a shortages developing in the physical gold bullion market. It’s no coincidence that just prior and accompanying the sell-off in gold this week that Exchange for “Physical” and Privately Negotiated Transactions (EFPs and PNT) volume spiked up on the Comex. EFPs and PNTs are “derviative” transactions which enable the bullion banks to settle futures with cash or some other form of gold derivatives like shares of GLD.

There are other indications as well, which Chris Marcus and I discuss this week on his Arcadia Economics podcast:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

QE Madness: Is It Worse Now Than In 2008?

Unequivocally, the “repo” operations by the Fed is “QE.” Well, let’s just call it what it is because “QE” was coined in place of “money printing.”  The socially correct posture to assume on Wall Street and in DC at the Fed is to label the current bout of money printing “repo operations.”  In fact, based on all of the underlying data I scour daily, let’s just cut to the chase and call this a de facto banking system bailout.

The technical details on why the “plumbing” in the banking system is getting “clogged” is mere surface analysis.  The underlying systemic problems are similar to the problems that pulled the rug out from under the financial system in 2008.  Bank assets, specifically subprime lending assets, are melting down again.

We’ve seen this movie before and the “regulators” were supposed to have blocked the banks from engaging in financial pornography. But, of course, just like teenagers who discover Pornhub, the greedy bankers undeterred by superficial legislation and an absence of independent regulatory oversight (every senior regulatory official has either worked on Wall Street or worked a law firms who get paid to keep Wall Street bankers out of jail) couldn’t help themselves.  CLO’s, 100% LTV lending, non-income verification consumer loans and OTC derivatives with orgasmic fees have re-emerged in full force.

As an example, Citibank is now sitting on top of nearly $1 trillion in credit default swaps – see this, which has the appropriate links:  Citibank CDS.   The article notes that:  “the New York Fed secretly hid from the public’s view that it had funneled $2.5 trillion (yes, trillion) to Citigroup and its trading units from December 2007 to at least July 21, 2010. That last information only became public after more than two years of court battles with the Fed.”

In the minutes released from the last FOMC meeting, the Fed is now discussing extending the money printing operations to April. Imagine that, what started as giving corporations a little help to pay quarterly taxes in September has morphed into and is on its way to half a trillion dollars of printed money handed over to the banks. Doesn’t seem strange that all the money created for corporate tax payments has not  found its way into the Treasury Department’s bank account? How do we know?  Because  a large portion of the money printed has financed new Treasury debt issuance.

Wall Street on Parade is making a motivated, if not valiant, effort to dredge up the truth with regard to to re-start of the Fed’s massive money printing operation. But I hope the Martens are not holding their breath on getting a response without an expensive legal battle:

On October 2, 2019 we filed a Freedom of Information Act (FOIA) request with the New York Fed. We requested “emails or any other forms of written correspondence from the Federal Reserve Bank of New York to JPMorgan Chase or any of its subsidiaries or affiliates containing any of the following words or phrases: ‘repo,’ ‘repurchase agreements,’ ‘overnight lending,’ or ‘reserves'”…

Our FOIA request was acknowledged by the New York Fed as received on October 2. We should have had a meaningful response on November 1. Instead, we received an email advising that we would not hear further from the New York Fed until December 5, 2019…Instead of the mandated 10-day extension that is allowed under law, we were given more than a month-long extension. On December 5, the New York Fed emailed us to say it was extending the time to respond to January 9. – Fed Balance Sheet Explosion

Make no mistake, the melt-up in the stock market, the majority of which is confined to just a handful of stocks – AAPL, MSFT plus a few insanely overvalued unicorn-type stocks (TSLA, SHOP, etc) – does not reflect a “booming economy.” Rather, it’s evidence that the financial and economic system is melting down beneath the propaganda.  With its bailout policies, the Fed has made a complete mess of the financial markets. And it’s worse this time  than it was in 2008.

