Tag Archives: gold silver ratio

With The Return Of QE, Mining Stocks Are Cheap

There’s a strong probability that the Fed’s “non-QE” QE operations will morph into a full-blown money printing program that will exceed the one implemented starting in late 2008. The same fundamentals variables that fueled a massive move in the the precious metals sector from late 2008 thru mid-2011 have resurfaced with a vengeance.

The pullback in gold, silver and the mining stocks that began in early September appears to have run its course. Currently the entire sector is technically and fundamentally set-up for a big run into the end of the year. The re-activation of Indian imports last week for the first time since June will give the coming bull move a powerful boost.

Bill Powers of MiningStockEducation.com invited me back onto his podcast to discuss some of the stocks that I believe will outperform the sector. These three ideas are among several that I cover in my Mining Stock Journal:

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The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  You can learn more about this newsletter here:   Mining Stock Journal information.

Subscriber feedback: “I am a professor of aerospace engineering. I have studied and invested in junior mining stocks for 25 years. I have learned much about this sector. The stocks that you have recommended since starting MSJ have outperformed the other junior investment services that I follow. Perhaps one reason is that, because your service has a smaller circulation, you can find and recommend smaller companies that have not been discovered and cannot be recommended by services with huge circulations.”

Gold, Silver, Mining Stocks: Quo Vadimus? (Where Are We Going?)

The chart above was sourced from spiralcalendar.com with a couple edits of mine. It shows the S&P 500/gold ratio going back to 1980, when the 1970’s gold bull market culminated. I believe before the a complete financial “reset” is imposed on the global financial system, we could see the SPX/gold ratio fall to the level it hit in 1980.

A subscriber asked me if I thought that the fact that stocks like AG, EXK and HL, among many others, are only 50% as high in price as they were when silver hit $20 in the summer of 2016 is a red flag.

I said that I do not see it as red flag for the sector. Rather, I see it as just one measure by which mining shares are extremely undervalued relative to gold and silver and to the rest of the stock market. I always thought that the mining shares ran up in price too quickly during the 2016 rally. The GDXJ rose 300% in six months and investor sentiment had become far too frothy.

In my observation of the moves in the sector from 2001 to mid-2006 and from November 2008 to mid/late 2011, gold and silver lead the sector at first, followed by the large cap producers, with the juniors lagging and then outperforming gold/silver/large caps. That seems to be the progression unfolding now.

If I’m right, and if the metals continue moving a lot higher, we should start to see stocks like AG move well above their 2016 highs. Eventually many of the juniors will be 3-5x higher than their current level. We got a taste of the type of moves juniors will start to make this week.

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The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  You can learn more about this newsletter here:   Mining Stock Journal information.

“Thanks for today’s latest issue. It’s value to me is increasing with time.” – From “Greg”

The Flight To Safety In Gold – A Conversation With The Prepared Mind – Part 1

The Chinese have been slowly trading out of their U.S. dollar exposure and converting it to gold. Something a lot of analysts don’t pay attention to because they don’t even know what the facts are [with regard to the actual amount of physical gold held by China] when they look at China and proclaim that China has a debt problem.  Sure, China has a fiat currency-derived debt problem but it’s nowhere near as bad as the U.S. fiat currency-derived debt problem. And guess what? On the other side of the paper debt China has 25,000-35,000 tonnes of physical gold they’ve hoarded over decades.

The Prepared Mind invited to its podcast to discuss a wide range of issues from precious metals to geopolitical problems. Here’s Part 1:

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

“Dave mate. You’re making me rich. I don’t know what’s going on with Gold Fields but they’ve spiked up 33% and my calls are going ballistic.” – Mining Stock Journal subscriber in Australia

What’s In Store For The Precious Metals Sector in 2019?

The Newmont/Goldcorp merger is the second mega-deal in the industry after Barrick acquired RandGold in September. Without question, the two deals reflect the growing need for large gold and silver mining companies to replace reserves, which are being depleted at these two companies more quickly than they are being replenished. The deal will give Newmont access to Goldcorp’s portfolio of developing and exploration projects acquired by Goldcorp over the last several years.

