Tag Archives: mining stocks

As The Financial System Melts Down Gold And Silver Will Soar

To the extent that some analysts reject the Fed/Wall St/Perma-Bull narrative that the Fed’s repo operation is needed to address “temporary” liquidity issues or was caused by the newer regulatory constraints, the only explanation offered up is that the financial system’s “plumbing” is malfunctioning.  But there has to be an underlying cause…

…The underlying cause is abject deterioration in credit instruments – largely subprime right now – is causing an ever-widening chasm between the value of these securities and the funding used to finance those asset values.  The banks have reduced their willingness to fund  the increasing demand for overnight collateralized loans because they see first-hand the degree to which some of the collateral has become radioactive (CLO bonds, for instance).  The Fed has had to plug the “gap” with its repo operations, several of which have maturities extended up to a month. This is de facto QE, which is de facto money printing.

As this slow-motion train wreck unfolds, more money printing will be required to prevent systemic collapse, which in turn will trigger an explosive move higher in gold, silver and mining stocks.  Chris Marcus of Arcadia Economics invited me onto this podcast to discuss these issues in a little more detail:

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Currently junior mining stocks are the most undervalued relative to the price of gold and silver as at any time in at least the last 20 years.  But several producing gold and silver mining stocks are extraordinarily cheap.  I featured one in my Mining Stock Journal that’s up nearly 14% since Thanksgiving.  I’ll be presenting a similar producing mining stock in the next issue released Thursday.

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

The Path Of Least Resistance For Gold Is Up

The price of gold has held firm at the $1460 (front-month contract basis, not the Kitco “spot” price) level despite the constant price attacks that have been occurring overnight and into the Comex floor trading hours since early November.

On an intra-day basis gold has managed to hold continuous aggressive attempts to push the price below $1460 for the last 6 trading days, including today.  Interestingly, last Tuesday (November 26) and Friday, gold shot up during the Comex floor trading hours in the absence of any news or event triggers.

Zerohedge attributed Tuesday’s spike in gold to the jump offshore yuan vs the dollar. But that day gold started moving before the yuan moved.  On Friday, gold soared as much as $14 from an intra-day low of $1459 while offshore yuan declined vs the dollar.  Zerohedge’s explanation for the mysterious movement in the gold price on two days thus lacks evidence.

The open interest in the December Comex contract remained stubbornly high through first notice day last Friday. The banks, which have an extreme net short position in Comex gold have exerted an enormous effort to force hedge funds either to liquidate long positions or to sell December contracts and move out to February, which is the next “front month” contract.

If an unusually large number of longs decide to stand for delivery, it would place an enormous amount of stress on the warehouse stock of gold that has been designated as available for delivery in Comex vaults. In addition India has been importing an enormous amount of gold starting in late October. This has provided strong price support from the physical market.

Also, the gold price has withstood a 43,000 contract liquidation in Comex open interest, including a 1-day record 127k contract liquidation in the December contract, much of which “rolled” out to February.  Historically a draw down in Comex open interest of this magnitude would have removed at least $50 from the gold price.

In the chart above, gold appears to be establishing a strong base in the $1460 area. The MACD shows an extremely oversold technical condition as does the RSI.  With the Central Banks, including the Fed, printing money at a furious pace right now, the conditions are in place for potentially a big move in gold.

The commentary above is a partial excerpt from my lastest issue of the Mining Stock Journal. In this issue I present an opinion on the Kirkland Lake acquisition of Detour Gold that may surprise some mining stock investors. The junior exploration stocks have been relentlessly pounded lower during this latest sell-off in the sector, especially relative to the shares of the mid-cap and large-cap producing miners. I believe several junior exploration stocks are trading at a price level which significantly reduces the risk and increases the potential ROR in these shares.

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.

Gold May Be Set Up For A Pleasant Holiday Season Rally

In what has become a recent routinized pattern in the price of gold (and silver), the market rallies during peak Indian gold market hours and then sells off when London opens. After the customary price take-down when the Comex floor trading opens, gold and (and silver) typically recoup the overnight sell-off. In short, there seems to be epic price discovery battle going on between paper derivative gold and the physical gold market and that won’t take much to ignite a massive move higher.

The recent sell-off in gold has triggered massive gold demand from India. Recall that India had been dormant since June, when the Government increased the import duty by 25% on imported kilo bars. But the lower price of world gold, combined with India’s peak seasonal gold buying period has unleashed India’s gold importation beast.

Based on premiums being paid for gold after taking into account the import duty, Indian importation is running full-tilt.

Despite repeated attempts to take the price of gold lower, Indian physical demand has put a floor under the market, at least for now, and poses a potential threat to the record level of net short interest in Comex futures by the banks and hedgers…The rest of my commentary came be found at  Gold-Eagle.com.

Repo Operations, Money Printing, Gold And Mining Stocks

The Fed is printing money again – this time disguised as “repo operations” instead of “QE.” The price of gold and silver rallied over the summer anticipating an easier monetary policy. The economic problems and financial system excesses are two to three times larger than in 2008. This will necessitate a money printing/QE/balance sheet expansion operation that dwarfs the $4.5 trillion printed the first time around. Plus most of the money printed from 2009 to late 2014 is still in the banking system.

