tag:blogger.com,1999:blog-18683648133479081972024-03-19T16:34:21.594-04:00Alchemy FinancialJonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.comBlogger64125tag:blogger.com,1999:blog-1868364813347908197.post-59234339431215252692023-05-24T15:21:00.002-04:002023-05-24T15:22:51.345-04:00Plan B Part 2: The Juniors and Some Logical, Conservative, Portfolio Management<iframe src="https://drive.google.com/file/d/1K_yLKA4EqX-rIri9ozeFjW96oqeDiEuX/preview" width="640" height="480" allow="autoplay"></iframe> Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-56357071915876324972023-05-10T22:38:00.000-04:002023-05-10T22:38:30.901-04:00Plan B: A Roadmap to Going Long Miners<iframe src="https://drive.google.com/file/d/1sNVKe5AJbi59KE_TFEkpV9LKiFL7u30w/preview" width="640" height="480" allow="autoplay"></iframe>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-60799115209363112532023-04-13T13:01:00.000-04:002023-04-13T13:01:49.926-04:00Another Year, Another Panic into Gold & Continued Underperformance by Miners<p> </p><iframe src="https://drive.google.com/file/d/1-p53gK2OPT93QkROfdTa6dnZ27CwtLch/preview" width="640" height="480" allow="autoplay"></iframe>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-73814211967526793212023-02-26T20:27:00.000-05:002023-02-26T20:27:03.019-05:00How is Silver $21 in This Environment?<div style="text-align: left;"><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><span style="font-size: large;">I was recently asked this question and wanted to address it
further and more in depth than Twitter allows for. Rewind back to Spring 2020 when COVID
struck. Markets were crashing, everyone
was in a panic over this unknown illness suffocating people to death, Supply
shortages had people panic buying toilet paper, the Fed dropped rates to 0 and
resumed QE and Government embarked on a round of massive spending programs and
stimulus, literally handing people money. <b>Every gold bug alive, myself
included, took one look at these actions and correctly predicted that “this was
going to cause inflation.”</b> While we were right about the Macro implications, our
choice of investment vehicle to play the coming inflation wasn’t as successful
as we had hoped.</span></div><span style="font-size: large;"><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">So where did we go wrong? Well for starters, we were right,
initially. Gold and Silver sniffed out this
massive money injection and moved quickly after the panicky, margin-call-selling
in the markets subsided. <b>Only 6 months after margin calls took gold down to
1400 and silver to 12, gold rocketed up 50% and peaked at 2100, while silver
moved up 150% to 30.</b> Notice, the metals made their moves higher before other
commodities like lumber started having crazy moves higher. The soaring moves in
commodities like lumber and energy were mostly due to supply constraints, with
a bit of “more dollars chasing even fewer goods” thrown in.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Gold is not subject to the same situations as other
commodities. We NEED energy like oil and nat gas. Lumber and copper are needed
for construction and homebuilding. Most commodities, in one way shape or form,
are NEEDED as the primary driver of demand. While gold has some industrial
uses, it is not the biggest factor in the demand for the metal. <b>Investment
demand drives the price of gold, and that is a function of desire, not a need.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Notice how I didn’t include silver in that. While Silver
does follow gold in periods of panic and inflation fears, as it did in 2020, as
it did from 2009-2011, and as it did in the 1970s, it’s primary use is
industrial more so than investment demand. <b>Silver has a bit of an identity
crisis in that regard.</b> Platinum and palladium are precious metals and
industrial metals. They have never had a monetary purpose (despite calls to
make a trillion-dollar platinum coin to pay off the debt). Gold is a precious
metal and a monetary metal, with some industrial uses. <b>Silver is a precious
metal, an industrial metal and a former monetary metal, that gold and silver
bugs like myself believe will one day begin to trade again on the merits of its
monetary purposes.</b> As the more
attainable metal to the most amount of people between the two, the emergence of
silver as the “money of the people,” seems to me, a logical conclusion.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">I believe this is what we will see one day in the future. As
the saying goes, “Gold is the money of kings, silver is the money of gentlemen,
barter is the money of peasants and debt is the money of slaves.” <b>When the
“kings” of today, the Bezos’s, the Musks, the Buffets, decide they want gold,
there will be no more left for the rest of us. And that is where silver comes
in.</b> This is my belief and I believe many gold bugs have a similar mentality
towards this.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">But what I believe and what every other investor in the market
believes is not the same. <b>My belief is not fact. And this is the very reason
why I don’t focus too much on what I believe to be the correct interpretation
of the macro data and outlook. </b>What I find important isn’t necessarily what the
majority of investors will find important. My forecasting of the data into a
future outlook may be very incorrect, and even if it is correct (as it was
concerning 2020’s action’s causing inflation) my interpretation of this into an
investment thesis and the correct investment vehicles may not be the choice other
investors are focusing on. (Again, as was the case in the last few years.