While this deal and the Barrick/Randgold deal will help cover-up the managerial, operational and financial warts on Barrick and Newmont, it will also likely stimulate an increase in M&A activity in the industry. I believe that the other largest gold mining companies – Kinross, Yamana, AngloGold Ashanti, Gold Fields, Eldorado, and Agnico-Eagle – will look closely at each other and at mid-cap gold producers to see if they can create “synergistic” merger deals

The same “impulse” holds true for silver companies, the largest of which are diversifying into gold or acquiring competitors (Pan American acquires Tahoe Resources and SRM Mining buys 9.9% of Silvercrest Metals, which will likely block First Majestic from going after Silvercrest, and Americas Silver buys Pershing Gold). Similarly, we could see mid-cap producers merging with each other or acquiring the junior producers.

Phil Kennedy – Kennedy Financial – invited me along with Craig Hempke – TF Metals Report – to discuss the implications of the two gold mega-deals, our outlook for the precious metals sector and a some other timely topics affecting the financial markets:

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In my latest issue of the Mining Stock Journal, I provided a list of gold and silver stocks that I believe could become acquisition targets this year, as well as an in-depth update on one of my top gold exploration stock ideas. You can learn more about this newsletter here: Mining Stock Journal

Unprecedented Manipulation And Trading The Precious Metals Ratios

Anyone who denies that Governments and Central Banks manipulate the gold and silver markets using paper derivatives and deceptive physical metal custodial operations is ignorant of history and facts.  Currently the gold and silver price capping is as oppressive as I’ve witnessed in 18 years.

As of Tuesday, January 15th, the open interest in gold had soared by 89,120 contracts to  501,605. 89,120 contracts is 8.9 million ozs of paper gold, or 278.5 tons – about 30 tons  more than the amount of gold produced by mines in the U.S. in one year.

But artificial market intervention creates information inefficiencies. This in turn generates exploitable profit opportunities for traders who know how to identify the set-ups from official manipulation.

With unprecedented manipulation continuing to occur in the precious metals market, some tradeable anomalies have appeared in the gold /silver and platinum / palladium ratios. My friend and colleague, Chris Marcus (former options trader at Susquehanna International), got together with Andy Schectman and Mickey Fulp to discuss strategies you can use to take advantage of the market anomalies which have been created by official intervention in these markets in the video below. You can see more of Chris’ at his website, Arcadia Economics:

Mining Stock Daily’s 2019 Outlook For Precious Metals

A quiet bull market in mining stocks is underway. The GDX ETF closed trading on New Year’s Eve up 2.37%. Through Monday, the GDX has risen 20% since hitting a 52-week low close of $17.57 on September 11, 2018. In popular parlance, GDX is now in a “bull market.”

We expect that a significant bull move will occur and a significant amount of capital will pull out of “risk assets” and move into physical gold and silver for wealth preservation/flight-to-safety.

Click on the image below to hear the short and sweet 2019 inaugural Mining Stock Daily Podcast:

Mining Stock Daily is produced by Clear Creek Digital and the Mining Stock Journal.

Gold And Silver: Something Different Is Occurring

JP Morgan, at least according to the daily Comex warehouse report, added over half a million ozs of silver to its “historic” stash of silver at the Comex:   TF Metals Report.  It would be even more interesting to see an actual independent accounting of that specific metal which would track the serial numbers on the bars to the legal owner of title.

I’ve been hedged in my mining stock portfolio since early September.  The signal for me to hedge is the reliable Comex bank “net short” position as reported in the weekly Commitment of Traders report. Since late summer, the bank net short position, and the corresponding hedge fund “managed money” net long position, has been at an extreme level.

Historically this is the signal that the Comex banks will implement what I call a “COT open interest liquidation” take-down of the gold/silver price using Comex paper to trigger hedge fund stop-loss positions.  This enables the Comex banks to cover their shorts and print huge profits. It’s also illegal trading activity but that’s for another day.

