The Golden ‘Second of Reality’ Is Upon Us: $1,400-Plus or Not?

With the dear metals markets range-bound and pushed by forces past his management, sector knowledgeable Michael Ballanger turns his contrarian eye to the previous.

With gold having fun with its greatest week of the 12 months, with the Each day Sentiment Index charging northward, with the Relative Energy Index (RSI) urgent 72 for the GLD, with the RSI for GDX pushing 75, and at last, with the e-newsletter group all falling on prime of themselves with self-laudatory backslaps, I believe 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. Positive 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 “prime tick” for any of them, however did financial institution one more respectable 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 below are a couple of 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 this planet and runner-up to probably the most corrupt market on this planet, 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 around the globe, and one other nice proxy for a vastly hated group of corporations whose collective market cap losses up to now eight years has been colossal.

Many, many new millionaire buyers have sprung up from proudly owning these lifestyle-preserving dinosaurs, having been previously billionaire buyers previous to taking the gold miner plunge. The HUI has had no fewer than six rallies for the reason that prime in August 2016, however every rally was adopted by new lows, with the latest low coming final September. The RSI and shifting common convergence-divergence (MACD)/histogram combo presently reside in “overbought” territory, and if historical past proves as dependable as we speak 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 all the time 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 information is freely obtainable to actually everybody, however I’ve realized over the various years of buying and selling (and shedding) 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 every time 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 consequence. It was his mind telling him to exit the commerce by means of his physique and regardless of the voodoo-ism within the rationalization, 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 beautiful new 400-thread sheets just lately launched to me by my associate. 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 file 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 presently searching 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.

If you happen to had requested me in 2001 what I believed would drive gold to $5,000 per ounce, I’d have responded with a listing of financial, monetary and geopolitical occasions reminiscent of terrorist assaults, warfare, debt defaults, inventory market volatility, forex crises, accelerating inflation charges and fraud, all driving buyers 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 practically 20 years of turmoil in all the aforementioned areas.

Properly, girls and gents, we’ve got had a number of historic value drivers for treasured metals throughout that interval however what we’ve got additionally seen is a large, coordinated and fraudulent marketing campaign to regulate investor appetites throughout a large spectrum of asset courses, demographics and borders. The brand new rock stars of the 2000s at the moment are 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 they’d 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 laborious property like silver and gold and at last 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 bubble popped, sending a complete tech-loving technology to the poorhouse. However the issue was that the playbook, which had included fifty years of data, omitted the brand new guidelines regarding trigger and impact. By instance, in case you assume it’ll rain, you are taking steps to remain dry by means of rain gear and umbrella; in case you assume that the U.S. banking system goes to be vaporized via greed and malfeasance, you load up on gold.

Nonetheless, if it begins to rain and an invisible hand removes your rain gear and destroys the umbrella, you might be all of a 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 not at all 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 affords and your commerce alignment with the bullion banks has all of a sudden and viciously bankrupted you. And with what is occurring as we speak around the globe, it’s a critical threat.

This chart is an illustration of the huge response by gold to the subprime bailout in 2009, and the next smothering of any sort of response in anyway from 2011 till as we speak. 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 warfare with the bullion financial institution behemoths. Judging from the open curiosity surge late final week, it seems as if it’s greater than seemingly a repeat of previous interventions, with draw back threat to $1,315–$1,320. Nonetheless, gold goes greater over the long term and that is why I preserve positions within the portfolio proven under.

The money place presently at round 27% is the whole earnings from trades made in 2019 much less two hedges placed on final week, probably the most impactive thus far 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 be aware that I don’t 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 brief and we scream via $1,375.

As might be seen from the GGMA portfolio, I stand to profit much more on a gold breakout that lasts moderately than from a corrective transfer favoring the bullion banks.

Rattling the torpedoes and go the tequila. Let’s have a look at what this week brings.

Initially skilled in the course of 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 stable background in company finance, Ballanger’s adherence to the idea of “Laborious Property” permits him to focus the apply on choosing alternatives within the international useful resource sector with emphasis on the dear metals exploration and growth sector. Ballanger takes nice pleasure in visiting mineral properties across the globe within the unending hunt for early-stage alternatives.


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Charts and pictures supplied by the writer.

Michael Ballanger Disclaimer:
This letter makes no assure or guarantee on the accuracy or completeness of the info supplied. Nothing contained herein is meant or shall be deemed to be funding recommendation, implied or in any other case. This letter represents my views and replicates trades that I’m making however nothing greater than that. All the time seek the advice of your registered advisor to help you together with your investments. I settle for no legal responsibility for any loss arising from using the info contained on this letter. Choices and junior mining shares include a excessive degree of threat that will outcome within the lack of half or all invested capital and due to this fact are appropriate for skilled buyers and merchants solely. One must be accustomed to the dangers concerned in junior mining and choices buying and selling and we suggest consulting a monetary adviser in case you really feel you don’t perceive the dangers concerned.

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