Despite the fact that we’ve seen the highest inflation since the 1970s, gold
and silver’s price action didn’t follow the same path as many expected.)</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">What was the reason for this? It could be a number of
factors. First, in 1980 when gold and silver rocketed up massively, we were 9
yrs removed from the gold standard. It was fresh in people’s minds, a time when
the US dollar was backed by gold and how quickly and terribly things had gone
wrong in that short period of time, with inflation reaching over 15% causing
the Fed to raise rates to 20% to fight it (You think 6.5% mortgage rates are
bad? Imagine paying 20% of the loan amount in interest every year! BEFORE any
amount is applied to the principle!) 52 years later, and it’s far from fresh in
people’s minds. In fact, there aren’t very many people alive who remember a
time when Dollars=Gold.<b> You’d have to be 80 yrs old today to have spent just 10
yrs of your adult life under a gold standard.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Another reason could be the market quickly looking down the
horizon at the inevitable. When inflation comes, interest rate hikes come with
it, and as markets are forward looking, what’s GOING to happen tomorrow is more
important than what was happening yesterday or today. In the grand scheme of
this inflation period, yes, the fed was slow to react. Yes, they predicted it would be transitory and
it hasn’t been. Yes, they underestimated
how bad it would be. But from the time inflation started to really pickup, it
didn’t take nearly as long to turn off the spigot and suck up some of that
extra liquidity we printed as it has in the past. R<b>emember the cries of those
who said they wouldn’t ever be able to taper without catastrophic consequences,
let alone raise rates?</b> They tapered their balance sheet increases, hiked rates to
4.5% and are now decreasing their balance sheet all with unemployment at the
lowest levels in decades. <b>I hope people now see that these “catastrophe” calls
by many in the gold community were made out of either stupidity, sensationalist
“fear porning”, straight up propaganda, or a combination of the three.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Or perhaps the reason we were wrong about gold and silver
had nothing to do with any of these factors. <b>Maybe we will never know why, and
although that’s frustrating, it doesn’t really matter.</b> All I’ve accomplished
here by speculating, is wasting a ton of time writing about all the reasons we
were wrong, when we could have just looked at price action and determined “we
are wrong” and left it at that. <b>We don’t need to understand the question when
we already have the answer.</b> I don’t know about you, but if I somehow found myself
with the answer key to the calculus final back in high school, I’m not going to
waste the test time trying to solve WHY the answer to problem 6 is B, I’m just going
to circle “B” and move on.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;"><b>This is why I focus on price action and not my opinion on Macro</b>.
9 times out of 10, if you analyze price action in markets, the “why” becomes
clear. The factors of the macro picture that are most in focus by investors begin
to emerge and you will see why your view was incorrect. Analyzing price action
as the “be all and end all” under the assumption that markets don’t do things
for no reason has kept me from sticking to an incorrect viewpoint most of the
time, and riding it all the way down. It’s kept me from fighting with the
market, believing it was wrong or stupid and I am the “smart” one who is losing
all his money. <b>Remember, Wall Street is the most competitive industry in the
world,</b> with the smartest people on earth working in it because it pays better
than more noble endeavors. <b>If you seriously ever think you got it all figured
out,</b> or that the market is just wrong and little ‘ole you are the only one
seeing it clearly, <b>watch out, cause you’re about to lose a LOT of money.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">There is another factor that gets brought up a lot I want to
address to, and that is the constant references people will make to “reduced supply”. On a regular basis, I will hear someone talk
about COMEX inventories reaching “lowest levels since…”. The implication being made is that this
constant reduction in supply will lead to prices increasing. So, buy, right?
That’s a no brainer! <b>(Because the most competitive industry in the world will
often give you a free lunch, “no brainer” like this one, right?)</b> The “economics
101” implication here of supply down, price up is forgetting the other 50% of
the formula there, demand. Supply down and demand up or the same, then yes,
there is likely to be a rise in price. But that is not the case if demand is
dropping along with supply.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">But how could demand be dropping when the echo chamber of
gold bugs have been claiming every day for decades that it’s not? <b>Here’s an
easy way you can determine if demand for an asset is dropping: Price is going
down.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">A few months ago, I pointed out in an article that sentiment
being bad is not always a sign of a low and that “you should be buying.” In
bull markets, bad sentiment is a great indicator for adding to positions for
the medium to long term. But sentiment that is TOO bad may be spelling out that
the market is turning from a bull market to a bear market, and in a bear
market, really bearish sentiment can stay really bearish, get worse than you
imagine and never see incredibly bullish sentiment levels even after huge
rallies. <b>You have a tendency to see highs and lows in sentiment remain in an
overall higher range in bull markets, and an overall lower range in bear
markets.</b> Much like I have pointed out regarding RSI (staying 40 and above in
bull markets 60 and below in bear markets) You aren’t typically going to see 0%
bulls at lows in a bull market. It will bottom out before reaching that extreme.