In early September, in “eyeballing” the gold chart in conjunction with the historical COT data I have set up in a spreadsheet back to 2004 , I figured that the open interest – which was in the high 500,000’s at the time – needed to come down at least 100-150k contracts. I thought it would take a price take-down from $1320 to $1230/$1240.

But something different is occurring.  Two months is usually plenty of time for the banks to work their price control “magic.”  The hedge I am using (JDST in-the-money calls) minted money up until two weeks ago.  But the open interest has been “stuck” in the 520k area (plus or minus).  Furthermore, the ability of the banks to slam the price seems limited, at least for now.  As an example, last Friday out of nowhere around 10 a.m. EST the price of gold was slammed for $10.  There was a notable absence of any specific news event or technical signal which might have triggered the massive selling.  (click on chart to enlarge)

Unloading on the price of gold like this on a Friday, after the rest of the trading world – and specifically the physical-buying eastern hemisphere markets – has closed for the weekend, is typical.  What is not typical, however, is the reversal of the price of gold which occurred the next trading day (Monday).  Usually a shock and awe price-attack, like the one that occurred on Friday, is followed up by a few days in a row of price declines.  I thought this would be the progression which would cause open interest to liquidate in a manner the banks would use to covered their shorts as the hedge fund puked out their longs.

The open interest in Friday declined by only 4.9k contracts.  Typically a “shock/awe” hit would have removed at least 10k of open interest.  Based on the latest COT report, the bank net short position stubbornly persists at an extreme level.   Open interest as of yesterday also persists at a high level.

Another typical indicator that the banks are trying to push the price of gold lower is the repeated “false news” reports that spin out of Bloomberg News regarding India’s demand for gold (Gold Import Slump in India).  However, based on the high ex-duty import premiums which correlate with India’s level of import demand, India’s legal importation of gold in October was at least normal for the month. It also followed an extraordinary level of importation in September.  YTD through the end of October, Indian gold imports are up 91% vs the first 10 months of 2016 (I track import premiums in India via John Brimelow’s Gold Jottings report).

I am still hedged.  As I asserted to my subscribers in last week’s Mining Stock Journal, although I still am mentally braced for one more aggressive attack on the price of gold that will enable the Comex banks to book profits on their collective net short position, I’ve started evaluating the possibility that the precious metals could start to launch higher in spite of the large bank short. In other words, it might start to get interesting in this sector.

Another signal for me that something unusual is occurring is the fact that junior miners have started popping in price again at the release of positive drilling results. For instance, yesterday one of the juniors I feature in my Mining Stock Journal jumped 17%. This is behavior coming from the juniors that has not occurred since last summer and mining stocks do not exhibit bullish trading behavior if the market is anticipating another leg down in gold/silver prices.

Something different – at least for now – is going on.  Maybe it’s related to smart, big money knowing that the world is on the cusp of rampant, uncontrollable price inflation after the unprecedented money supply inflation of the last 9 years. And, in reality, the money supply inflation began with Greenspan in the late 1980s/early 1990’s. The U.S. money printing has been going on since Nixon closed the gold window and it went semi-Weimar in 2008-2014. The U.S. exported its inflation with the strong dollar policy and reserve status of the dollar. That has changed. The BoJ and the Peoples Bank of China have been printing money the last few years like a meth addicts on steroids. The ECB is a close third.

This monetary inflation was contained when it was just the Fed and maybe the BoJ printing in volume.  Now the world is drowning in printed fiat currencies of every flavor.  Price inflation is on the cusp of breaking out furiously in all currencies.  This will translate into a furious break-out in the price of commodities, especially physically deliverable gold and silver bullion.

True economic inflation is defined as the increase in money supply in excess of wealth output. The supply of money exceeds the supply of “widgets.” Eventually the price of  widgets has to go higher. We are at that point. I’m talking about parabolic price increases, which have already been manifest in global stock and real estate prices.

