Gold Price And Gold Miners Analysis

June 18, 2018

Each Friday after the markets close, I usually write an end-of-week note covering the COT report which provides a forum for commentary on the outlook for the following week for the metals and the miners and allows me to sound off on events from the past week that are “of note” and which will affect investment decisions in the immediate future. Because of the events that unfolded after Donald Trump decided to stoke up the trade rhetoric with China causing a “YUGE” decline in all inflation assets on Friday, I was so incredibly angry that I decided to refrain from putting thoughts to paper until a few days had passed which is why I am sending this missive out tonight. As cooler heads must prevail in order for rational decisions to unfold, I awaited the opening of Globex (electronic) trading tonight to see if there would be any follow-through in the totally absurd precious metals liquidation of Friday. Since first studying the history of gold in the Fall of 1973 and later joining the investment industry in 1977, I have never witnessed anything vaguely similar to what we are currently witnessing in not just the precious metals, but ALL markets. You see, if the Trump attack on China is deflationary (which it is), the assets that should fall are all assets which rose the most during the Great Reflation (and bank bailout) which began in 2009. On Friday, the once asset class which has been the singular largest beneficiary of central bank largesse (stocks) should have been CRUSHED but what did happen was that everything “metal” was targeted while the stock market experienced only a minor genuflection to the significance of a global trade war.

The Gold-to-Silver-Ratio closed at 77.32 up from an intra-day low yesterday of 75.66 and remains the best method of owning precious metals since the gold peak in January around $1,357. I am going to implement a short-term purchase of the “short gold” part of the GTSR “paired trade” in order to take advantage of the pullback as I see strong support for gold at $1,270 with the lows on Friday touching $1,275. If we get zero downside follow-through early next week, I might be forced to step up into the $1,280-1,285 level to lift the short “leg”. What IS a virtual certainty is that conditions are absolutely ideal for a metals rally despite Central Bank tightening, strong dollar effect, and the beating of the trade war drums; the unintended consequences of global currency debasements are arriving more quickly with impacts far more dire than anyone had predicted.

The intervention seen Friday, largely orchestrated by the algobots owned and programmed by the bullion bank behemoths, has in no way altered my second half forecast for gold and silver. In fact, that the metals got smoked lower from neutral/modestly bullish RSI readings implies that a far stronger rally is due to begin during the seasonally-strong July-November period with mid-July typically the ideal entry level as to timing.

If the Junior Miner ETF (GDXJ) can get a print under $30 this week, it would be a decent entry point in advance of the arrival of positive seasonality for Gold and Gold Miners. This would also be the first stab at the miner ETF’s since last December when we bought the triple leveraged sibling of the GDXJ, buying the JNUG in the mid-$13’s in advance of the move to $20 last January. I have decided to avoid the leveraged ETF’s because the slippage due to the use of derivatives designed to provide added torque to any directional move has tended to work better on the downside and worse on the upside so I will stay with the GDXJ. It stands to reason that buying into added leverage in an issue which benefits the shorts and punishes the longs regardless of  direction has investors practicing Einstein’s famous definition of insanity: repeating the same behaviours over and over again with the same negative outcome repeating over and over again as well.

This missive was written on Sunday evening but is being sent Monday morning with the S&P futures down 18 points and gold and silver rebounding modestly. As we head into the last week of spring 2018 and into the first days of summer, I leave you all with one simple chart to ponder over and do so without commentary…

Criminality, indeed.


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.

Gold weighs 19.3 times as much as an equal volume of water.