You also won’t typically see 100% bulls in bear markets. Short term tops will
occur before that is reached.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">In a similar way, in bull markets, <b>comex supply tends to
increase and it tends to decrease in bear markets.</b> So, much like the misguided
rants of the permabulls yelling that bearish sentiment is a reason to buy, when
in fact, it is simply confirming that gold and silver are in a bear market, these
same rants of “supply decreases” being a reason to buy, while supply continues
to decrease along with price, are also misguided. <b>They are not depicting a
reason to buy, they are in fact, also confirming a bear market.</b></div><o:p><div style="text-align: justify;"><b> </b></div><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-fqL5xQz7mHUD66oQyXm88tZ5EoEXDyqDUqueTa51PHAZWrtDrk-k88kg2mV2kYHy3QusQ1068v464h5WVfvn7NFUmmUpyfHZkUEamlaHy0y5GVsyny6zBeL1dfPhLghpG6925FuNqRi3S1JgsBaxJnKVGmd1AI9mqqPlAtfixIgtQ8xaraFcYw/s760/comexsilverRedg5.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="575" data-original-width="760" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-fqL5xQz7mHUD66oQyXm88tZ5EoEXDyqDUqueTa51PHAZWrtDrk-k88kg2mV2kYHy3QusQ1068v464h5WVfvn7NFUmmUpyfHZkUEamlaHy0y5GVsyny6zBeL1dfPhLghpG6925FuNqRi3S1JgsBaxJnKVGmd1AI9mqqPlAtfixIgtQ8xaraFcYw/s16000/comexsilverRedg5.png" /></a></div><br /><b><br /></b></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Here is a chart with the price of silver and the registered
silver ozs in the comex warehouse. Notice first that supply was steadily
increasing from 2018 after silver bottomed in 2016 at $14/oz. At the $14/oz
retest in 2018, inventories were significantly higher. That right there was a
clue on the trajectory of silver, as to whether or not that retest of 14 would fail
and see a lower low. When silver skyrocketed in 2020, inventories did too. By
the time silver retested 30/oz in Jan 2021, (Right around the time of the
silver squeeze hype) Inventories had peaked and began declining ever since, and
price has followed. <b>Interesting that the drive to “squeeze” silver higher due
to supply shortages came at the time when supply peaked and a 60% decrease of
that supply since then has done nothing to “squeeze” price higher. </b>(Or it’s NOT
interesting, IF you actually understand that supply increases with demand and
decreases with it as well. From that standpoint it would be obvious the peak in
supply and price would come at a time when “silversqueeze” was on the news and
trending on twitter.)</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYGCapYH8-EXC5w1pXa1w_eqLVaDQU_8imWg_Rjcg9AdkSRR57DcZn2JfbU-LIaLZ8pYrcH5IPu787ujrzoZF595KzTWAsJB09J-61wNR3Y_wFhnt827bCFdvP3RVi_zLyaq9r10lGpSI9ntJG-L-8A86Sei4Q_6ku__m5QWV0GNWnUfIvChFykA/s261/download.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="193" data-original-width="261" height="473" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYGCapYH8-EXC5w1pXa1w_eqLVaDQU_8imWg_Rjcg9AdkSRR57DcZn2JfbU-LIaLZ8pYrcH5IPu787ujrzoZF595KzTWAsJB09J-61wNR3Y_wFhnt827bCFdvP3RVi_zLyaq9r10lGpSI9ntJG-L-8A86Sei4Q_6ku__m5QWV0GNWnUfIvChFykA/w640-h473/download.jpg" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Here are a few more charts. <b>These are the ones the “supply
shortage, buy now” permabulls don’t want to include in their narrative, because
then it begins to break down.</b> The first is Gold from 1995 to 2013. Again, as
gold approached its lows near $250 in 1999 and retested in 2001, Comex
stockpile decreased with price, but supply was higher on the retest of $250 than
it was in 1999 on the 1<sup>st</sup> test of $250. It steadily increased from
there for the next decade, along with a gold price that increased 8-fold in
that time frame. <b>And then came 2013, and the beginning of price breaking down
and the bear market in gold. And look what Comex supply did! It decreased
sharply right along with price!</b></div><div style="text-align: justify;"><b><br /></b></div><o:p><div style="text-align: justify;"> <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFSTf1hzen8q-ahYIm3v7wvkQcmwnPDeAjpM8NYTTTmgcQev7yuYONwEc1ZNe8WJ-Cyk5ZfCjakRpMXLnJyt97yDQrMiC53C2Quk49oJBtd2GmrTF5HQCZqN67yfLGCIKjkcKcrMs4svxZUEvuL7ZiYSBnwdg4C9sCc8MYRW9ql-N6IT2XWPaoJg/s258/download%20(1).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="195" data-original-width="258" height="484" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFSTf1hzen8q-ahYIm3v7wvkQcmwnPDeAjpM8NYTTTmgcQev7yuYONwEc1ZNe8WJ-Cyk5ZfCjakRpMXLnJyt97yDQrMiC53C2Quk49oJBtd2GmrTF5HQCZqN67yfLGCIKjkcKcrMs4svxZUEvuL7ZiYSBnwdg4C9sCc8MYRW9ql-N6IT2XWPaoJg/w640-h484/download%20(1).png" width="640" /></a></div><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Here is another, showing registered ozs of Comex gold over a
longer time frame. Again, supply was high when price was. Once price began to
decline, so did supply. When price moved sharply higher in 2016, then declined
again, supply moved sharply higher too, then declined again right along with
price. Then it began moving up again around 2018, as gold began making higher
lows and higher highs, confirming that a bull market was beginning, <b>in the same
way it confirmed the bear market in 2013, and is doing so again now.</b></div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;"><b>I hate to have to say this, but it is unfortunately true.
There are a lot of “bad actors” in the gold community. </b>The least harmful of
them (but still quite harmful) are the ones who are sharing bad information and
have no idea what they are talking about. Others know better, they are spouting
propaganda for the purpose of stoking fear and sensationalism to try and sell
you something, or defraud you in one way, shape, or form.</div> <o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">I’ve been very busy recently, so I only caught pieces of
this, but it seems the guy running Wall Street Silver has had a past (and
present it seems) in fraud and manipulation. Unfortunately, I’m not surprised
in the least to hear that a twitter account and webpage with a massive
following, that mostly shares fear porn and the incorrect (lies) information
I’m referring to, is involved with manipulating people. It’s really not the
exception, it’s the norm. (Him, along with Bre-X and 90% of all Jrs).</div> <o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;"><b>Don’t “trust” anyone. Do your own research, audit everything
you hear.</b> As you begin to see what information does and doesn’t hold water,
you’ll also begin to notice the same people saying it. The same people saying,
“supply dropping, BUY!” are typically the same ones who are talking about
bearish sentiment being a buy, talking about commercial short positions on COT
reports leading to an “imminent short squeeze” that has never happened and will
never happen. They’re the same ones predicting a comex default “any day now”, a
major bank failure and contagion that will send the economy into a depression.