The scale of the inevitable money printing policy will not stimulate economic activity but it will act as rocket fuel for the precious metals market – gold, silver and mining stocks. Ten years of Central Bank money printing has pushed debt issuance, malinvestment, moral hazard and fraud to levels that well-exceed the levels when Lehman collapsed.

Craig “Turd Ferguson” Hemke invited me back onto his “Thursday Conversation” podcast to discuss the the Fed cranking back up its money printing machine and the implications for gold, silver and mining stocks. Click on the link above or the graphic below to listen:

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In the latest issue of the Mining Stock Journal, I review several junior mining stocks plus I recommend a larger cap silver/gold/lead/zinc producer that has been sold off irrationally and which will report great earnings in Q3 and Q4 vs the same quarters in 2018.

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

Fed Delivers More QE “Light” And Gold Responds

On October 4th, as I expected would happen, the Fed announced that it was extending its overnight and term repo operations out to November 26th (the November 12th two-week term repo matures on the 26th).

The Fed added 7 more 2-week  “term repos, ” plus a 6-day “term repo,” with the next three operations upped to $45 billion. It extended the overnight repos until at least November 4th.  Well then, I guess the “end of quarter” temporary liquidity issue with corporate tax payments was not the problem.

Follow the money -The Fed’s repo operation extension further validates the analysis in my last post in which I made the case that an escalation in the non-performance of bank assets (loan delinquencies and defaults and derivatives), caused by contracting economic activity, has created a liquidity void in the banking system that is being “plugged” by the Fed. The Fed’s balance sheet has increased $186 billion since August 28th.

Not only did the Fed end “QT” (balance sheet reduction) two months earlier than originally planned in January, the Fed has effectively reversed in the last 5 weeks all of the QT that occurred since March 28th.

The evolution of Orwellian propaganda terminology for “money printing” has been quite amusing. It seems that the Fed has subtly inserted the phrase “balance sheet growth” into its lexicon. While Jerome Powell referenced “organic balance sheet growth” in his press circus after the last FOMC meeting,  expect that it will be considered politically/socially incorrect to use “QE” or “money printing” instead of “balance sheet growth” in reference to this de facto banking system bailout.

Meanwhile,  thank the Fed for providing the amount of money printing/currency devaluation needed to offset China’s absence from the physical gold market for the last week:

Given the technical set-up in gold plus the enormity of the Comex bank/commercial short position in paper gold, many gold market participants, including me, expected a much bigger price-attack on gold during Golden Week than has occurred. In fact, gold has held up well, with the December future testing and holding $1500 three times in the last week. Business activity in China, including gold and silver trading, resumes tonight.

The Fed’s QE Light program will likely transition into outright permanent money printing before the end of 2019. The November meeting is scheduled for the end of this month (Oct 29-30). But I doubt the Fed will turn its repo money printing into permanent money printing – aka “POMO” or “balance sheet growth” – until the December FOMC meeting (Dec 10-11).

An Unavoidable Global Debt Implosion

“[Whatever] the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. a new banking crisis is not only in the making, for which the repo problem serves as an early warning, but it could escalate quite rapidly.” Alasdair Macleod, “The Ghost of Failed Bank Returns”

The delinquency and default rate on consumer and corporate debt is rising. This creates funding gaps and cash flow shortfalls at banks. In a fractional banking system, banks only have to put up $1 of reserve for every $9 of money loaned. When the value of the loans declines because of non-performance, it requires capital – cash liquidity – to make up the shortfall in debt service payments received by the banks. In simple terms, the banks are staring at a systemic “margin call.”

To be sure, the current repo funding shortfall may subside. But it will not fix the underlying causes (Deutsche Bank, CLO Trusts, subprime debt, consumer debt, derivatives), which are likely leading up to another round of what happened in 2008 – only worse this time.

Chris Marcus of  Arcadia Economics  invited me to discuss my thoughts on the meaning behind the sudden need for the Fed to inject $10’s of billions into the overnight bank lending system:

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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

Gold, Silver, Mining Stocks: Get Ready For A Huge Ride Higher

Bullion Star released a graph Tuesday that showed Switzerland exported 90 tonnes of gold to the London gold market (U.K.) in July, which dwarfed exports to India and China.  Bloomberg’s spin on the data was that the gold was needed for ETFs.   Of course, as is typical, the Bloomberg “journalist” likely regurgitated “information” that came from a  source rather than fact-check.

But fact-checking shows that the number of tonnes of gold in GLD, by far the largest gold ETF, increased by only 23 tonnes during July from 800 to 823.  Assume the much smaller gold ETFs took in the same amount collectively – an estimate that is more than generous, and ETF gold flow accounts for less than 50% of the gold  exported to London.