Aside from some select shorts in stocks like TSLA and AAPL, buying gold and silver (physical bullion not paper derivatives – yes, GLD is a derivative) and mining stocks is the no-brainer trade of 2020.

The Comex Is A Complete Joke

Comex gold contracts were brought to life in 1974. Correspondence between senior officials in, and advisors to, the Nixon Administration discussed the need to create an “investment” vehicle to “capture” institutional investment money directed into gold in order to prevent the rapid rise in gold after Nixon closed the gold window. If you are curious, the letters are posted in the GATA archive (GATA.org).  For instance:  LINK.

Since the introduction of paper gold, the Comex – gold and silver trading – has evolved into what can only be described as a caricature of a “market.” The open interest in gold contracts is nearly 10x the amount of physical gold reportedly held in Comex vaults; it’s 60x the amount of “registered” gold, or the gold designated as available for delivery.

Total open interest on the Comex as of last Thursday is 787k contracts representing 2,459 tons of paper gold.  Global annual physical gold production is around 2,700 tons.  The net short position of the Commercial trader category per the current COT report – “commercials” are primarily the banks which make markets on the Comex – is 134k contracts, or 418 tons of paper gold.

That the open interest in paper gold contracts is nearly equivalent to  the amount of actual gold produced yearly by gold mines is an absolute joke. The purpose of the Comex, period, is to give the western Central Banks – primarily the Fed – the ability to control the price of gold.  Based on the preliminary o/i report for Friday, the paper gold interest has spiked up to approximately 800,000 contracts.

But the good news is that rapid escalation of open interest in paper gold on the Comex is evidence that the banks are losing their ability to keep a lid on the rising gold price.  Bill Powers invited me onto this Mining Stock Education podcast to discuss this issue, my outlook for the price of gold in 2020 plus some of my favorite mining stocks:

A few of the stocks I follow, recommend in my Mining Stock Journal and invest in myself have doubled or more since the May 2019. Several more are poised for big gains in 2020. You can learn more about  Investment Research Dynamics newsletters by following these links ( 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 compensation from any mining stock companies and I do not accept any precious metals industry sponsors.  My research and my views are my own and I invest my own money in many of the stocks I present.

Money Printing And Physical Demand Will Drive Gold Higher

I’m growing more confident that we’re on the cusp of a big move higher in the precious metals sector because of the Fed’s massive money printing. Also, because the money printing and near zero interest rates are visibly not stimulating economic growth, we’re at the point at which unless the Fed continues increasing the amount of money it puts into the system, the melt-up in the stock market is completely unsustainable.

This is very similar to late 1999/early 2000 when Alan Greenspan tried to reverse his Fed’s massive money printing operation ahead of that notorious boogieman, the Y2k Bug. Not only did the tech stocks collapse then, but also the precious metals sector transitioned from the end of a 19 year bear market into the current secular bull market.

From what I’m hearing – and something that’s been referenced by Alasdair Macleod and Egon von Greyerz – a shortage of physically deliverable gold is developing in London. The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The paper gold open interest continues to hit new all-time highs almost on a daily basis. The current open interest is 765.5k contracts. That’s 76 million ozs of paper gold. The quantity is a little less than double the average open interest on the Comex over the last 10 years.  The amount of open interest has nearly doubled since the end of 2018,  with record o/i levels almost every day since October 29th.

Never in the recent history (last 20 years) has the Comex  sustained this many open interest hit  record highs without being followed by a significant price take-down.  Hidden factors seem to preventing this as evidenced by the inability of the Comex banks to implement a run-of-the-mill open interest liquidation price attack operation. These used to be good for over $100 of downside in a short period.

The Comex gold vaults reportedly hold 8.6 million ozs of gold. That figure has remained fairly constant with perhaps 10% variability up or down for at least the last 10 years. If just 10% of the open interest  stands for delivery in any given month, there would be a short squeeze of Biblical proportions in the price of gold.

Notwithstanding that, the soaring open interest in paper gold in relation to the amount of underlying physical gold on the Comex is evidence of the degree of effort required for the banks to at least regulate the rate at which the gold price is rising.

