Loading ...[Sorry to publish so much of this report but it’s important–usually I put a few paragraphs…but the only link I have for this is Murphs site–and it requires a subscription-I searched for other sites but there were none–but Mikes a good guy and probably wouldn’t mind–and I believe his updates are not by subscription]
As I explained a few weeks ago, we all look at the same data and read all of the same headlines all failing en masse to accept that the fuzzy-cheeked kids buying stocks on margin day in and day out are actually the “smart money”. With their thirty-something brethren manning the computer terminals, they are seen using trained algobots that decipher all of the patterns and analyze all of the word clouds before launching micro-bursts of buy orders through microwave transmission systems many nanoseconds faster than anything even remotely similar to the “Quotron” order execution terminals of the 1970’s and 1980’s. So when I see the S&P down 3% with an hour of trading left and leave for the day thinking that there is simply no way any human trader would step into a market this bad, my jaw drops through the floorboards when I see on the news that a “Late Rally Saves Stocks” and therein lies the source of my angst (and anger).
Last Friday’s COT Report has now been the focus of more than fifty breathless commentaries complete with table-pounding and cymbal-clashing as the anticipation of a proctologically-challenging short squeeze resembles ”visions of sugar plums dancing in their heads” type of expectational Nirvana. Yes, it was noteworthy, in that in the ”Futures and Option” portion, the Commercials are actually net long silver for the first time I can ever recall and pretty close in gold, creating one of the most powerfully-bullish set-ups ever present since the COT was introduced in 1986. However, that was before the ”machines” took over the trading floors and what I think we are going to get is a retest of the August 16th capitulation lows both precipitated and engineered by Primary Driver #1 (algobots) at the prompting of Primary Driver #2 (Sovereigns and Central Bankers).
You see, this type of “trading action” is about as “unnatural verging on the perverse” as I have EVER experienced. There is indisputable evidence that conditions similar to December/2015 have arrived but the defining difference is that while the Commercials and the Large Speculators are still in battle, the market is still reacting to external factors rather than the bullish COT. It is beyond anything I have ever studied in all my years studying the back pages of the Wall Street Journal and Barron’s magazine’s “Market Lab” section on a Sunday afternoon listening to Zeppelin (70’s) and Supertramp (80’s) and Nirvana (90’s). The maddening element in analyzing price action in gold and silver lies within the realm of consistency, which is totally absent. The same applies to stocks and bonds, where risk premiums should be skyrocketing due to the likelihood of default, given the debt loads associated with stock buybacks and, in the case of governments, the inability of the populace to generate enough tax revenue to meet interest payments.
I usually include charts in my missives because they provide a visual canvas upon which the analytical painting gains substance and form and allows my readers to glean a sense of purpose to the assesment of the next direction of whichever market I am viewing. However, irrespective of the identity of the perpetrator, “someone” or “something” is influencing the dollar-based prices of gold and silver and in light of this, charts remain meaningless and ineffectual. Head-and-shoulders, cup-and-saucer, gravestone doji’s, hanging drunkards, and whatever other technical formation you wish to show me, I absolutely refuse to make investment decisions on their interpretations. In this day and age, it is the double drivers of technology (algobots) and government (interventions) that have as their sole mission the protection of the reserve-currency-status of the U.S. dollar. This directive is indelibly etched into every facet of financial market warfare by the U.S. while combatting it remains the sole mission of Russia and China and a vast majority if the Islamic world. Integral to all of this is the necessity of keeping a stranglehold on gold and silver prices while juggling the stock and bond markets like a one-eyed circus clown in order to maintain the status quo of how international money flows favour the Americans. Specifically, it does NOT matter whether the Commercials are long or short or whether Large Speculators have amassed a short position the notional amount of which is larger than total global mine production for the past year. The algobots simply wag the dog (physical gold price) by controlling the tail (futures) under the full blessing of government regulators and exchange officials.
The COT Report began in 1986 and in the entire history of this report, there has NEVER been an occasion when the Commercials were net long gold. Since they represent the bullion producers (hence the term “bullion bank”), it is an outrageously-bullish development. However, unless the algo’s are in sync and unless the sovereign market makers are OK with it, the power of this set-up is going to be conflicted by the two primary drivers. I want to see a three-day close above $1,220 with persistently declining open interest with the next three COT Reports indicating that the algobots (Large Specs) are running for cover and capitulating. Then and ONLY then will I place a tentative and very swollen toe back into the precious metals waters.