The same ones who have had 10,000/oz gold targets (For over a decade), and the
same ones who say the Fed can’t even taper QE, let alone end it, raise rates
and REDUCE their balance sheet.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">And yes, the bet I made in Nov 2021 that the
Fed WOULD taper, because they literally said “we’re going to taper” was with
that guy who runs Wall Street Silver. It was a ridiculous opinion for him to
think they couldn’t or wouldn’t taper, that I believed at the time was sheer stupidity.
In hindsight, I’m sure it was sensationalism to “build up the brand” so he had
more people to manipulate and defraud. I was happy to take his $220 on behalf
of my charity, the Meta C. Mergott Foundation. Better off in our hands than in
his.</div> <o:p><div style="text-align: justify;"> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVPthCrYM4KTGoLuKgKsAXLAoi1GHmXh1KwLdVhyf5k0oMHtKsCs-TyXFbYypVmAT-BsL5QFHkS-ALIbUsmUeZhRmLfPa-5cjIsKFglAS3GtJF6o0JSeWOhAMda-TXc9Fl8cCX4m65FbmY4k62qEXmAjeq7Dx58IH3RwSl4H0T7pUQzICukwRRYw/s1920/gold%20200.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1551" data-original-width="1920" height="996" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVPthCrYM4KTGoLuKgKsAXLAoi1GHmXh1KwLdVhyf5k0oMHtKsCs-TyXFbYypVmAT-BsL5QFHkS-ALIbUsmUeZhRmLfPa-5cjIsKFglAS3GtJF6o0JSeWOhAMda-TXc9Fl8cCX4m65FbmY4k62qEXmAjeq7Dx58IH3RwSl4H0T7pUQzICukwRRYw/w1233-h996/gold%20200.jpg" width="1233" /></a></div><br /><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAAbnIkp11ojVWhV8nuJvQn_2MHFbRiYKOG1cI9Jj-EI0r0MWyjUK59eBqGj4OgUcYt0VOgMddPCEbNpfDjtrdXLZy1Acq8R-xXCnXLwyGOn0MdNoMczfpsu7TvIAD7LX2av-ocKbTN9nm6HlK12kdb7gb6NtALY3pGRRXkVfNPg1K4EwRju2lUQ/s1920/gold%20200%20bull.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1555" data-original-width="1920" height="998" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAAbnIkp11ojVWhV8nuJvQn_2MHFbRiYKOG1cI9Jj-EI0r0MWyjUK59eBqGj4OgUcYt0VOgMddPCEbNpfDjtrdXLZy1Acq8R-xXCnXLwyGOn0MdNoMczfpsu7TvIAD7LX2av-ocKbTN9nm6HlK12kdb7gb6NtALY3pGRRXkVfNPg1K4EwRju2lUQ/w1233-h998/gold%20200%20bull.jpg" width="1233" /></a></div><br /><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYhaRClVXRQBR_cp6lxvln_dqX1aNAn9SooB5pETp9nU2tHQMTzXOR7cWeaFflwT1fFf1h571JZiQD4a8VdKRs-375v8V02ESIxhgMWLhQQGXGvq-aEk_1l1cCru4L1i6OWLR6naE8q1VFamiXHOUzHmm8h0N5l01LX8feWKq89brjJ8ChAwoAOw/s1920/gold%20200%20bear.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1566" data-original-width="1920" height="1006" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYhaRClVXRQBR_cp6lxvln_dqX1aNAn9SooB5pETp9nU2tHQMTzXOR7cWeaFflwT1fFf1h571JZiQD4a8VdKRs-375v8V02ESIxhgMWLhQQGXGvq-aEk_1l1cCru4L1i6OWLR6naE8q1VFamiXHOUzHmm8h0N5l01LX8feWKq89brjJ8ChAwoAOw/w1234-h1006/gold%20200%20bear.jpg" width="1234" /></a></div><br /><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Now let’s look at some charts. First up is Gold. The major
thing that stands out to me here is the deviation in price from the 200-day MA
as we topped at 1950.<b> We can see similar deviations over the past couple of
years, higher or lower, saw a “return to the mean” with at least a test of the
200 day MA. </b>Recently, we’ve seen price then revert back the other direction.
