Tag Archives: mining stocks

The Comex And LBMA: Paper Gold On Steroids

I truly thought I had seen all that was possible in the creation of paper gold when the Comex rolled out its “pledged gold” category which enabled technically insolvent banks like HSBC and JP Morgan – the only two Comex banks to have taken advantage of this new gold derivative product – to use paper gold to satisfy the performance bond requirement of CME clearing members.

But now the LBMA and CME operators have rolled yet another paper gold derivative productive in the hopes that the two entities can stave off defaulting on futures and forward contractual delivery requirements.  The Accumulated Certificates of Exchange (“ACE”) facilitates the “fractional” delivery of a 400 oz gold bar.

There’s just one minor problem with this set-up.  According to the Cambridge Dictionary, the word “delivery” is defined as:  “the act of taking goods, letters, packages, etc. to people’s houses or places of work.” To me this means if I want delivery of the 100 oz bar of gold for which I contracted, I would like to have the 100 ozs deposited in the location of my choice so that I can possess the gold bar for which I paid upfront.  In effect, the Comex has technically defaulted on the contractual terms of the 100 oz Comex futures contract.

Ronan Manly of Bullionstar.com has written an excellent analysis of this new paper gold derivative scheme:

And just like that, when you thought bullion bankers and their frontmen, the CME and LBMA, could not create even more paper gold, they just went ahead and did. And it gets better, since according to the CME:

“Once issued, ACEs can be held as long as necessary. A client can use ACEs to comply with short delivery requirements (1 ACEs reflecting one futures contract of 100 oz) or it can be swapped back against a 400 oz bar by exchanging 4 ACEs. A customer can comply with delivery requirements with ACEs or regular bars, or a combination of both.”

Here’s his entire article:   Comex delivery problems.

It’s only a matter of time before the markets wake to this reality. At that moment we will see the $100-$200 or more daily moves in gold that many have discussed as an eventuality.

Time To Accumulate Mining Stocks (Especially Juniors)

A few of my subscribers asked me recently about the lethargic action in the miners lately given that the price of gold has started moving higher again. But it helps to step back and look at a longer time-frame. For the last 52 seeks, the HUI has significantly outperformed GLD. I also ran the comps for 6 months, 3 months and 1 month. The HUI has outperformed gold for the last year up until the last 30 days. Nothing unusual with that. Assuming the current bull move in the metals sustains for awhile, the mining stocks will soon begin to outperform the metals again.

The myth is that the stocks lead the metals. But this is not true for periods when longer-term sustainable moves occur. Gold leads, typically followed by the larger cap miners, followed by silver. Bringing up the rear are the risky juniors, which can provide huge returns in a short period of time. Currently the mining stocks – and especially the micro-cap junior exploration “venture capital” stocks – are extraordinarily undervalued in relation to the prices of gold and silver. Chris Marcus of Arcadia Economics and I discuss this view in Chris’ podcast:

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

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

Stocks And Gold: What Happened Last Week

The coronavirus crisis is perhaps the real “Black Swan” that no one saw coming.  While the virus pulled the trigger on the loaded weapon aimed at the stock market, it’s not the cause of the 2nd fastest 10% decline in the history of stock market.  Using “as adjusted” GAAP accounting applied to the current trailing 12-month SPX earnings to make them comparable to the GAAP standards applied to 1999 earnings, this was the most overvalued stock market in U.S. history.  While Fed officials and Wall Street story-tellers rejected the notion that the stock market was in a bubble, this table from Crescat Capital demonstrates the stock market’s extreme degree of overvaluation:

The SPX is at an all-time high in five of eight valuation metrics.  However,  I would argue it’s really 6 of 8. The “adjusted” P/E (CAPE) used by Robert Shiller is in the 96th percentile of high valuation.  But if the historical earnings of the SPX were adjusted using 1999 GAAP, the current “Shiller P/E” ratio would at an all-time high. This is because GAAP standards for recognizing income have become considerably more lenient over the last 21 years.

A metric more suited to comparable analysis across time is the median enterprise value (market cap + debt) to sales ratio. The revenue line is the least affected by GAAP.  For the most part (there are exceptions), sales are what they are.  Currently the median EV/sales ratio is 3.6x. This is double what it was at the peak of the dot.com/tech bubble.

It was just a matter of time before the stock market fell off its valuation cliff.  Meanwhile, the precious metals and mining stocks ripped lower last week. Several subscribers asked what was going on given the expectation that at least gold and silver should have benefited from cash seeking a safe haven.  But, as with the general stock market, the precious metals sector was set up technically for a correction.

When hedge funds face margin calls they start to dump anything in their fund that has a reasonable bid. The sheer force of the stock market sell-off took everything with hit.  Most NYSE stocks, including mining stocks, have a bid.  Most CME futures contracts, especially paper gold and silver, have liquid bids. Hedge funds have large leveraged positions in illiquid subprime high yielding garbage which have no bid in a highly turbulent market.  The Fed’s repo/QE operation since September has enabled hedge funds to maintain these morally hazardous illiquid investments rather than forcing the funds to pare back.

