Source: Michael Ballanger for Streetwise Reports 01/28/2019
Sector expert Michael Ballanger reflects on financial and precious metals market fluctuations over the past month, as well as the status of one particular gold company.
It was one month ago, on Christmas Eve, that Zero Hedge ran over three dozen articles on the crashing stock markets with a decidedly bearish bias to every single one of them. Stocks put in what is now seen as an historic bottom. With the Relative Strength Index (RSI) at 19 and change that day, it took only two individuals and three days to have the stock markets take off on an oversold rally of epic magnitude and ferocity, completely validating my advice that day that “the time to be short has passed.”
It now looks as if the results of the Santa Claus Rally, the First Five Days Rule and now the January Indicator are confirming what some of us knew back in late December—stocks have bottomed. While the financial doomsayers were pronouncing “The End of the Great Bull Market” and that one should “Sell everything!” before absolute destitution descended, that was precisely the moment of maximum gloom.
As it would turn out, exactly as predicted in this publication and exactly as witnessed in March 2009, the politico-banker cartel stepped in and once again rescued the S&P 500, first with Stevie Mnuchin’s Sunday proclamation that he was invoking the power and fury of the Working Group on Capital Markets (PPT), and then the January 4 Powell-Yellen-Bernanke roundtable that spewed dove feathers across the stage. Both of these events sent messages to the algobot cloud-readers and a mere 30 days later, the market has tacked on over 3,000 Dow Jones points and over 315 S&P points. And the bears are still echoing the pre-Christmas bearish mantra as if they have been hiding in a cave since Boxing Day.
Who was it that said, “When conditions change, I change.” Some say it was John Maynard Keynes; others say it was Stormy Daniels. Whoever said it obviously had experience in the orange juice futures pit, where going into a crop report “short” was tantamount to four years at the Harvard Business School. The recent tone and texture of the Federal Reserve has been decidedly less hawkish, and the rate of deceleration in balance sheet reduction rhetoric has been inversely correlated to the level of the S&P 500. The more stocks rally, the more dovish the messages. Mind you, if a company CEO were to untruthfully change guidance to juice his stock price, he would go directly to jail. Jerome Powell shifts from the Fed being “a long way from neutral” to “considering curtailing reductions in the balance sheet” in one month, and he is greeted with rock star adulation and applause. Welcome to the world of untempered entitlements and Davos Divinity.
“Freaky Friday” has turned into “Funky Friday.” Completely untrue to its character, gold has vaulted ahead in reaction to the cratering USD, which was reacting to this growing consensus that Powell cares more about stocks and bonds than he does the U.S. dollar, which, of course, is irrelevant. What is relevant is that his politico-banker bosses do, which is far more important than anything Jerome thinks. What happens when any Fed chairman voices disregard for the world’s current reserve currency is that the stock market pops a cork of bubbly and the gold catches a healthy bid. However, Friday’s decent $22 pop in gold had been met with stout resistance at the $1,300 Maginot Line of cartel interventionalism, until a late-access market surge allowed for a weekly close above the Maginot at $1,302.40.
Reading all the blogs and emails and tweets about this, one might get the impression that gold prices just reached all-time highs against the U.S. dollar, but sadly, it has not. Further, for me to leverage up into the gold futures and options and take down a large nerve-jangling swath of JNUG calls, I need to see some additional confirmations from both silver and the mining shares (HUI), because both are lagging badly. Silver needs to finally reclaim $16/ounce and the HUI needs a close above 165. These were both capping points in the December panic attack for equities, and despite the policy shifts mentioned above, both the miners and the silver action is anemic.
To be truthful, for any move in gold to attract even the staunchest of bulls to the party, silver and the miners actually need to lead gold in percentage gains. This sends the message that the “big money” is so convinced that gold is headed higher as the anchor for sentiment and momentum, they are willing to own the other two adrenalin-filled cohabitants of the precious metals space as added alpha generators and portfolio enhancements.