The graphic to the left suggests that the global economic system has reached a “tipping point” at which rapidly accelerating price inflation is about to emerge.  That price inflation, combined with inexorable and severely negative real interest rates, functions as precious metals rocket fuel. Currently commodities are extraordinarily undervalued relative to the Dow. In fact, going back to 1917, there were only two prior periods when commodities were extremely undervalued vs. the Dow – the late 1920’s – early 1930’s and during the 1960’s. Both of those times, the U.S. dollar was significantly devalued vs. gold. In November 1934, FDR revalued the price of gold by 75% vs. the dollar, from $20 to $35. The market forced the devaluation of the dollar vs. gold after Nixon disconnected gold from the dollar in 1971.

Since 1971, the dollar has lost 80% of its purchasing power vs. a generic basket of goods. In 1971 it took $35 to buy 1 oz of gold. Today it takes $1271. That’s a 97% decline in the purchasing power of the dollar vs. gold. Here’s the funny thing about the dollar’s eventual fall to zero (per Voltaire and history), the last few percentage points before a fiat currency completes its collapse will produce the biggest nominal price rise in gold. Just look at Weimar Germany as an example. In January 1922, an ounce of gold was worth 1,000 German marks. By November 1923, when the mark collapsed, an ounce of gold was worth 100 trillion marks.

A portion of the above commentary comes from the latest issue of the Mining Stock Journal.  This subscription service presents in-depth market analysis/commentary as well as mining stock investment ideas.  I try to find junior miners before the “crowd” discovers them but I also incorporate relative value ideas in the large cap mining stock space.  You can find out more about this service here:  Mining Stock Journal.

Trading And Investing In Gold: Follow The Money

The paper gold attack that I first suggested might occur in the September 7th issue has taken gold from $1360 down to $1270 (continuous contract basis). Technically, gold has moved from an “overbought” condition to a mildly “oversold” condition. The RSI and MACD indicate that gold is slightly “oversold” but I believe both indicators will flash “extremely oversold” before this price attack over. This should occur sometime in the next 2-3 weeks.

I say this because I continue to believe the open interest in Comex paper gold, combined with the analyzing the weekly Commitment of Traders report, is the best indicator of gold’s next move, at least until the western Central Banks are unable to control the price of gold with paper derivatives. To be sure, the COT report is not always a perfect predictor but in the last 15 years the two reports combined have been around 90% accurate.

Currently, the Comex banks’ net short position in paper gold is at the high end of its historical range. Concomitantly, the net long position of the hedge funds is also at the high end of its historical range. Per last Friday’s COT report, the banks began to reduce the short positions, thereby reducing their net short position, and the hedge funds began to reduce the long positions, thereby reducing their net short position (click to enlarge):

The graphic above is from the CFTC’s weekly COT report for all commodities. I’ve referenced the COT report quite a bit so I thought I’d put some “meat” on the bones. The report was published Friday (Sept 29th) but the cut-off day for the data used is the Tuesday before last Friday (Sept 26th). Unfortunately, by the time we, the public, can see the data it’s three days old. By the time we can try to trade on it (the following Monday) it’s four days old. This is unfortunate and the CFTC could force a daily disclosure of the data, which would be ideal, but since when does the Government do anything for the benefit of the public? Having said that, we can still get a feel for then general “flow” of positioning in gold futures by the various trading cohorts. Note: though the CFTC publishes the COT report, the actual data comes from the banks who operate and manage the Comex trading floor and computer systems.

I’ve highlighted the data that is important to me. The reportable positions are the “producer/hedgers,” “swap dealers,” “managed money,” “other reportables” and “non-reportable.” The latter two are large money pools that are not hedge funds or mutual funds and retail traders, respectively. They are not a factor in the analysis except to the extent that it is thought, though unprovable, that the banks throw some of their positions into the “other reportables” category to hide them.

