Source: Michael Ballanger for Streetwise Reports 09/30/2019
Sector expert Michael Ballanger interprets the implications of the last COT report for the precious metals markets.
It was only a few hours ago that I was cruising through a lovely early-autumn Friday afternoon preparing for one of the last weekends at the marina for the 2019 season when I came across the much-heralded (and often misinterpreted) COT report. I was on the way up the eastern shoreline of Lake Simcoe when I saw that, for the COT week ended Sept. 24, the Commercial Cretins, seeing the usually wrong Big Money managers drunkenly piling into carloads of December gold contracts (29,845 contracts to be sure) hand over fist, decided to “fill ’em”—and they happily supplied all of the paper gold needed to crush the advance at the exact, precise peak of the advance, which ended Tuesday at $1,543.50.
The rest (of the week), as they say, was history, and in more ways than simply the passage of time. December gold lost over $50 as option expiries, futures expiries and general Bullion Bank shenanigans all conspired to vaporize any semblance of investor optimism. It puts to bed the notion, as I have been warning for weeks now (amid blogosphere ridicule and investor anxiety), that the “Forces of Goodness” had finally and forever vanquished the banking cartel and its symbolic putrefaction.
My worst recurring nightmare of the past forty-five years has me sitting in a final exam room during my graduation year of university completely unprepared and totally in need of a passing grade to receive my diploma. It actually did happen to me but, as it turned out, the professor was a hockey fan and cut me a much-needed break, a C+ in Statistics and Data Analysis, arguably the most boring class I have ever taken.
The second recurring nightmare is one that has only cropped up in recent months, and it is that the precious metals markets revert back to pre-June behaviors, with COT reports calling the shots and commercial traders once again slapping the managed money CTAs like rented mules.
From the August 2016 top to the May lows, I successfully avoided five massive drawdowns by trading with the bullion bank criminals, choosing to fade all rallies in gold that accompanied their aggressive shorting activities. It worked until the June 20 breakout, after which all bets had to be cancelled and strategies reexamined. However, in the past three weeks, it appears that investor complacency in the precious metals community allowed the Bullion Bank behemoths to quietly creep back in the control room where, in a matter of a few short weeks, they have inflicted immeasurable pain on the newborn bulls that were taking victory laps on Sept. 4, “long leveraged” to their back teeth, with champagne flute in hand.
The silver COT was far more friendly than the gold COT, but month-end shenanigans may wreak havoc upon both metals with the bottom later in the week. After the Twitterverse became inundated with bullish pronouncements from bloggers around Sept. 4, the space is now eerily silent, with bullish tweets being recalled and the fuzzy-cheeked trading wizards all hiding under their desks.
Conditions like this, while normally bullish, are not going to disappear overnight, because just as “Hell hath no fury like a woman scorned,” “Hell hath no fury like a Bullion Banker burned.” so the vengeance being inflicted on those who failed to heed Santanyana’s finger-wagging rebuke (something about people ignoring history’s famous mistakes being doomed to repeat them in the future) are now being fully educated on the meaning of the term “wrath.” To be sure, $50 drops in gold and $2 drops in silver can soften stardom and end marriages, not to mention foster an alcohol addiction and high dives from skyscrapers.
Another way of looking at the COT is through the eyes of a professional money manager (“Large Speculator”). This chart clearly illustrates the manner in which the Commercials lie in wait as the Large and Small Speculators, comprised of money managers, CTAs and the public, get completely fleeced by the Commercials, comprised of Bullion Banks supposedly acting on behalf of “clients” hedging future production. (If you believe the cartel bankers are acting only on behalf of clients, I have 100 acres of quality farmland just outside of Chernobyl to sell you.)
From June until mid-September, most of the skirmishes went to the Large and Small Speculators. This has recently reversed with a “déjà vu all over again” creeping back into the Crimex pits. We know that the “creature” shown in the graphic is really the central banking cartel, and when the jaws of extreme positioning widen, a downturn is inevitable—and that is what we are now witnessing as we move into Q4.
This correction in gold (and silver) is the natural outcome of excessive greed, where newly anointed participants suddenly discover a long-awaited uptrend and come piling into the market, ignorant beyond all comprehension of the dangers lurking below the surface and well-off the radar.
Old-timers (like me) saw the rush to judgement coming late last month and began scaling back and taking profits, and only just began replacing positions late last week. The 50-dma (daily moving average), at $1,502, has now fallen to the Evil Axis of Market Manipulation, with $1,434 and $1,377 holding the fort at 100-dma and 200-dma levels of solid support.
Mind you, those with any cranial cells left are now looking with agony-filled eye sockets at the $1,525 level, where, back in 2013, its defeat ushered in thirty more months of dental surgery sans novocaine. Healthy bull markets tend to shrug off attacks such as this, so while the stalwart bulls will feign indifference to a $1,485 gold price because of the much-daunted “$1,375 breakout,” I do not want to see a print anywhere close to $1,434, or even $1,450. We need a solid turn in the precious metals this week or else my second-worst nightmare may become a reality.
I completed the buybacks of the senior and junior miner ETFs late last week, and although both are a tad weaker today, the GDX/GDXJ dynamic duo will probably (hopefully?) resume their uptrends by the end of the week, after the institutional money flows return to normal. The GSR, at 86.6, is still well below my short entry level of 92.40, but it is also a far cry from the 78.9 level it touched on Sept. 4. Silver itself is now a full $2.55/ounce below the 52-week high of $19.75, and well below the 2016 high north of $21/ounce. I thought that $17.50 would be the “line in the Sand,” but obviously, the Commercial Cretins thought otherwise, and but for month-end malarkey, this week “should” mark the turn (back up) with the operative word being should.
A great many e-mails, phone calls, tweets and text messages have bombarded me in the past few days, all with the same inquiry: “Is the bull move finished?” My reply is emphatic: “Not on your life.” Long before the price explosion in June, I was writing about the growing mistrust permeating the global debt arena, and that, my friends, has not ceased and desisted, nor will it any time soon. I think that the $1,566.20 and $19.75 price points for gold and silver might have been the highs for the year, but with global debt levels exceeding $246 trillion (as of July 15), that number is 320% of global GDP and an unarguable floor of support for gold and silver ownership.
Debt is going to be the undoing of not only this global stock market obsession; it is also going to be the Great Unraveller of standards of living around the planet. So, with Fido once again hiding in the crawl space under the tool shed and my domestic partner currently residing somewhere in the next county, and with dart boards of Jerome Powell and Mario Draghi pockmarked with ordnance holes, conditions are now ideal for a return of the precious metals’ uptrends. The only thing missing is a quote machine sailing through the air in search of a Bullion Banker forehead, but that may not (or may) be necessary during this go-around.
May your nightmares be brief.
Follow Michael Ballanger on Twitter @MiningJunkie.
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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