This is typical in a choppy sideways market. W<b>e can see in this example of the
bull market from 2000s to 2011 that extended deviations above the 200 day saw
tests of the MA then continued higher. In the bear market of 2013-2016, they
came back up to test the 200 day, failed and continued lower. </b>This back and
forth action above and below that we have currently is showing there is still
some uncertainty amongst investors as to which direction to take, so this test
here is important. A hold here or even slightly below this area could begin a
“higher low” that sees gold start to trend higher again. <b>Let’s not assume
anything here. That could be dangerous. Let’s let price action do the talking.</b></div><o:p><div style="text-align: justify;"> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0KmjMDY_D3f9z9VowtvU2ejyyolavnbzvf9b-7iyNQwHWJ89cVqzrlu-whXEaGgGuBalCFaJyOruCAy5nRMOyWqhYTzcYggNSXFfVC9HE8kmCcX0MyLcZE0UA1AmyNCR5KwSVsuxS8kT7vPewOVF85chrj59xtRh8rG28MF2FJDpJuzYGc8Dpeg/s1920/silver%2050.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1546" data-original-width="1920" height="987" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0KmjMDY_D3f9z9VowtvU2ejyyolavnbzvf9b-7iyNQwHWJ89cVqzrlu-whXEaGgGuBalCFaJyOruCAy5nRMOyWqhYTzcYggNSXFfVC9HE8kmCcX0MyLcZE0UA1AmyNCR5KwSVsuxS8kT7vPewOVF85chrj59xtRh8rG28MF2FJDpJuzYGc8Dpeg/w1225-h987/silver%2050.jpg" width="1225" /></a></div><br /><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">On silver, in addition to 21 being the 61% Fib retrace from
the 1993 low to the 2011 high, it’s also the 50% retrace of the 2020 low at 12
and the high in Aug at 30. Add to that now, that its also the 50% retracement
of this move we just saw since the Sept lows at 17.50, up to the Jan highs just
south of 25. 21 was where price stopped its decline multiple times before, and
where price stopped its rally as it consolidated near lows this past summer and
into fall. <b>So, 21 here should provide some support initially.</b> Also, looking at
shorter term MAs, the 13 and 30, they have crossed lower and are beginning to
deviate from each other by a decent margin, as is price from both of them. <b>It
isn’t an extreme amount, but it’s enough where we can begin to say that
expecting further downside in the short term is getting pretty greedy,</b> which is
why we sold our puts Fri on SLV for a 165% profit (It was a small position. We had
1/3 of our cash position in the GDX puts and added about ½ of that into the SLV
puts. But it’s better than the last 6 weeks being a zero-sum game.)</div><o:p><div style="text-align: justify;"> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB6IVi8wsizE9acvxnRW_Hnef5RtfnZOYxS_f_A0xmlmqNrnQ0F9YmGoNgCV2J05Cu20_IDYcGEME7G6HE5Vt0KzRk5aBDkAsmp0jHEJij-ItoG-9FRCNfHZ3XvCknRNfJUQzBOHpgbEOnlC20edbmMf038guCqfKyRO70FUB65W4q8DlRVCdgPw/s1920/gdx_20230226193348643.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1548" data-original-width="1920" height="996" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB6IVi8wsizE9acvxnRW_Hnef5RtfnZOYxS_f_A0xmlmqNrnQ0F9YmGoNgCV2J05Cu20_IDYcGEME7G6HE5Vt0KzRk5aBDkAsmp0jHEJij-ItoG-9FRCNfHZ3XvCknRNfJUQzBOHpgbEOnlC20edbmMf038guCqfKyRO70FUB65W4q8DlRVCdgPw/w1236-h996/gdx_20230226193348643.jpg" width="1236" /></a></div><br /><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Onto GDX, we pushed through this top area of support at 27.
We haven’t quite hit the 26-25 area yet, <b>but the same deviations in price from
the shorter term, 13 and 30 MAs is even more pronounced here on GDX than on
Silver. Additionally, the same deep deviation between the 2 moving avgs is reminiscent
of times when price returned to at least test the purple (13 day) EMA.</b> That is
about 7% up from here with the further downside targets only slightly lower than
where we are. We’ve dropped 20% in 4 weeks and seen RSI go from 60 to 25 in the
same time frame. So, although we can have a bit more downside, a bounce is due
here. Even if we don’t rally much from here, <b>we were holding puts that expire
in 3 weeks that just now, are only $1 in the money. We don’t need a rally here
to lose a lot of those gains, the time decay alone will kill us without any
further declines.</b> So, we exited at break even. We will watch VERY closely to
see if this ends up a higher low onto higher highs, or a small bounce that is
onto further declines.</div><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfL77mjF1pTuXoL3XgZlr1MZgytkLdtLZKQ1txqUnJWrgaRlphnPlZFZI5H7An2O4CXJvbhhsQg8EvXwvgeLL_3BLqwE3f2Ly9VyJFO99Vf8K7ooXYRYxoOpjCOtcM1OY2NIrTvnxFuCgjQdZKPbb2Lj1oN7iy24E08utkOFhvmfHMLu-nuX-DCg/s1920/gdxj_20230226193348895.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1554" data-original-width="1920" height="995" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfL77mjF1pTuXoL3XgZlr1MZgytkLdtLZKQ1txqUnJWrgaRlphnPlZFZI5H7An2O4CXJvbhhsQg8EvXwvgeLL_3BLqwE3f2Ly9VyJFO99Vf8K7ooXYRYxoOpjCOtcM1OY2NIrTvnxFuCgjQdZKPbb2Lj1oN7iy24E08utkOFhvmfHMLu-nuX-DCg/w1229-h995/gdxj_20230226193348895.jpg" width="1229" /></a></div><br /><div style="text-align: justify;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFco3TPdCuD3pWiYewGHx1yQV9IeOjOTpC1xmZL1iUaRP1mw0zakBhmfLzRjq1csGMV450Z_V0sR7PcEPSWGJ1d3fzVpKOe9cZ2Lh35I3b_cEhvsrRBDtw5CD8SZkicZKOlvrcd_cx0CtgYlQgm-1qOopJmpMuAOgFWGUtWigEi-nTce5HkaJCnA/s1920/silj.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1552" data-original-width="1920" height="991" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFco3TPdCuD3pWiYewGHx1yQV9IeOjOTpC1xmZL1iUaRP1mw0zakBhmfLzRjq1csGMV450Z_V0sR7PcEPSWGJ1d3fzVpKOe9cZ2Lh35I3b_cEhvsrRBDtw5CD8SZkicZKOlvrcd_cx0CtgYlQgm-1qOopJmpMuAOgFWGUtWigEi-nTce5HkaJCnA/w1227-h991/silj.jpg" width="1227" /></a></div><br /><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Everything with GDX can be applied to GDXJ, but a bit more
