To the surprise of most, mining stocks continued their stunning upward move that began around January 20. Toward the end of last week, financial media goons, chart readers and analysts who rely on the CFTC’s Commitment of Traders report for “insight” into market direction were all calling for a sharp pullback in the precious metals sector. Most market “oracles” were calling for a sharp retreat in the price of gold below $1100 and silver below $14.
Perhaps most amusing about the plethora of “correction time” and “overbought” commentary on the metals sector is: 1) because of the overt and continuous official intervention in the precious metals sector since 2011, it could be argued that the entire sector has been “artificially” oversold for the better part of five years; we don’t know where the true “oversold/overbought” statistical levels should be because natural price discovery in the sector has been completely suffocated; 2) the current stock market, adjusted for bona fide GAAP numbers, is the most overvalued in history; the stock market, by the same intervention/manipulative forces holding down the metals, has been artificially “overbought for at least 3-4 years now; yet, no one writes commentary on the need for a big price correction in the stock market.
Too be sure, whenever the COT report shows an extreme level in the bullion bank short position in gold and futures, offset by an extreme long position held by the hedge funds, the criminal banks implement a “COT stop-loss hedge fund long liquidation” algorithm which sets off the stop-losses set by the hedge funds and causes the now-familiar “waterfall” chart patterns that result from heavy bank manipulation of Comex trading.
So far every attempt to trigger forced liquidation of gold/silver futures has failed. That’s not to say that it won’t happen. But what makes this current rally even more interesting is the fact that it is occurring while the stock market continues to squeeze higher despite the continued deterioration in economic data.
Typically the precious metals sector will, in general, move inversely to the stock market. The fact that it has moved in correlation with the S&P 500 over the last three weeks suggests that either the precious metals “market” sees the recent move in the stock market as a “faux” rally or the smart money is selling stocks into this rally and moving capital into the precious metals sector, or both.
(click on image to enlarge) The graph to the left shows the last two years of trading in GDX. As you can see, the current move up in the mining stocks has not yet “corrected” the sell-off that occurred in early 2015. You can see that the manipulated sell-off from Jan 2015 to July 2015 was accompanied by a steady decline in volume. Over the next six months, the mining stocks formed what appears to be a very powerful base which was supported with heavy volume. THAT is the unmistakable sign of smart money accumulating highly oversold and extraordinarily cheap mining shares.
I also believe that the current move up in the miners from mid-January reflects the absurd amount of short-selling and naked short-selling that has infested the mining shares since April 2011. Naked shorting has become a big problem but we only heard about it when the S&P 500/Dow were plunging back in 2008-2009. Once the Fed had stabilized the “problem” and began pushing stocks higher with QE, suddenly the naked-short selling was no longer an issue. What happened to the Congressional inquiries and threats of legislative action?
While impossible to prove, it is 99.9% probable the naked short selling in the mining stock sector has been unimaginably immense – historically unprecedented. But once the hedge funds and bullion banks are through fixing their problematic short positions in the miners, they will follow-through with enormous buying.
I am expecting a correction to begin sometime soon. But when that correction has run its course, make sure you are ready to add or initiate positions in high quality junior mining shares, because I believe the next extended bull move in the mining shares will offer the to potential to make a life-style changing amount of money.
I just rolled a Mining Stock Journal that will help you navigate the precious metals sector and invest in junior (and some large cap) mining stocks. You can access the MSJ using this link: Mining Stock Journal or by clicking on the image to the right.