Judging from the open curiosity surge late final week, it seems as if it’s greater than doubtless a…
by Michael Ballanger by way of Streetwise Reviews
With the dear metals markets range-bound and pushed by forces past his management, sector skilled Michael Ballanger turns his contrarian eye to the previous.
With gold having fun with its finest week of the yr, with the Every day Sentiment Index charging northward, with the Relative Energy Index (RSI) urgent 72 for the GLD, with the RSI for GDX pushing 75, and eventually, with the e-newsletter neighborhood all falling on high of themselves with self-laudatory backslaps, I feel it’s time to undertake the contrarian view and step again.
It was lower than 5 weeks in the past, with gold and the miners all coming off sharply oversold situations (RSI within the mid-high 30s), that I wrote that “carpe diem” in reference to possession of GLD calls and my two favourite leveraged miners, NUGT and JNUG. Certain sufficient, JNUG has moved from $6.50 to $9.50 and NUGT from $14.50 to $22.10, whereas the GLD July $120 calls rocketed from $2.20 to $7.60. (Observe: I didn’t get “high tick” for any of them, however did financial institution yet one more first rate 40% return on the miners, and a double and a half on the GLD calls).
The purpose is that whereas I’d love for gold to interrupt out of this bullion financial institution headlock on the $1,350–$1,375 band of resistance, historical past has confirmed it to be a formidable impediment and one that you simply completely should face.
Listed here are just a few charts illustrating my level:
First, the GLD, hated by many, traded by most, and a very good proxy for the “paper gold” market, the second-most corrupt market on the earth and runner-up to the most corrupt market on the earth, the Comex (“Crimex”) futures market in Chicago. Proper up there beside it’s the HUI, the unhedged gold miners index that represents the huge universe of gold mining entities world wide, and one other nice proxy for a vastly hated group of firms whose collective market cap losses previously eight years has been colossal.
Many, many new millionaire traders have sprung up from proudly owning these lifestyle-preserving dinosaurs, having been previously billionaire traders previous to taking the gold miner plunge. The HUI has had no fewer than six rallies because the high in August 2016, however every rally was adopted by new lows, with the newest low coming final September. The RSI and transferring common convergence-divergence (MACD)/histogram combo at present reside in “overbought” territory, and if historical past proves as dependable immediately because it was at each different go to to the $1,350–$1,375 resistance zone, we should always don the personalities of the hideous bullion financial institution merchants and promote that which we personal within the paper markets to undertake their illicit but enormously worthwhile techniques and executions.
The subsequent two charts are my favourite automobiles for dice-rolling. . .er. . .hypothesis within the miners as a result of they’re extraordinarily liquid they usually report back to oversold and overbought situations appropriately to the extent that you may purchase 100,000 shares with an RSI round 30, as I did in Might with JNUG and NUGT, after which let it fly when the RSI exceeds 70, as I did final week. As a result of I subscribe to the view that the majority profitable merchants earn their stripes by at all times promoting too quickly, I used to be per week early in pulling the JNUG and NUGT triggers, however as I by no means purchase 100% positions in a single fell swoop, I additionally by no means promote 100% positions in the identical method. I scale in and I scale out as a result of nobody indicator is infallible. All knowledge is freely out there to actually everybody, however I’ve realized over the numerous years of buying and selling (and dropping) that it’s the interpretation of the indicator, versus the extent, that defines the commerce’s set-up. Please enable me to elaborate.
George Soros as soon as wrote that he would expertise again ache at any time when he entered a commerce that was suspect. Relatively than rejecting it as a psychosomatic phantasm, he realized to belief the again ache as a definable premonition of unfavorable final result. It was his mind telling him to exit the commerce by the use of his physique and regardless of the voodoo-ism within the clarification, I completely agree with him.
On Friday the 14th, I arose from slumber at roughly 5 a.m. and proceeded to test the markets whereas luxuriating in some pretty new 400-thread sheets just lately launched to me by my companion. As I had already began to exit my leveraged gold and gold miner positions, I used to be stricken with a pointy ache of panic as gold was buying and selling within the $1,355–$1,360 vary. Not solely had I gone on document as a vendor of the transfer to $1,350, I used to be tweeting out all week warning after warning within the $1,340–$1,350 vary. So to say that the June 14 three:00 a.m. Globex print at $1,361.20 was problematic is an understatement.
Nonetheless, right here is the tweet I despatched out: Initiating 50% place in GLD July $127 places @ $1.42…Lord hates a coward.
That was delivered at 11:30 a.m.. By three:00 p.m. gold had dropped $14 per ounce and my places traded as much as $1.94, lastly closing at $1.85. I’m at present on the lookout for a $40–$60 drop in gold and an RSI within the high-20s/low-30s by mid-August. If that happens rapidly, the places will commerce $four.50–$6.50 and I can be a reluctant hero. Repeat—a reluctant hero, and right here is why.
For those who had requested me in 2001 what I assumed would drive gold to $5,000 per ounce, I’d have responded with a listing of financial, monetary and geopolitical occasions corresponding to terrorist assaults, conflict, debt defaults, inventory market volatility, foreign money crises, accelerating inflation charges and fraud, all driving traders to the time-tested secure havens of treasured metals. It began with the 9/11 Twin Towers assault in NYC, after which escalated from there, taking us via almost 20 years of turmoil in the entire aforementioned areas.