pronounced. Additionally, <b>GDXJ is right at major support here at 33-32.50 so
that reinforces the idea of a bounce coming in miners.</b> SILJ looks terrible and
is in utter collapse mode, down nearly 25% in 1 month. I certainly don’t want
to be long here, but I’m not going to push my luck on the short side here
either. <b>We’re analyzing risk and reward and probabilities and despite poor
price action, reward here for being short isn’t attractive vs the risk.</b></div><o:p><div style="text-align: justify;"> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj00_CvXdwvIEoCCGoxpqv02QmbMIORRzCwIWyg1S4UG3r4PJjLLTNTmjnE-nI2rBBnU0cMkLzJUjm28u5157N4VpeuVd3WnbpADhY280q959o1suI1mQUwS3yk6XKn4RCbBhuUhKD-gZa_xntSoCpctlwRNOQp-FInudPvKYXLogXFMoOzM08DFg/s1920/gdxgld_20230226195632934.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1107" data-original-width="1920" height="715" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj00_CvXdwvIEoCCGoxpqv02QmbMIORRzCwIWyg1S4UG3r4PJjLLTNTmjnE-nI2rBBnU0cMkLzJUjm28u5157N4VpeuVd3WnbpADhY280q959o1suI1mQUwS3yk6XKn4RCbBhuUhKD-gZa_xntSoCpctlwRNOQp-FInudPvKYXLogXFMoOzM08DFg/w1241-h715/gdxgld_20230226195632934.jpg" width="1241" /></a></div><br /><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">I haven’t posted GDX/GLD in a while. The daily chart looks
similar to GDX. Big decline, deviations between price and MAs as well as the MAs
themselves, a collapsing RSI a well. We are at the 61% Fib retrace of the move
higher we just had. Right at a level rallies failed at this past Summer to Fall,
so some level of support is anticipated here.</div> <o:p><div style="text-align: justify;"><br /></div><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiM-uXhJ-g1hUA_hnOeqTdP9-zsw5m4bJQNeOlcf_ocKplTRgC0X-wah3FQQ6v2amE9p2r392nWFKh2GnCToi_wGZ1kDiRM00v52WOR0JrXF0bmRZu7FCdAFJD9JXAHdTm2CZDIxWn9TP9G7TEohkafncixuXKm9tbiE-22ezrHSxRt_4xTo7SsEQ/s1920/gdxgldweek.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1110" data-original-width="1920" height="721" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiM-uXhJ-g1hUA_hnOeqTdP9-zsw5m4bJQNeOlcf_ocKplTRgC0X-wah3FQQ6v2amE9p2r392nWFKh2GnCToi_wGZ1kDiRM00v52WOR0JrXF0bmRZu7FCdAFJD9JXAHdTm2CZDIxWn9TP9G7TEohkafncixuXKm9tbiE-22ezrHSxRt_4xTo7SsEQ/w1247-h721/gdxgldweek.jpg" width="1247" /></a></div><br /> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Flipping to the weekly, we can see <b>RSI stopped dead on this
Rally at 60,</b> a typical sign in bear markets. But now we are at 40. It does seem
like the market is a bit confused whether it wants higher or lower from here, so
this is another reason to be careful assuming direction. We saw indecision on
the rally with RSI failing at 60, its reasonable enough to assume indecision on
this decline too and see a bounce here at RSI 40. <b>But the overall picture is
lower highs and (so far) lower lows.</b> <b>Miners continue to underperform the metal
</b>and that’s not what we want to see if we are bullish the overall sector and
miners specifically.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Another note on being bullish miners and why and when we
are. <b>The point, the ONLY point to own miners for (that the market values) is
their leverage to gold via increased profit margins.</b> When gold is 1200 and a
miner is producing for 1000/oz, an increase of 20% in gold to 1500 is an increase
in the miners profit margin by 150% (assuming costs remain the same). THAT is
the reason you got a 200% rally in GDX in 2016 and much more in some high-cost
miners. <b>HMY went up 1000%. AG rallied 8-fold.</b> Because costs in 2016 were
1000/oz for the biggest miners and gold was 1050. It then went to 1375. The
biggest producers, ABX and NEM saw $50 profit margins increase 650%. Miners with
costs for gold near 1300 and silver near 18, went from $250 and $4/oz in
losses, to $75 and $3/oz in profit in just 9 months (and a lot of people caught
short in the process).</div> <o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">Reserves are nice, dividends are great, but the major moves,
both higher and lower that have occurred in miners have a tendency to unfold over
1-3yr periods typically <b>and they are a result of profit margins increasing or
decreasing significantly.</b> Majority of producers have been terrible investments.
And why would they be good long term holds in a market that see margins
increase from $100/oz to $1,000 and back again in just a few years’ time? <b>This
is the exact reason why I have focused my career in this sector on timing.
</b>Because there is a time and place for miners. <b>Get it right, you got multi-bagger
gains in a few years’ time. Get it wrong and you’ll ride them down sometimes
90%.</b></div><o:p><div style="text-align: justify;"><b> </b></div><div style="text-align: justify;"><b><br /></b></div></o:p><div style="text-align: justify;">One final point, regarding the Patreon site launch. What was
supposed to be Jan turned into Feb, then March. Unfortunately, its going to be April.