The bank positions are primarily in the “swap dealer” account but they also throw their trades into the producer/hedge category. It’s impossible to know how much without having access to the systems. The “managed money” is primarily hedge funds. On the left side is the open interest (o/i) number. You can see at the bottom the o/i declined by 20.4k contracts from the previous Tuesday. It had peaked a couple weeks earlier around the 580k level, if memory serves me correctly. [As of Tues,  Oct 10th, the o/i was 520k]

The bottom row data shows the change in the various positions from the previous week’s report. You can see that the swap dealers covered 14.5k worth of shorts and added 4.9k of longs. The producer/hedgers were net unchanged in terms of net position but still extremely net short. The hedge funds (managed money) sold over 32k of long positions and added 4.8k to their short position, effectively dropping their net long position by 36.8k contracts.

Note: The spread positions (“spreading”) are not important to this analysis. They represent a trade in which one side of the trade might be short October gold contracts and offsets it with a long position in December gold, for instance. This would be a “hedged” bullish trade because the entity with that position is expecting the price of gold to rise by December but wants to hedge out risk factors that might take the price of gold lower between now and then. There’s no way to know how the spread trades are positioned without access to the Comex systems.

You’ll note, based on the change in relative positions, it appears as if the banks have started to cover their shorts and add to longs, thereby decreasing their net short position. Similarly, the hedge funds did the opposite, thereby reducing their net long position from the previous week. The open interest as of this past Wednesday (published daily) was 522k contracts. This is 27k contracts lower than the o/i when the report was put together a week ago Tuesday. The o/i appears to be trending lower, which historically has indicated that the banks are collapsing their net short position and the hedge funds are collapsing their net long. We’ll know if this trend continued on Friday afternoon, when the next COT report is released.

If this trend continues, it indicates that we’re getting closer to a bottom and the next move higher. I’d like to see the open interest on the Comex decline by about another 100k contracts. This might take 3 or 4 weeks. We could also see some short-lived spikes down in price before this over. Typically what has been occurring over the last 3 years or so is that, as the hedge funds dump longs and add to shorts, the hedge fund computer algos overreact to the downside price momentum and begin to “flatten out” the hedge fund net position by rapidly unloading longs and piling into the short side. A couple times over the past few years the hedge funds have been net short for a week or two. This always has preceded a big rally in gold.

I don’t know if it will play out like that this time around. Currently the mining shares are “grudgingly” giving up ground. Often, though not always, that trading behavior in the shares indicates that a bottom is forming. Again, I don’t know if that will be the case and I’m braced for one more nerve-wracking move down to the $1250-$1260 area. We still have a hedge in our stock portfolio via owning in-the-money calls on JDST. We’ll probably remove that hedge sometime in the next week or two.

Although we might be in a for a bumpy ride over the next couple of weeks (then again, we might not be), the mining stocks, expecially the juniors, are setting up for big move after gold (and silver) bottoms out and heads higher.

The graph above (click to enlarge) is a 1-yr daily of GDX. From its bottom in December through Thursday’s close, GDX is up 21%. You can see in the chart the slope of the trendline I drew steepened slightly in mid-July. I still think we could see a short-term drop in GDX below the 200 dma (red line) but I would use this as an opportunity to add to positions.

The one factor that could derail the ability of the banks to engineer more downside to the gold price is China’s return to the market starting Sunday night. China has been closed down this past week in observance of a national holiday, which means their presence as a large buyer of physical gold has been absent. Quite frankly, I expected a bigger take-down of the gold price in China’s absence. The inability to do this may have been offset by India’s continued demand for gold, both through official avenues of import and smuggling. The gold flowing duty-free into India from South Korea has been curtailed but Indonesia, which is party to the same free trade agreement, has stepped in to fill the void. Just this past week, import premiums were high enough to indicate that legal importation of kilo bars also resumed.

One last note, some of you may have seen the report that Russia’s Central Bank has become the world’s largest official buyer of gold (“official” meaning Central Bank/sovereign). I would argue that China does not fully disclose the extent to which the PBoC is accumulating gold (for instance, it’s thought that the PBoC buys most if not all of the 400+ tonnes of gold produced by China’s mines. That said, both the Russian and Chinese Central Banks combined are accumulating an enormous quantity of gold. I would suggest they are doing this a precursor to re-introducing gold into the global monetary system.  In other words, follow the money.