You’ll note, however, that most of the decline all week in the price of gold and silver occurred during Comex trading hours, when most of the rest of the world is done for the day. While the Fed/BIS/banks no doubt helped push on the metals in the paper market, hedge funds were extraordinarily long gold and silver futures going into this past week and gold and silver futures had a liquid short-cover bid conveniently provided by the banks who are clearing agents for the Comex.

Furthermore, the HGNSI (Hulbert Gold Newsletter Sentiment Index) had jumped over 70. The mining stocks and gold/silver ALWAYS correct when the HGNSI is over 60. The week before last the entire precious metals sector went straight up in a “flight to safety” move. With sentiment off the charts, the pullback is healthy because it sets up the next big move, especially as it becomes obvious that the Fed will attempt to fight a bear market in the stock market by taking the Fed Funds rate to zero and upsizing its current QE money printing agenda.

The Dow could drop to 17,000, which is where it was trading when Trump labeled the stock market “a big, fat ugly bubble” in late 2016, and still be egregiously overvalued based on fundamentals. India’s massive gold appetite was muted this past week after the big move gold had made the previous week thereby making it easier to push gold and silver lower. This is characteristic of India’s buying pattern. With the smash in gold, India will back in play next week which should at the very least insert a floor under the precious metals sector.

The Fed seems to time its reinsertion of the Fed put strategically at a time when the stock market is technically highly oversold. December 26, 2018 is a perfect example. Of course it’s no coincidence that the Fed caved in on Friday and posted a notice on its website BEFORE the stock market closed that it would use its tools and “act as appropriate to support the economy.” Translation: “we’re telling you we’ll print money to support the stock market and we wanted to get the ball rolling on Friday before the market closes with the Dow down 900 points.”  Of course, the Dow proceed to  rally over 500 points going into the close.

I expect a dead-cat bounce in the stock market that may or may not last all week. If the Fed increases the amount of money spewing from its printing press it might extend the DCB longer than a week. The precious metals sector should benefit from this and it might even continue higher when the stock market inevitably takes another turn for the worse and heads toward “bear market” territory.  For precedence on this pattern, see the fall of 2008.

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

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

Gold Signaling A Financial System Disaster Will Hit

And it’s not just gold. The Fed is already hinting that more money printing is coming.  Powell suggested at his semi-annual Congressional testimony that QE would be used in the next recession.  A couple other Fed officials this week confirmed that the FOMC is preparing to crank up the printing press even more than it has been running since mid-September.

But why does the Fed feel compelled to warn us that more money printing/currency devaluation is coming if, as Powell told Congress, “the economy is in a good place?”

To begin with, money printing is not stimulating economic growth. The economy has been sliding into contraction for quite some time. Since the “repo” operations began, that pace of contraction has increased.

Make no mistake, the Fed is printing money for two reasons. First and foremost to plug the widening chasms in bank balance sheets brought on by taking on highly risky lending and derivatives risks.  This why the bank excess reserve account has drained steadily since late 2014:

Why was QE restarted? This article partially explains the reason:  Banks Stuck With Billions In Risky Leveraged Loans As Investors Flee The formal term for this is “moral hazard.”  The second reason is to monetize the flood of new Treasury issuance that began in the fall of 2019. Currently the Fed’s Treasury holdings are nearly as high as its peak during  of the first period of money printing (QE1-3).

Yes, the appearance of coronavirus is going to exacerbate the systemic problems engulfing the world. But Corona has NOTHING to do with the fact that the U.S. is overleveraged at every level of the economic system (Government, corporate, household) and China, Japan, and  EU are overleveraged at the Government and corporate level.

EU and U.S banks are  highly stressed from holding non-performing assets (subprime loans primarily) compounded by derivatives connected to those assets, which are deteriorating rapidly in value. The global economy was sliding into a nasty recession well before corona hit the scene. Corona merely will hasten the inevitable. The that fact that the global economy can’t withstand this particular exogenous shock reflects the extent to which the global economic/financial system was already headed toward the cliff.

With the stock market broken (i.e. its price discovery mechanism removed by Central Bank money printing), gold soaring despite heavy intervention attempts, the 30-yr Treasury bond yield hitting an all-time low and the Fed telegraphing even more money printing is coming, something really ugly is going to surface and cause financial system destruction similar to what occurred in 2008 – only this time it will be worse.

For now my front-runner in the race to collapse is HSBC. Deutsche Bank seems to have been somewhat stabilized from massive intervention by the ECB, Bundesbank and German Government (though that “appearance” of stabilization likely is deceptive). Judging from its stock chart, which has woefully underperformed the sector since mid-2018 and has substantially underperformed DB since mid-December, HSBC appears to be on the ropes. It may be more insolvent than DB now.  HSBC is loaded up on overvalued, illiquid Hong Kong real estate loans among many other reckless investments.

I think whatever coming at us is going to make things unpleasant for everyone. But you can help protect your financial situation by buying physical gold and silver that you safekeep yourself.  Gold broke out in a major way in mid-June. It sniffed out the systemic problems starting to surface well ahead of the reimplementation of money printing in September.