Circling back to rumors of a growing shortage of physical gold in London – see this analysis for instance:  GATA – it’s interesting to note that every attempt to push down the price of gold when the LBMA and Comex trading floors are open is quickly repudiated.

But there are other signs.  I don’t monitor the LBMA a.m./p.m. fix on a daily basis, but I’m apprised of it when there’s unusual activity.  It required 19 iterations for Friday’s p.m. price fix operation to balance out heavy bidding with enough offerings.  The price of gold rose  from the start to the finish.  I have never observed even close to this many iterations needed to establish a price-fix in either the a.m. or p.m. sessions.   Some entity wanted to buy a lot physical gold on Friday afternoon and it took time and effort to find enough offerings to fill the bids.

Of course, smart money has been quietly accumulating large positions in the speculative micro-cap junior exploration stocks for the last three years via private placements or direct investments in many of these companies.  As well, there’s been a rise in gold and silver mining company M&A.

Just like in the early 2000’s, October 2008 and December 2015, we will wake up one day to the start of  a long streak of incessant daily gold and silver price moves higher in the overnight market. Those who are not positioned ahead of this will find themselves running for the train as the doors close and it pulls out of the station.

Part of the above commentary is an excerpt from the latest issue the Mining Stock Journal. You can learn more about this newsletters, which focuses on speculative junior exploration stocks as well as find in value in producing miners, here:   Mining Stock Journal info

 

 

Mining Stocks Are Historically Cheap

Early 2000 was the last time the the Amex Gold Bugs Index (HUI) / SPX ratio was as low as it is now. That bottom occurred as the tech/dot.com bubble was popping. Oh, what a coincidence.  By many indicators, the current stock market bubble will likely pop soon and it looks like the precious metals sector is on the cusp of a massive cyclical bull move.

While the micro-cap junior exploration stocks are by far the cheapest segment of the mining stock sector in terms of potential risk/reward, investor distaste and market inefficiency occasionally feeds prospecting mining stock investors an expected “golden nugget,” if you will.  Fortuna Silver is a current example. Chris Marcus invited me onto his Arcadia Economics podcast to discuss why I put a strong buy on FSM in July when the rest of the market was dumping the shares:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

Gold May Be On The Cusp Of A Big Upward Price Reset

Precious metals investors may be getting an unexpected Christmas present this year, beginning with the sudden $25 jump in gold on Tuesday and Wednesday. From what I’m hearing, a shortage of physically deliverable gold is developing in London. In fact, Alasdair Macleod and Egon von Greyerz have both alluded to this development.

The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The ability to suppress the price of gold has become problematic for the western bullion banks as evidenced by all-time high open interest in Comex gold, especially relative to the amount of gold reportedly held by Comex vaults. As of Monday, the open interest was 734k contracts representing 73.4 million ozs of paper gold. This is 8.4x more than the total amount of gold reported to be in Comex vaults as of Tuesday and 58.5x more than the amount “registered” gold, which is gold that is designated as available for delivery.

In the last few years the open interest has averaged around 450k (ballpark) contracts. When the price of gold ran toward $1900 in 2011, the highest weekly open interest was 542k the week of July 17, 2011. The last time gold was trading around the $1500 level, which was March 2013, the open interest was in the 420k area. The point here is that an increasing amount of paper gold is required in order for the banks to contain the rate at which the price of gold discovers price discovery.

More significant, every aggressive attempt this year by the bullion banks to push the gold price lower has been countered with a swift rally: “For months the usual central bank-inspired smashes in the gold futures markets have not been having much effect, even as GATA consultant Robert Lambourne has reported increasing intervention in the market by the Bank for International Settlements” – Chris Powell, GATA.

The quote just above is from a must-read essay by GATA’s Chris Powell in which he lays out the case supporting the view that the New York and London gold markets are getting squeezed:

“The Comex has just quickly authorized a vast expansion in what bullion banks can use as collateral for their selling — ‘pledged gold’ held off the exchange, supposedly in London, for whose existence and unimpairment there is no public evidence.

Amid these indications of shortages, the open interest in gold futures on the Comex keeps hitting record highs. The bullion banks selling the contracts seem to be acting as if the gold supply itself is infinite, not just the supply of gold paper.”

I highly recommend reading the rest of Chris Powell’s article:  The signs swirl all around us, so is the reset at hand?   If the theory, which is supported by evidence, of a developing shortage of physical gold on the Comex and the LBMA is correct, the prices of both gold and silver could become explosive in 2020.

Junior Exploration Stocks Are Generationally Undervalued

Gold and silver are set up potentially for an explosive move, fueled by the inevitable escalation of Central Bank money printing. The Federal Reserve has led the charge on this account over the last three months as the financial system has begun to veer off the rails.

Currently, the Fed is printing money at the fastest rate in its history. The brown stuff is hitting the fan blades in the financial system.  By mid-January the Fed’s balance will be close its all-time high.  Fiat currency devaluation aka QE aka money printing is like rocket fuel for gold and silver.

A lot of mining stock analysts are drooling over the charts of the large cap stocks. And kudos to Crescat Capital for sharing the chart of above (with my edit in yellow). But the junior exploration “venture capital” stocks are the most undervalued relative to the prices of gold and silver in at least the last 19 years, which is the amount of time I’ve been involved in the precious metals sector.

Last Thursday gold  spiked up $14 before the stock market opened. But when Trump tweeted that a trade war “Phase 1” deal was close, gold went $20 off the cliff.  However, February gold closed flat vs Wednesday’s close and March silver has reclaimed the $17 level.  It’s a big positive that the “Phase 1” trade deal was signed because now Trump won’t have the ability to jerk the markets around with his silly “positive trade talks” tweets.

More important to the gold bull market, the Fed once again expanded the repo money printing QE operations. Early today (Thursday, December 12th) the Fed announced an additional $275 billion in repo operations around year-end. Adding all of it up, the Fed will be pumping half a trillion dollars into the repo system over year-end. This is unequivocally due to bank assets melting down and the need to finance new Treasury debt issuance.

The Fed’s re-liquification program will be given creative names – anything but “QE.”  It started off with “balance sheet expansion” but that term was abandoned because of its transparency. The best one I’ve heard so far is “yield curve capping operation.”  Watching Jerome Powell try to camouflage the Fed’s money printing  is like watching a baby  smoke a cigarette.

It’s a good bet that eventually the repo activity will be converted into a permanent “QE” money printing program.  The best way to make this wager  is via the precious metals sector.

Fortuna Silver: An Incredible Value Play

I originally shared this analysis with my Mining Stock Journal subscribers in the October 17th issue.  I sent it to Peter Spina at Goldseek.com because I saw the idea from one of his tweets a few weeks earlier.   It’s rare when the market mis-prices a larger cap producing mining company, thereby allowing aggressive investors an opportunity to buy into a high quality operation at a level that can produce a rate of return that would be expected from much higher risk junior exploration stocks.

The market put this opportunity in investors’ laps earlier this year and the analysis below was my rationalization for buying this stock when it dropped to $3 (note, I followed this up after FSM dropped below $3 briefly on its Q3 earnings report with a detailed analysis in my Mining Stock Journal which explained why the market was wrong again and buying FSM at $3 would yield an extraordinary ROR).   Since Thanksgiving,  the FSM  is up 21%.

Value Play – Fortuna Silver – (FSM, FVI.TO – US$3.07) – Most of the stocks I follow are micro-cap junior “venture capital” plays. However, I’ll invest in a larger cap producing mining company if I believe the stock has been sold down irrationally to a price that offers superior upside risk/return potential.

Fortuna was founded in 2005 with a focus on acquiring precious metals projects in Latin America (“Fortuna” was Greek goddess of fortune). One of the co-founders and the current CEO, Jorge Ganoza, is from a Peruvian mining family. FSM currently has two low-cost mines in Peru and Mexico. In 2016 it acquired the Lindero gold project in Argentina, a large open pit, heap-leach gold project that should achieve commercial production in early 2020.

San Jose Mine – The 100% owned San Jose Mine, located in Oaxaca, Mexico, began production in July 2011. The mine produces silver and gold from a 3,000 tonne per day underground operation. In 2018 the mine produced 8 million ozs of silver and 53,517 ozs of gold. San Jose currently has a resource of 46 million ozs of silver and 375,000 ozs of gold. Most of the resource consists of proven/probable reserves.

In addition to the existing resource, FSM budgeted $4.3 million for 11,500 meters of brownfield and exploration drilling. “Brownfield” exploration encompasses looking for deposits near or adjacent to an operating mine. The property hosts a mineralization zone – the Victoria zone – that runs “sub-parallel” to one of the main veins (the Trinidad vein) currently being mined. A drill program from 2H 2017 – 2018 returned several high grade intercepts.

Caylloma Mine – The Caylloma Mine is a 100%-owned underground silver, lead and zinc mine operation in Arequipa, Peru. A small amount of gold is also extracted from the ore, the value of which is used to offset the cash costs of mining. For 2019, the mine is expected to produce around 1mm ozs of silver, 27 million lbs of lead and 40-44 million lbs of zinc.

Fortuna has owned the mine since 2005. On a silver-equivalent (AgEq) basis, the all-in sustaining cost of the Caylloma mine averages about $13/oz. Caylloma currently has five years left of reserves but the property hosts potential for step-out resource expansion.

Lindero Gold Project – In July 2016, FSM acquired Goldrock Mines Corp in an all stock transaction valued at $129 million. This gave FSM 100% ownership of the Lindero open pit, heap leach operation in Argentina’s Salta Province. The mine will process 18,750 ton per day over a 13-year mine life, averaging 100,000 ozs of gold annually at an all-in sustaining cost of about $750/oz.

Fortuna announced the start of pre-production mining at Lindero in mid-September. The first gold pour is planned for Q1 2020. This is an incredibly low-cost operation. Part of the reason for this is that the ore body is high grade with a low “strip ratio.” The strip ratio is the amount of waste rock required to be processed in order to extract a tonne of ore. For instance, a 2:1 strip ratio means two tonnes of rock needs to be processed per tonne of mineable ore. Lindero will have a strip ratio below 1 in the first year of operation.

Once Lindero is up and running efficiently, it will be a literal “cash cow,” especially if the price of gold continues to move higher.

The Company also has a of couple exploration assets. The Arizaro Project is situated in the Lindero land package. It’s a gold-copper porphyry project on which preliminary exploration and drilling was conducted by the previous owners and which was followed-up by Fortuna with a surface core drill program of 2,178 meters over 12 holes down to 200 meters. The results encountered near-surface gold-copper porphyry mineralization.

FSM also acquired a 24.2% in Medgold Resources, which owns the Tlamino Project, a high grade gold-silver project in Serbia. FSM has an option to earn a 51% interest in Tlamino by spending $3 million in development by March 2020. It can earn an additional 19%, or 70% of the project economics, by spending an additional $5 million and completing a preliminary economic assessment by March 2023.

Why FSM dropped in price – In the frenzy of the first 6 months of 2016, FSM traded as as high as US$9.50. Since then the stock has trended down to as low as $2.40 in early May 2019. Most of the decline, I believe, can be attributed to the general downtrend in the price of gold and silver from July 2016 through May 2019. In addition, the price of lead fell as much as 30% and zinc has dropped as much as 37% since early 2018.

You can read the rest of this at  Goldseek.com

In the latest issue of the Mining Stock Journal released last night, I have another similar large cap mining stock that I believe provides a similar opportunity as the market gift handed out on Fortuna.  You can learn more about this newsletter here:  Mining Stock Journal information