Here’s why. I mentioned I just moved back to the city. The reason for this is
because my girlfriend of 7 years, whom I very much wanted to marry, and I broke
up. So, the move was not really planned or expected, nor have any of the other endeavors
that come along with a separation after such a long time together. I JUST moved
in and got settled and March is next week. There are still some personal things
I’d like to have the time to focus on before launching and devoting my time to
the site, and <b>I will NOT launch this halfcocked. When we launch, it will be with
guns blazing. </b>Until then, articles will continue to be on this blog, short
updates on Twitter and I will continue to use Twitter as a “free trial run” in
terms of posting signals when the models depict bottoms, profit taking opportunities
and trend changes, as well as any positions I purchase or exit, what they are,
why we chose them in particular, the prices bought and sold for, all in
real-time when we buy or sell them. Apologies, but 1 month delay turns into 3
very quickly when you’re running around making major life changes.</div><o:p><div style="text-align: justify;"> </div><div style="text-align: justify;"><br /></div></o:p><div style="text-align: justify;">To sum up, <b>don’t focus on the why, worry about what price
action is telling you.</b> You’re going to be wrong a LOT. Even the smartest guys
are wrong nearly half the time, they’ve just learned to exit fast, take small
losses, not dwell on it, and move on. <b>Remember that silver and miners are not
gold.</b> Know what you’re buying and do it for the right reasons. Beware of almost
everyone in the gold sector. Easy litmus test, if they never admit when they’re
wrong, if<b> they have never said sell or even “maybe its time to take some
profits”, they probably aren’t being honest</b>, for 1 reason or another. Supply
decreases with demand in bear markets because, why wouldn’t it? <b>Patreon site
will launch April 1<sup>st</sup></b> and will have more updates between then and
now and market wise, <b>we need to be VERY careful.</b> Gold, silver and miners aren’t
the only bear markets that COULD make a higher low and start turning up again.
We can look at SPX and see a similar picture. Copper, the Euro, even Bitcoin.
Don’t get complacent one way or the other. <b>Be open to the idea that your
opinion is wrong and be ready to react if it is.</b></div><o:p><div style="text-align: justify;"> </div></o:p><div style="text-align: justify;">-Jonathan Mergott</div><o:p><div style="text-align: justify;"> </div></o:p></span></div><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p>
Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com1tag:blogger.com,1999:blog-1868364813347908197.post-4108227771299041482023-01-18T15:03:00.005-05:002023-01-18T15:03:41.780-05:00 Gold Update<p><br /></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-size: large;"><span style="font-family: "Times New Roman", serif;">A couple of weeks ago we
entered a short GDX position by buying March $28 puts at about $1.50. This was
a 1/3 position, meaning the full amount we ultimately wanted to have was 3x
this size, but we started small because the holidays have a tendency to be
quite and not the best gauge on what markets want to do.</span><span style="font-family: "Times New Roman", serif;"> </span><span style="font-family: "Times New Roman", serif;">The point of this was if we were wrong we
could exit quickly with a very small loss. This loss on a 1/3 position would be
negligible compared to the 160% we made on a full postion in Oct buying GDX
calls. Our target looked to profit us ~100%, so this was a good risk/reward
here.</span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">It hasn’t worked out very
well as gold has been tearing it up last couple of weeks. But despite a 7% move
higher in gold of over $100 since then, we have seen Silver unchanged over the
last month and only a 14% rise in GDX in the same time frame. While that IS “outperformance”
it barely is in terms of what miners typically do when gold is on a tear. Had
we have bailed immediately, we could have dumped those puts for a 35% loss at
just under $1, but the lack of follow through with silver and begrudging “drag”
higher by miners with gold is still not giving me great confidence that the “low
is in”. From that standpoint, I thought it was worth waiting as a large part of
the damage was already done and further losses on the puts would be negligible.
<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">What I mean by that is
this: If we’re managing a 100k portfolio of miners and other gold investments,
with a 10% cash position for hedging and leverage, our 1/3 position on these
puts was equal to ~$3,333. While gold did well, silver hasn’t and miners broke
higher leading to a quick 30% loss, then 50% a few days later. So, a $700 loss.
An additional 30% down from here would be a loss of $200, but we easily could
have just been early and have the chance to regain some of that. So, I found it
not worth bailing on here in an environment where gold is running into
resistance, silver is not participating at all and miners are barely
outperforming. We still have 2 months on those puts, after all. An opportunity
to add another 1/3 position here and a 10% correction in GDX brings those puts
back to $1 and eliminates the loss entirely.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">So let’s look at some
charts and see how we’re shaping up.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFTFuz5MI9AytNhl-YV7g_bi7nZKuPfBqNwfwDlkYRpQJK6T6NqdewNH_3iMBH8H3c06J-pQJq3pvz-SaVBGcJtBa4eMgWPDf-fQlfgq-vtheId0Znc_gmQZH7vcxk4kBYPSc3X-HfO6fhxipBUwzZG6PwFaCkzV4bjRv3K3Y2Mr7tAy7Pj88WCg/s1019/gc_20230118145604382.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="622" data-original-width="1019" height="524" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFTFuz5MI9AytNhl-YV7g_bi7nZKuPfBqNwfwDlkYRpQJK6T6NqdewNH_3iMBH8H3c06J-pQJq3pvz-SaVBGcJtBa4eMgWPDf-fQlfgq-vtheId0Znc_gmQZH7vcxk4kBYPSc3X-HfO6fhxipBUwzZG6PwFaCkzV4bjRv3K3Y2Mr7tAy7Pj88WCg/w857-h524/gc_20230118145604382.jpg" width="857" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Gold is running right up
to resistance at the 23% Fib retracement that is also right at the 2011 high near
1920.<span style="mso-spacerun: yes;"> </span>Additionally, its ascent began steepening
as it got there, deviating from short term moving avgs and long term moving
avgs, (as well as short term moving avgs deviating from each other). Now today,
we are having a reversal. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I’ve heard a lot of bull
arguments for gold, and its not that I necessarily disagree with them. In fact,
I agree with a lot of them. Especially the attractiveness of such an asset
during very uncertain times. The only part I disagree with is that this is
going to make it go significantly higher. We have high inflation, high rates, a
possible recession looming (again), and the SPX is down 18% in the last year.