I mentioned Western Uranium (WUC.CNX) and Aben Resources (ABN.V) in recent commentaries with the former hitting a 52-week high at $1.84 while the latter has retraced from the $.38 level to today’s low of $.28. I continue to accumulate ABN on weakness and am looking for similar opportunities for WUC. While ABN is a drill-hole play with an extremely high-risk/high-reward profile, WUC is a value play with a market cap at 1.23% of the in-ground value of seventy-five million pounds of uranium (@$26.30/lb.) and thirty-five million pounds of vanadium (@$18.60/lb.). The combined uranium/vanadium portfolio of assets is worth U.S.$2.62 billion versus the current $32.3mm market value of the shares (which seems somewhat out-of-whack). The pullback in ABN is related to the length of time that has passed since the August 10th announcement of 62.4 g/t Au over 6 metres in their first hole. Tremendous volumes have passed through the ABN turnstiles (62,272,372 shares) since the discovery was announced and all of the chatrooms are rife with the usual pro-con banter that typically accompanies exploration plays but which usually take on the distinctive odor of a horse paddock. As I wrote about a few weeks back, I had great success in the Golden Triangle with Stikine back in ’89 with the Eskay Creek discovery so at a $33mm market cap, there is a great deal of upside should the North Boundary Zone become part of or secondary to the new South Boundary Zone where three holes intersected “quartz-sulfide veins containing abundant pyrite and copper (chalcopyrite) mineralization”. However, the trading natives are restless and without the usual dosages of Ritalin (drill results) to settle them down, the traders will be as nervous as a cat in a room full of rocking chairs.
I have been reading blog after blog chortling on and on about September’s reputation as the best month of the year for gold and silver and the worst for stocks but once again I remind you that seasonality trades have been and will continue to be “Divorcee-Makers” while the algobots and central bank desks are in full operation and control. We have the most bullish set-up in neatly two decades for the PM’s and with seasonality and COT structures positive yet gold and silver continue to have great difficulty in attracting interest. By contrast, in looking at the NYSE Advance-Decline Line year-to-date, it is apparent that the ETF’s now run the market as “passive investing” is the only possible explanation for an A/D Line so perfectly symmetrical with stock prices. In a normal, non-manipulated market, one sees numerous divergences over a year of trading, a signal that money is flowing in or out of stocks. In fact one of the great sell signals I used to watch out for was an big up-move in the stock market that would go unconfirmed by a failure to do the same for the A/D line. Legendary Robert Farrell’s Rule #7 is “Markets are strongest when they are broad and weakest when they are narrow.” and while many like to use the FANG stocks’ impact on the averages as an example of a narrow market, that A/D line shown above looks superb. Conclusion: Don’t be too confident in September rewarding the bears.
My model portfolio is 65% invested today with 50% in gold, silver, and a basket of the juniors covered in this commentary (SRC, CDA, WUC, ABN) as well as one private. I have 15% invested in highly-speculative call and put option strategies on silver and the S&P 500. The 35% cash is targeting silver calls on the basis that if all of the celestial bodies align in the next week or so, a $3-5 per ounce move is entirely possible. Ladies and gentlemen, if there was EVER a super-springloaded trade set-up in the history of markets, it is silver. With the crashes in copper, zinc, and lead in the last year, base metal production is coming down and with it the arrival of these bi-product supplies that have a negative AISC. While I acknowledge that my normally-bullish enthusiasm has been somewhat tepid over the summer, it is because of an analytical paralysis brought on by the perfidiousness of our financial markets. And despite that, I am steadfastly, shoe-bang-the-podium, nutbar positive on the outlook for the precious metals (and particularly silver) going into the last third of the year. In the hierarchy of needs, one needs food, shelter, warmth, and water to survive. In my world, one needs fine spirits and ample medicines to survive – as well as a well-timed entry point.
A pittance to ask, in my opinion, a mere pittance.
MJB