I am working on a piece on the junior mining issues featuring Getchell Gold Corp. (GTCH:CSE), whose inauspicious (weak) opening has been one of the most blatant examples of administrative incompetence and regulatory oversight that I have ever witnessed in 40 years of investing. The maddening fact is that it had nothing to do with GTCH management. Suffice it to say shareholders have been wronged. This dog’s breakfast of procedural errors has caused uncertainty for both current holders and prospective new buyers of GTCH, leading to a sub-$5 million market cap for what my geologist colleagues deem as a highly prospective land package in Nevada.
I am not going into detail now, but when you all read what actually happened when the shares reopened for trading back on December 3, it will resemble a collage of the Keystone Kops, the Marx Brothers, the Three Stooges and Dumb and Dumber. You will also read why the current share price is an aberration of what has been essentially naked shorting caused by a technical glitch that will wind up resulting in a price recovery that could easily verge on “violent.”
As to the Nevada project, a press release from last Monday reveals a second high-priority prospect called Star Point, a porphyry copper target with a very impressive IP signature complimenting the Hot Springs Peak Carlin-type target described earlier in 2018. For what it is worth, I have been accumulating shares in GTCH under CA$0.20 and as low as CA$0.14 in an effort to take full advantage of the confusion, and what I deem is a “mirage of phony supply” soon to be “outed.” Once these errors are corrected, the excellent share structure and high-caliber shareholder base will kick in, and the explosive potential of the six Nevada properties will be finally reflected in valuation. (Again, that is if the errors are corrected, and we aren’t quite there yet, hence the CA$0.165 close.)
Thus far, the portfolio has advanced 3.17% with only two trades since the start of the new month and new year. I bought and sold the SLV April $13 calls during the first week of the year and then bought them all back on Friday for $0.05 per contract credit. As I tweeted out Friday morning, “When conditions change, I change,” echoing either Keynes or Daniels, and once the Fed sent up that dovish weather balloon by way of a Wall Street Journal op-ed piece, otherwise known as a “leak,” it became fairly clear that the Boxing Day shift in Fed rhetoric is now morphing into official “policy.”
As more and more investors in Europe and Asia and Latin America holding vast portions of their net worth in U.S. dollar-denominated securities wake up to the reality of a dove-driven U.S. dollar bear market, the necessity of putting on currency hedges will accelerate and gold and silver will be just the elixir for dollar weakness. Also, since foreign ownership of U.S. stocks has become a more fashionable pastime for European and Asian managers, dollar weakness will force them to rebalance away from the U.S. markets. adding to volatility as the U.S. dollar tanks.
With the close in gold north of $1,300, this week must see the HUI and the silver price get in gear and put on a rocket-fueled spurt soundly outperforming gold. If we get the entire complex moving higher with silver outperforming gold and miners outperforming metal, I see the next leg in gold prices assaulting that monstrous $1,350-1,375 resistance that has dogged us countless times since the new gold bull arrived in late 2015. If by chance the price managers in Washington, New York, Tokyo, and Brussels are able to keep their interventionalist fingers off the keyboards, the next major resistance lies at the omnipotent $1,525 level, the April 2013 support line that was shattered at the wee hours of the North American morning in what has now grown to be known as the “Sunday Night Massacre.”
To close it off, we are not out of the woods yet, neither in terms of sentiment nor momentum, and you can’t really assess gold’s valuation unless one gives you the currency in which it is to be assessed. The only two of the major currencies that have yet to see all-time high gold prices remain the North American currencies. We are a long way from the U.S. dollar top for gold, but not so for the gold in Canadian dollars. At CA$1,740/ounce, the gold price for Canadian producers is going to generate some serious domestic earnings and that goes for the Aussie producers as well. For this reason, certain non-U.S. gold miners are dirt-cheap, and they would be the first place to park your fiat once the next leg gets under way.
Pay due homage to Chairman Powell and Screamin’ Stevie Mnuchin whose oh-so-predictable Boxing Day Shift has changed our near-term landscape and outlook immeasurably.
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.
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Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold. My company has a financial relationship with the following companies referred to in this article: Getchell Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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Charts 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.
( Companies Mentioned: GTCH:CSE,
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