The above commentary is from the latest issue of the Mining Stock Journal.  In that issue I reviewed several of the previous stock ideas, many of which have doubled in the last 52 weeks, and presented a high quality mid-cap producer silver mining stock as shorter term trade idea that I think could be good for at least 25% through year-end.  You can learn more about the MSJ here:  Mining Stock Journal subscription information.   All back-issues are included with your subscription.

Why Was Gold Slammed And The Dow/SPX Pushed Higher?

Something ugly could be hitting the financial/economic system soon. To blatantly hit gold like this when no one is around is a sign of desperation. The FANGS had an brutal reversal today despite the squeeze higher in the broad indices. TSLA soared early on Elon Musk’s shameless puffery – which often borders on outright fraud – and reversed to the downside, while the SPX and Dow were being pushed higher by the Plunge Protection Team.  Both indices closed well of their higher.  Auto sales for June were once again well below expectations.  GM’s inventory soared despite a stated goal to reduce it inventory from over 110 days to 70.  A lot of workers will lose their jobs.  Household debt – mortgage, auto, credit card – will go unpaid…

The Trump Presidency is floating on the fumes of questionable sanity as an impeachment Bill is being sponsored in the House by 25 Reps. The case to be made that Trump is not mentally competent enough to have his index finger on the red button that launches nukes at Russia grows stronger by the day.

Doc and Eric Dubin invited me on to their weekly Money and Markets weekly market recap/analysis to discuss – today notwithstanding – very interesting trading action in the gold/silver paper “markets” in the west and the physical, real markets in the eastern hemisphere:

CLICK ON EITHER BANNER BELOW TO LEARN MORE ABOUT EACH

Essential Commodities: Gold, Silver And Popcorn

JBGJ regards Indians buying less gold as cash crunch bites primarily as evidence that FOBs (Friends of Bloomberg) are not in gold. If India’s domestic gold market was as weak as presented there would be a significant discount to the world price…In reality the Government has struck a shattering blow at the trust Indians have in holding wealth in any form accessible to the Authorities. When things finally unglue, India’s propensity to hold gold will probably be found to have risen – John Brimelow’s Gold Jottings report – LINK.

Yesterday’s sell-off in gold occurred after the Comex floor had closed for the day.  The period of time between when the Comex closes  – 1:30 p.m. EST – and the CME’s Globex computer system trading closes for about an hour – 5 p.m. EST – is one of the least liquid trading periods of the 23 hour, 5-day trading week.  It makes that period of time susceptible to manipulative price take-downs.

As it so happens, likely not coincidentally, Janet Yellen began speaking about monetary policy at 2 p.m. EST.  She stated that the Fed expects a few interest rate hikes per year until 2019.  Geez, that would take the Fed funds rate up to maybe 2%?  Of course, helped along the by the bullion banks, the hedge fund trading algos grabbed the soundbytes spewing forth from Yellen and concomitantly sold paper gold and bought dollars.  The dollar spiked up and gold was taken down to $1200.  It traded below $1200 overnight on the “fumes” of yesterday.

Gold, silver and the mining stocks have had a nice move from late December to now.  They will not go straight up.  Technically the sector was set up to be susceptible to trading activity related to Fed soundbyte propaganda like yesterday.   This is yet another buying opportunity.  Buy a little every month when the price gets taken down in the paper market. According to the Indian data presented by Brimelow, India is a huge buyer of gold below $1200.   China is a steady buyer regardless of the price.

The Trump presidency will usher in a period in which Orwell’s prophecies will shift into overdrive.  Popular mistrust of anything and everything Government will accelerate and Big Government’s attempt to counter-act this movement will take place in the form of intensified propaganda and a further reduction in  civil rights.  Along with this influx of political and media chaos will be an increasing distrust of fiat paper “fake” currency, which means the public will likely buy even more gold and silver than it did in 2016.  Note:  the U.S. mint sold a record amount of gold eagles in 2016.

In today’s episode of the Shadow of Truth, we continue our discussion of the precious metals sector, including some analysis of the gold / silver ratio: