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COT Report: Predictably Stomach Churning but Bullish

 -- Published: Tuesday, 19 December 2017 | Print  | Disqus 

Source: Michael Ballanger for Streetwise Reports   12/18/2017

Precious metals expert Michael Ballanger explains why he finds gold stocks "dirt cheap."


Here is a really good question. Anyone out there lose money trading gold and silver or related mining shares in the past couple of months? I did. My friends did. The bulk of the managed money (hedge fund) players did. However, it's all "JUST FINE" because the Dow and the S&P hit all-time highs again as the last vestiges of the post-2008-GFC rescue reflation is now SURGING into paper assets. More importantly, those bullion bank millennials that were hired by their uncles and fathers and grandfathers in the banking business with EXPRESS INSTRUCTIONS to contain and control precious metals have now been given leave to TAKE PROFITS. Parties will be attended; frivolity and joy will be experienced; and massive bonuses will be paid. And the prices of gold and silver reside at levels representing 9.1% and 0.46% returns, year-to-date, versus 28.86% for the NASDAQ and 1,761% for Bitcoin. Is it any wonder why this new generation of investors ignores the precious metals complex like the bubonic plague?

Gold COT Chart

Friday's COT report (as predicted) sent waves of revulsion through every nook and cranny of this portly countenance while sending my beloved canine howling into the upper regions of the house, certain beyond all doubt that wine bottles, coffee mugs, computer monitors, and the like were destined for flight paths not unlike the space shuttle on a clear day. The inappropriate and inordinately loud string of profanities and other rage-ridden invectives came as a result of the revelation of a massive reduction in the aggregate short position in gold and silver futures held by Commercial traders, otherwise known as bullion banks. As maddening as it was, it confirmed that greed rules the waves of highly motivated behaviors that exist today in the financial markets.

I opined at the end of November that "Bullion bank short covering will become year-end profit-taking" and received confirmation last Friday when they covered the equivalent of over 5.6 million "ounces" and it set a floor for pricing as it closed with its first weekly gain in the past four and only the third up week in the last twelve. The good (and possibly GREAT) news came Friday afternoon with a 70,427-contract swing comprised of new long and covered short positions and one of the top five Commercial purchase COT weeks in history. This is a classic repeat of the lows seen in early December of 2015 and while not as extreme in terms of the aggregate short position, the size of the drawdown was breathtaking and bullish for the near-term outlook. But then again, that was the analysis I gave in late November and again last week and continue to believe that the gold miners are dirt cheap here and certainly less stretched than the valuations virtually everywhere else. There are no champagne flutes tinkling at the gold miner parties this year; it has been a "beer and pretzels" year and not a great deal of fun.

There is an expression that has stayed with me since my early days as a commodities broker that came as a quote from a book I read highlighting stories from the soybean trading pit at the Chicago Board of Trade where the legendary Richard Dennis ruled the roost. "When they're yellin', ya should be "sellin' and when they're cryin;, ya shud be buyin'!!!" was the nuts and bolts of the phrase as it clearly defined one critical rule for trading against human emotion.

And, yes, there was indeed a time when one could utilize human fear and greed as a trading tool but that went the way of the dodo bird when the bankers decided to allow computers to manage markets and set prices arbitrarily by digital committee. The elitists that are now in control of the programmers and software engineers are, however, in full grasp and grapple of what is needed to keep the throngs at bay and avoid the storming of the banker Bastille complete with pitchforks and torches. They need rising paper markets! Whether it is Bowie Bonds or cryptocurrencies or blue-chip stocks or social media, give the legions of terminally indebted university grads the hope of enrichment and credit-relief by way of ANYTHING that can be bought, sold, traded or shorted, as long as it creates "flow" upon which the bankers can slice off their piece of flesh. Global "growth" is now 100%-dependent upon the financial economy with production of literally everything the responsibility of either robots or slave minimum-wage labor located in Third World sweatshops and Emerging Market warehouses. And this peculiarity is eventually going to rise up and bite the elitist price managers squarely on the backside.

Gold, Silver, Copper

Here in Canada, the Toronto housing bubble has made geniuses out of morons and millionaires out of part-time, construction-site laborers (not that there is anything wrong with work of that ilk) but you get my point. It has turned the city into an elitist stronghold and Asian mecca (again, nothing wrong with meccas or strongholds) but gone forever is the distinctive ethnic influence of the Irish, English, and Scottish ancestry that founded the city and morbidly diluted is the dominant influence of the Italians that built it later into the massive megalopolis that it has become. The Chinese money gorging on Toronto property is not just the result of "easy money" lending policies back home but more so "easily-printed-out-of-thin-air-money" that has been the national policy instrument allowing the migration of hundreds of thousands of cashed-up immigrants into the Canadian market place. The result has been infinitely unfair advantages for the holders of the Chinese shadow banking paper that gets easily converted to loonies and toonies and winds up in the hands of former residents of WASPy neighborhoods such as Rosedale and Forest Hill.

Now that speculators around the world have moved way beyond "yellin'" to the fever pitch of high-pitched, megaphone-assisted "howlin'", the contrarian clarion call for equal and opposite reactions otherwise known as "sellin'"is long overdue. Similarly, the "cryin'" in the gold and silver pits and in the boardrooms of the junior exploration companies has been amplified to sound like Jerusalem's Wailing Wall on a particularly bad day. Accordingly, the Senior (GDX/NUGT) and Junior (GDXJ/JNUG) gold miner ETFs are the items I will be "buyin'" as a suitable response to all that "cryin'".

So, enjoy the rest of the month as we all race around completing our lists, emptying our bank accounts, and doing what we can to celebrate whatever it is we are supposed to be celebrating, be it religious or monetary or familial. I intend to curl up in my favorite recliner with a good book and a fine Chianti while sufficiently self-medicated to keep Fido calm and comfortable. Meanwhile, my significant other monitors gold and silver prices on an hourly basis, clad in her battle fatigues, her army-surplus flack jacket, mace canister, and emergency fog horn for that ominous moment where I descend into a calamitous state of unbridled rage. Based on the recent actions of the bullion bank behemoths, all should be well and good at least into late next month, after which we shall see.

Next update will be the 2018 Forecast Issue where I try to avoid total embarrassment. Minor embarrassment would be a bonus; accuracy would be heaven.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Stakeholder Gold Corporation. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies referred to in this article: Stakeholder Gold Corporation. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. Click
here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal
disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Stakeholder Gold, a company mentioned in this article.

All charts and images courtesy of Michael Ballanger.

Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.


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