Alternatively, a more likely explanation is that large quantities of physical gold are needed on the LBMA to feed an enormous buyer or buyers in London. This would explain what has become routine “V” shape moves in overnight gold futures trading, as the price of gold shrugs off repetitive attempts to push the price lower after Asia closes and LBMA forward and Comex futures trading replaces the physical gold markets in the eastern hemisphere.

This amount of gold imported by the London gold market also reflects the tight supply that has persisted for quite some time. The presence of a large physical buyer(s) would explain the relentless move higher in the price of gold (and silver).

This chart shows the  US-dollar price of the gold/HUI ratio. When I started to look at this sector back in 2001, gold was re-testing $250, which it hit after the Bank of England dumped half of its gold (400 tonnes) onto the market in 1999 (gold hit $253 on July 20, 1999). The HUI index was around 50 when I began to delve into the sector. This chart sourced from The Felder Report, with my edits, shows how cheap the mining stocks are relative to the price gold:

The ratio of the HUI index to gold has ranged from just over 0.6 in 2003 to the 0.10 it hit in December 2015. I predict that if the price of gold moves over $2000, we could see the HUI/gold ratio converge on 1.0. As the price of gold moves above the average cost for a mining company to pull gold out of the ground, every dollar higher the price moves adds a dollar to the income and cash flow of producing mining companies.

While the mining stocks in general have had a strong move since the end of May, “gold fever” and “mining stock fever” have not infected the general investment audience – yet. As an example, over the last two months of 2008, the HUI doubled (150 to 300). Gold was around $800. From mid-January 2016 to mid-August 2016, the GDXJ tripled. Since the end of May, the GDXJ has moved up 46%. An impressive move to be sure but it has long way to move to match the 2016 move in eight months.

The juniors are even cheaper than the producers. This is because, as the price of gold moves higher, value of the gold (or silver) in the ground for juniors with a resource becomes worth even more to potential acquirers, especially juniors who have projects in close proximity to mining companies with operating mines and infrastructure. At some point, larger mining companies will either have to start buying juniors or face being acquired by even bigger mining companies. Assuming the price of gold/silver continues to move higher from here, I believe we’ll start to see a lot more acquisition activity before the end of the year.

Gold / Silver May Be Breaking Free From Manipulation

The price of gold has rejected numerous attempts by the banks to hammer the gold price below $1400 using paper gold derivatives on the Comex and the LBMA. I have not seen gold behave with such resiliency in the last 19 years when the Comex banks have an extremely large short position in Comex paper.

The action in the price of gold is signalling that large buyers are accumulating a lot of physical gold. This is preventing the banks from using the Comex as a manipulative tool. Based on historical preferences, I highly doubt the buying is coming from the hedge funds, who have been content playing in the paper gold sandbox of the Comex.

Per the World Gold Council numbers, which are notoriously understated, Central Banks have purchased 374 tonnes of gold in the first half of 2019. This is the highest level of CB gold purchases in over 50 years. Note that western Central Banks – specifically the Fed, ECB, BoE and BoJ have been notably absent from the buying frenzy. The buying has been led by China, Poland and Russia.

“With governments everywhere itching to increase spending without raising taxes and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples’ investments.”

The quote above is from Alasdair Macleod’s must-read essay titled, “The Reasoning Behind Gold’s Breakout.”  The article dispels the common “Fake news” myths about gold. It would be a great article to read for Warren Buffet, who believes that gold “just sits there doing nothing.” Of course, students of gold and history know that gold has outperformed the Dow since 1971. Macleod revisits the math behind this fact.

If you are looking for mining stock ideas to take advantage of the emerging bull market move in gold and silver, please consider my Mining Stock Journal.  In the latest issue released last night I review a popular silver stock that I believe is overvalued and I present a high risk/high return junior exploration stock that is relatively unknown but has 10x potential. You can learn more about this newsletter here:  Mining Stock Journal information.

Gold, Silver, Mining Stocks Are A Coiled Spring

Currently gold and silver are behaving in a way that I have not seen since late 2008. The gold open interest on the Comex is near a record high (657,776 on July 11, 2016). The Comex banks continue pile into the short side while the hedge funds pile into the long side. However, every attempt to start a “waterfall” type sell-off is met with buying. Several attempts to take gold below $1400 this week have been thwarted. Silver all of sudden started moving higher manically. Based on the data I see daily, India and China are not participating in the buying. At least overtly. It feels like someone “big” is out “there” accumulating gold.

Phil Kennedy of Kennedy Financial put together a roundtable discussion with Bill Murphy, Dave Collum, Rob Kirby and me to discuss our thoughts on the gold market:

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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

Tesla, Gold, Silver And A Historical Stock Bubble

“Tesla’s headed for bankruptcy. It’s got a flawed business model; costs are way too high for the price charged for the vehicles and its riddled with accounting fraud. But the regulators will look the other way until it’s too late.”

Silver Liberties invited me on to its podcast to discuss reality. We spend 35 minutes trying to blow away the Orwellian “smoke” that is engulfing the United States’ economic, political system:

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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