Category Archives: Precious Metals

Gold And Mining Stocks vs Stocks – Many Will Be Surprised

The precious metals sector – gold, silver and mining stocks – is in the early stages of a rabid bull market.  The mainstream media has been dead silent on the performance of the precious metals, which is not a surprise to those of us who have been involved in the sector since 2001, when gold bottomed at $250, silver was around $4 and the HUI index was at 45.

Since September 2018, gold has significantly outperformed the stock market. In fact, per this chart below, measured in terms of real money the Dow is in a bear market  – down 36.3% since September 2018:

This chart shows the performance of the SPX vs GDX for the last 52 weeks:

Measured against the GDX mining stock ETF, the S&P 500 is down 42.1% since mid-March. In other words, the S&P 500 is in a bear market when expressed in terms of a mining stock index. Again, the silence from the mainstream financial media and the big Wall Street banks is deafening.

This bull move has a long way to go. The momentum junkies, macro hedge funds and generalist equity funds have yet to discover the precious metals sector. The retail stock jockeys chasing bankrupt stocks to the moon can’t spell “gold” yet. Eventually when reality invades the stock market, an epic crash in will be followed by a move in the precious metals sector that will shock most and even surprise many precious metals bugs….Got gold?

“Major Battle Underway In The Gold Market”

The chart (and blog title) above is from James Turk via King World News. Turk was making the point that the western Central Banks, via the bullion banks, are short $4 billion worth of paper gold on the Comex. With all of the Central Bank money printing, and the Fed is by far printing the most, it would be a disaster for the fiat currency system if the price of gold were to break free and rediscover price discovery. It’s only a matter of time until this occurs. But for now the Central Banks are making a concerted effort to do what they do best: defer reality for as long as possible.

For now the goal is to prevent gold from breaking above $1800, which means the invisible “battle line” is at $1790. I remember when gold was trying to get over $400. It seemed like it took forever. But once $400 fell (shortly after Elliot Wave aficionado, Robert Prechter, proclaimed gold was going back to $50), it didn’t take long for gold to double (about 18 months). I think once gold gets through $1800 and holds, it will challenge the all-time high at $1900 relatively quickly. For as bullish as I am on gold, I’m 3x more bullish on silver.

A subscriber was concerned about the possibility of the miners getting hit hard in the next general stock market crash. I suspect the miners will get hit initially but then stage a rally. But that’s why I advise always leaving yourself plenty of cash to take advantage of big sell-offs that will likely recover quickly and take the market higher.

We’re in an ideal period of time for gold/silver to move higher with all of the money printing and concomitant currency devaluation. As gold/silver move higher the mining stocks will eventually catch a big bid from the mainstream investing public and soar. Look at how quickly the mining stocks recovered from the March massacre. (And from the Thursday/Friday morning price slam as the Comex was opening).

NOTE: The commentary above is from the last issue of my Mining Stock Journal subscription newsletter. In this issue I provide any updates and recommendations on my core portfolio recommendations.  I also provide a brief review of Vizsla Silver ($VIZSF) and Mako Mining ($MAKOF).  You can learn more about my newsletter here:   Mining Stock Journal

The Money Printing Road To Perdition – Got Gold?

Where’s the “V?” – Obviously the Fed has injected monetary cocaine into the stock market to make it appear as if stocks are “discounting a “V” economic recovery.  But a “V” on Main Street is nowhere to be found (graphic is from Crescat Capital -the comment bubble is my edit):

The chart above plots the NY Fed’s weekly index of economic activity (red line) vs. the Bloomberg U.S. financial conditions index, which attempts to measure the relative strength of the bond, equity and money markets (white line). With the amount of money the Fed has injected into the financial system, it’s no surprise that the financial conditions index is soaring. However, as I’ve suggested in recent issues, this money is having little, if any, effect on real economic activity.

Compounding the insanity of the current market valuations is the fact that no one has any idea just how bad the economic damage has been from the shutdown of the economy and the virus crisis. We won’t know for several months the degree to which unemployment and overall economic activity will recover. Certainly this idea that there will be a full recovery by the end of the summer (per several White House officials) is completely foolish.

The economic numbers that appear positive are merely a “statistical” bounce attributable to the “re-opening” during May from the highly depressed state of the economy during the lock-down period. But household debt delinquencies – credit card, auto and mortgage – continue to rise, while there’s little evidence that the majority of those who lost their jobs will be re-employed any time soon, if ever.  What will be the effect on the economy when unemployment benefits expire for a large portion of those receiving them now and who can not find a job?

The Fed asserts that its money printing is necessary to restore economic health.  But this is poorly disguised Orwellian propaganda.  Most of the Fed’s money printing has been used to keep the Too Big To Fail banks from choking to death on subprime and non-performing “assets,” such as leveraged loans to the retail and oil sectors, CLO liabilities and counter-party exposure from OTC derivatives (credit default swaps, primarily).  The resumption of money printing in September 2019 is evidence of that assertion. The rest of the printed money is funding the enormous load of new Treasury issuance.

Gold hit a new eight-year high today. This comes interestingly on the heels of escalating tensions with China. Trump likely does not understand this, but China holds several aces up its sleeve which can be used to undermine the U.S. dollar and detonate the ticking time bombs embedded in the U.S. financial system.  The most notable wild card held by China is its increasing control over the global physical gold market.

In the context of these comments from a Vice Chairman at the China Securities Regulatory Commission (i.e. a CCP member), it’s quite possible that China is starting to flex its muscle slowly to reset the price of gold to more closely align the vast spread between the paper derivative gold price determined in London and NYC and a true “price discovered” price of gold that reflects the underlying supply/demand reality:

Fang Xinghai, a vice-chairman at the China Securities Regulatory Commission, said that as China mainly relies on the US dollar payment system in international deals, it makes it vulnerable to possible US sanctions.

“Such things have already happened to many Russian businesses and financial institutions. We have to make preparations early – real preparations, not just psychological preparations,” Fang said at a forum organised by Chinese media outlet Caixin.

Fang’s comment came at a time when Washington is pondering how far it should go to use the US dollar’s key role in international payment to punish Chinese individuals, companies and financial institutions for alleged involvement in issues such as Xinjiang and Hong Kong.  (Caixin Gloal, via Zerohedge)

I’m just speculating here,  but China may be starting to flex its muscle in the gold market. It’s a widely accepted proposition that China’s Central Bank holds many multiples of the amount of gold officially reported.

China is the world’s largest producer of gold and now its setting its sights on acquiring robust western hemisphere gold mines.  Two State-controlled Chinese mining companies have made three notable western gold mining company acquisitions this year: one with a mine in Canada (TMAC); one with a soon-producing gold mine in Columbia (Continental Gold); and one in Guyana (Toronto-based Guyana Goldfields).  All three mine properties host very high-grade gold resources.  China would not spend hundreds of millions to acquire high margin gold mines to sell the gold produced at a manipulated,  artificially low price of gold.

Beyond China’s “invisible hand,”  I don’t know how else to explain the strength in the gold price during a period of time – late 2019 through present – when China and India have largely been absent from the gold market based on import data, while at the same time the Comex paper gold open interest has declined over 40% since January.

Gold has been surprisingly strong this morning, hitting an eight-year high at $1785 (August gold basis). If August gold can jump over the $1788-1790 area, which has been defended vigorously by the paper gold slinging western bullion banks, the $1800 level may fall like Gaul…

Fact, Fiction And Fraud At The Comex

“I think there will be a full monetary system reset after the world has had enough of Jay Powell and his digital printing press.”

The alleged gold flow into the Comex and amount of gold for which contract longs are taking “delivery” is at a historical extreme. I use “delivery” because “taking delivery” means being assigned an electronic warrant that records ownership transfer of a Comex registered bar presumably (but not guaranteed) to be sitting in a Comex-approved vault.  It  does not mean that the party taking delivery takes possession of  a physical bar.

Chris Marcus and I discuss the unusual activity at the Comex and the LBMA in the podcast below.  But first read this excellent article from Ronan Manly at Bullionstar.com, who dissects fact from fiction about the Comex vault and delivery reports:

However, given the opacity of the wholesale gold market and the unconvincing explanations from its fronting organizations the London Bullion Market Association (LBMA) and COMEX operator CME Group (e.g. closed refineries, grounded flights), those looking for a ‘Theory of Everything’ framework to connect all of the above have had to do so on their own.

While Bloomberg and Reuters are content with repeating spoon-fed handouts about all of the above – eating the breadcrumbs instead of following the trail – and between them have published at least 30 articles on the subject, thankfully there are many on the sidelines who are more inquiring and less gullible, hence the skepticism, speculation and debate.  “The Curious Case of Comex Gold Deliveries…”

**************

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.

The Market Is More Dangerous Now Than Early 2000

This market reminds me of the late 1999/early 2000 tech bubble. But back then it was primarily the Nasdaq that bubbled up. This time around the absurd dislocation between value and reality is more comprehensive. It’s not just tech stocks but also non-tech related stocks like HTZ, AAL, BA etc.

Back in late 1999/early 2000, like now, newly minted retail day-trading geniuses who couldn’t explain what a p/e ratio is were piling into tech stocks with risky OTM call options and heavy use of margin.   Most were wiped out when the Nasdaq crashed just like most will be wiped out when this market has the rug pulled out from under it. The February-mid March decline was just an appetizer for patient short sellers.

Silver Liberties invited me back onto its podcast to discuss the insanity of the current stock market and, of course, to talk about gold, silver and mining stocks:

**************

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.

Gold Manipulation Is Carefully Orchestrated – And China Knows It

The bullion banks – at least on the Comex – have reduced their risk exposure to gold and silver derivatives over the last several months, which means reducing their short exposure. This is likely in response to the rising risk that they will be unable to meet increasing long-side counterparty delivery demands.

Chris Marcus of Arcadia Economics and I discuss the trends developing in the precious metals market as well as China’s awareness of the western Central Banks’ efforts to manage the gold price:

**************

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.

The Bull Move In Gold, Silver And Mining Stocks Is Just Getting Started

The current financial and economic environment supporting a significant and durable move in the precious metals sector is similar to conditions in 2000 through 2008 that fueled the 11 year run from 2000 – 2011.  Only this time those factors – Fed money printing, a collapsing financial system and massive financial asset bubbles – are several multiples more powerful.

Bill Powers invited me onto his Mining Stock Education podcast to discuss risks involved in investing in junior mining stocks, use of stop-losses and attributes which underlie junior exploration projects that become successful, including a couple junior stocks I think could do well in the next few years:

**************

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.

Is A Run On Comex And London Gold & Silver Occurring?

Indications of stress developing in the physical gold and silver markets of London and NYC were apparent last summer, well before anyone ever heard of the term “coronavirus.” The shortage of gold in NY that led to roll-out of the infamous “4G enhanced gold” contract that fractionalized LBMA gold bars for “delivery” on the Comex is just one of the “footprints” in the snow that lead us to this conclusion.

In addition, the big spread between spot gold and gold futures which persisted for several weeks and now has spread to the silver market reflects a large dislocation between the physical market and the paper derivatives market for silver.

Chris Marcus of Arcadia Economics and I discuss what appears to be a drain on the physical supply of gold and silver on the Comex and LBMA:

**************

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.

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…

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