Gold raced to a 6-year, 11-month high last week. It’s only a matter of time before it assaults the previous all-time high of $1900. Though inexplicably underperforming gold, silver is percolating to make a move like the current move in palladium. And last but not least, the junior mining stocks are setting up for a move that will make the current tech-mania bubble seem tame.

Gold Chases The Money Supply Higher

Q: “Why is the Fed reluctant to let the boom-bust nature of markets play out?”
A: “Because it what’s they’ve always done [since the Fed was founded in 1913]…Once you’re in power, you’re going to do what you can to defend the system as it is”

The best official measure of the money supply created by the Fed was M3.  “Was” because the Fed under Helicopter Ben removed M3 from public view.  But the “effective” money supply is the currency printed plus the “spendable” currency created by debt issuance. Currency from a loan behaves like printed money until the loan is repaid.  But for the last 10 years the amount of the loans outstanding, and therefore the supply of “spendable” currency,  has risen at an increasing rate.

Gold can “smell” these reams of fiat paper currency being printed and then fractionalized and leveraged by the Central Bank. The “fractionalization,” of course, is the process by which loans (including repos) creates spendable currency.

SilverBullion invited me back onto its SBTV podcast to discuss the markets in the context of the QE4 and what it means for the 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

Mining Stocks Are Setting Up For Another Run

The Fed is trapped.  If it stops adding money to the money supply, the stock market will crash.  It’s already extended the repo money printing program twice. The first extension was to February and now it has extended it again to April.

What was billed as a temporary “liquidity problem” in the overnight repo market is instead significant problems developing in the credit and derivative markets to an extent that it appears to be putting Too Big To Fail bank balance sheets in harm’s way.  That’s my analysis – the official narrative is that “there’s nothing to see there”.

The delinquency and default rates for below investment grade corporate debt  (junk bonds) and for subprime consumer debt are soaring.   Privately funded credit,  leveraged bank loans,  CLO’s and subprime asset-backed trusts (credit cards, ABS, CMBS)  are starting to melt down. The repo money printing operations is a direct bail out of leveraged funds, mezzanine funds and banks, which are loaded up  on those subprime credit structures.    Not only that,  but  a not insignificant amount of OTC credit default derivatives is “wrapped around” those finance vehicles, which further accelerates the inevitable credit meltdown “Minsky Moment.”

The point here is that I am almost certain, and a growing number of truth-seeking analysts are coming to the same conclusion, that by April the Fed will once again extend and expand the repo operations. As Milton Friedman said, “nothing is so permanent as a temporary government program.”

Gold will sniff this out, just like it sniffed out the September repo implementation at the beginning of June 2019.  I think there’s a good chance that gold will be trading above $1600 by this June, if not sooner.

Eventually the market will discover the junior exploration stocks and the share prices will be off to the races. This is part of the reason Eric Sprott continues to invest aggressively in the companies he considers to have the highest probability of getting enough “wood on the ball to knock the ball out of the park” (sorry, baseball is right around the corner).

Precious metals mining stocks are exceptionally cheap  relative to the price of gold (and silver).   Many of the junior exploration stocks  have sold down to historically cheap levels  in the latest pullback in the sector.   As such, this is a good opportunity to add to existing positions in these names or to start a new position.

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

In my latest issue of the Mining Stock Journal, I present a penny stock idea that I believe could be a 5-10 bagger.  I’m not alone in this view because a royalty company I know and respect recently took a 9.5% position in the company’s stocks and purchased a royalty stream on several of the company’s mining claims.  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.

Tesla, Gold And Coronavirus – Fraud And Global Depression

To say the current stock market is in a bubble is an insult to the word “bubble.” Tesla experienced an insanely idiotic stock price move after reporting “shock and awe” headline numbers for revenue and EPS which “beat” estimates – estimates that had been lowered by analysts throughout 2019. But as always there’s plenty of dirt in the details which point to a reality that is far different than is represented by headline numbers and Tesla’s highly orchestrated earnings presentation.

There’s just no telling when this Electric Tulip will inevitably crash. But, as with any investment bubble the popping will happen suddenly and unexpectedly, when the bulls are convinced that the upside is limitless and the bears are in a state of terror.

Meanwhile, the physical gold market which underlies the complicated web of paper gold derivatives continues to push the gold price higher despite aggressive efforts by the western Central Bank and bullion bank price management team. In fact, data from the BIS indicates that the BIS had a heavy hand in the effort to cap the price-rise of gold during January using its physical gold swap and leasing transactions.

Paul at Silver Doctors invited me onto its podcast to discuss these issues

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

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

Gold, Silver And Mining Stock Charts Look Bullish

“Miss the boat? The move in the precious metals sector is just getting started”Arcadia Economics

The charts on the mining stocks I follow in my Mining Stock Journal are all starting to look very bullish. Many have pulled back this month after a nice rally during the fourth quarter of 2019. China goes on a week long holiday observance which will close Shanghai until next Friday. That may or may no affect the short term direction of gold and silver.

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

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:

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

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.

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.