Effectively, women and gents, we have now had a number of historic value drivers for treasured metals throughout that interval however what we have now additionally seen is a large, coordinated and fraudulent marketing campaign to manage investor appetites throughout a large spectrum of asset courses, demographics and borders. The brand new rock stars of the 2000s are actually central bankers, whose mega-maniacal actions transfer markets and create or destroy trillions of of citizenry wealth with their utterances, written phrases and, extra just lately, social media “bulletins.” It’s as if central bankers from all Western nations met in Basel in 2001 and determined the place that they had the best collateral publicity (assume actual property and bonds), then proceeded to map out a plan designed to foster confidence in shares, bonds, U.S. and actual property whereas crushing investor demand for onerous belongings like silver and gold and eventually cryptocurrencies, whose destiny was sealed in late 2018 with its itemizing on the “Crimex,” totally endorsed by the Commodity Futures Buying and selling Fee (CFTC).
I totally anticipated this turmoil again in 2001, after the dot.com bubble popped, sending a whole tech-loving era to the poorhouse. However the issue was that the playbook, which had included fifty years of information, omitted the brand new guidelines regarding trigger and impact. By instance, if you happen to assume it’s going to rain, you’re taking steps to remain dry by the use of rain gear and umbrella; if you happen to assume that the U.S. banking system goes to be vaporized via greed and malfeasance, you load up on gold.
Nevertheless, if it begins to rain and an invisible hand removes your rain gear and destroys the umbrella, you might be all of the sudden drenched. You appropriately predicted and ready for the occasion (rain), thus figuring out the trigger, however regardless of such preparations defending you for the previous fifty years each time it rained, you bought moist. The impact was distorted by forces over which you had no management. Equally, regardless of appropriately figuring out a number of causes that ought to have pushed gold to $5,000/ounce, forces over which I had no management conspired to distort investor demand, and as an alternative of shares crashing and treasured metals hovering, the precise reverse occurred, starting in 2011 and persevering with to this very day.
So after I use the time period “reluctant hero,” it’s as a result of I’ve skilled myself to assume and act like a bullion financial institution dealer, full with unregulated license and unrelenting bravado. Aligning one’s commerce setups to coincide with the Commercials is in no way a assure of revenue, however refusing to take the opposite facet of a bullion financial institution commerce setup does, on the very least, dramatically enhance one’s likelihood of success.
The draw back is that performing and behaving like a bullion financial institution thief is an unhealthy and unrewarding train. You run the chance of assuming that 5,000 years of historical past confirming the wondrous utility of gold possession won’t ever return, and that the one historical past that issues is that which started on December 23, 1913, on Jekyll Island. The monetary threat is borne out the second you get up and gold is at $1,450, and there aren’t any presents and your commerce alignment with the bullion banks has all of the sudden and viciously bankrupted you. And with what is occurring immediately world wide, it’s a severe threat.
This chart is an illustration of the large response by gold to the subprime bailout in 2009, and the following smothering of any kind of response in any way from 2011 till immediately. As of the shut of enterprise on Friday, June 14, gold went out slightly below that formidable band of resistance at $1,350–$1,375, and I anticipate it will likely be a battle for the ages as pro-gold forces wage conflict with the bullion financial institution behemoths. Judging from the open curiosity surge late final week, it seems as if it’s greater than doubtless a repeat of previous interventions, with draw back threat to $1,315–$1,320. Nevertheless, gold goes increased over the long term and that’s why I preserve positions within the portfolio proven beneath.
The money place at present at round 27% is the full earnings from trades made in 2019 much less two hedges placed on final week, probably the most impactive to this point being the acquisition of 100 Goldman Sachs July $180 places in Might for $2.20, after which offered in June at $6.60 for a 200% return or $44,000 (U.S.) in earnings. You’ll observe that I do not commerce bodily gold and silver, and I not often commerce the unleveraged ETFs (GDX and GDXJ), whereas utilizing the leveraged ETFs (JNUG and NUGT) as buying and selling automobiles and the DUST as a hedge. The remaining money can be deployed on a correction in gold, which I anticipate subsequent week, or within the occasion that the bullion banks get caught quick and we scream via $1,375.
As might be seen from the GGMA portfolio, I stand to profit way more on a gold breakout that lasts quite than from a corrective transfer favoring the bullion banks.
Rattling the torpedoes and cross the tequila. Let’s see what this week brings.
Initially skilled throughout the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis College the place he earned a Bachelor of Science in finance and a Bachelor of Artwork in advertising and marketing earlier than finishing post-graduate work on the Wharton Faculty of Finance. With greater than 30 years of expertise as a junior mining and exploration specialist, in addition to a strong background in company finance, Ballanger’s adherence to the idea of “Laborious Property” permits him to focus the observe on choosing alternatives within the international useful resource sector with emphasis on the dear metals exploration and improvement sector. Ballanger takes nice pleasure in visiting mineral properties across the globe within the unending hunt for early-stage alternatives.