Yes, gold is pretty attractive here, but maybe that’s why its holding in so well
versus other assets. At 1920, were down half of what the SPX is from all time
highs. So maybe rather than these reasons being why it will rocket to 2500,
maybe they’re why it isn’t collapsing to 1400.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">As I’ve said before, gold
and silver are not equal and there is clear evidence here of that. If you want
insurance, if you want wealth protection, you want GOLD, NOT silver, and recent
price action (as well as countless times in history we’ve seen the same) is all
the evidence you need to prove that.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhngrqaNDCp8R3bzer7A0vrPkn5C4Eo1VyDNx2DmqzzKYIqcHcUQFg2Ix9oFA4jhTC08kER7_AQjcwpXJdegLKGjImLTFJ8GumUcAuKwSj3A2-QMZ_0zoSot0v1DnpXB2RAEpLzvLouNKLH9uGVWvHmn0QNt69IBZEe_ALwG63AXW78R2RG449E8A/s1020/si_20230118145604576.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="619" data-original-width="1020" height="517" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhngrqaNDCp8R3bzer7A0vrPkn5C4Eo1VyDNx2DmqzzKYIqcHcUQFg2Ix9oFA4jhTC08kER7_AQjcwpXJdegLKGjImLTFJ8GumUcAuKwSj3A2-QMZ_0zoSot0v1DnpXB2RAEpLzvLouNKLH9uGVWvHmn0QNt69IBZEe_ALwG63AXW78R2RG449E8A/w852-h517/si_20230118145604576.jpg" width="852" /></a></span></div><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"><br /></span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">On to silver, we have
consolidated since Mid Dec while gold has risen $120. This is just pathetic,
and again, doesn’t support the “bull market” view in my eyes. Now, that could
change. It’s hard to look at silver and get a lot of evidence to support a drop
or an explosion higher, and anyone claiming it looks like that, well, check the
rest of their track record when saying such things and you’ll likely find all
you need to know there. (They’re guessing, as usual. But hey, maybe this one
will be right!)<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"></span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXVngYStbr9_4Gsmi-WzxEVFo_TlATSeQ-wDBGb0Rkz9cXPvozqD06COprvFFeL0_qgtkcFQ0Ru9MNWusEHuiocJbEw_bWGugo-dvlrp4ZcHscmeuz_JyDjF72oPDVnz_F_uu2X8-e8zsfmg0t7N7FzEU0TOO1hieeRnFFlk0l_K-TZzjt2AcN7w/s1026/gdx_20230118145604749.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="620" data-original-width="1026" height="515" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXVngYStbr9_4Gsmi-WzxEVFo_TlATSeQ-wDBGb0Rkz9cXPvozqD06COprvFFeL0_qgtkcFQ0Ru9MNWusEHuiocJbEw_bWGugo-dvlrp4ZcHscmeuz_JyDjF72oPDVnz_F_uu2X8-e8zsfmg0t7N7FzEU0TOO1hieeRnFFlk0l_K-TZzjt2AcN7w/w852-h515/gdx_20230118145604749.jpg" width="852" /></a></span></div><span style="font-size: large;"><br /> </span><p></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">GDX got 10% higher from
where it was when we thought we were going to get a deeper correction and left
a negative divergence in RSI along the way. We’re beginning to see it test
recent lows while gold is still above 1900 and only off about 1.5% from it’s
highs. Silver is down fairly significantly compared to gold as well. Even if we
are to continue higher, it looks like a pause here is likely and could retest
that 29-30 area we previously consolidated at. Even if we do not get a chance
to add the other 1/3 position to our puts, I think we can mitigate losses here
which are very insignificant as its 33% of a 10% cash position on a gold
portfolio, so 3% of the portfolio has dropped 60% while 7% in cash has done
nothing and 90% has gained ~10%. On that same 100k portfolio, that’s a $700
loss versus a $9,000 profit. And that is how an insurance policy should work in
the event we are wrong about it.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">There is one interesting
development I am paying attention to here which may indeed give a signal that
the low is in.<span style="mso-spacerun: yes;"> </span>I have mentioned before I
think gold and bonds will correlate decently here and instead of looking for
the FED to pivot, I am looking instead for the bond market to pivot and the Fed
to move against the bond market. This is what we saw in the 2018 low. Gold and
Bonds bottomed in the Fall and the Fed hiked rates 1 more time in Dec, moving
against the market while rates dropped, and gold rallied. 7 months later they
were cutting rates again. I think in this rate hike cycle, we could see
something similar. Inevitably, the Fed will act too late, as they always do,
whether it’s hiking to much and moving against the market, or holding rates too
long and moving against the market. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Everybody is expecting a “run
of the mill” mild recession. There is a reason we haven’t seen those in 30 years.
Everyone is overleveraged and in such a situation, eventually something
unexpected breaks and there is contagion. Everybody likes to look at the same
issues it was in the past, but likely it will be something entirely different that
no one will see coming until its too late.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Looking at the 30 yr
bond, we can see it bottomed late Sept/Early Oct, around the same time as gold.
The cycle on bonds has been pretty consistent, and that was too early for the cycle
low. We then made a higher low and are now retest Dec highs. What’s most
interesting to me about that higher low is that RSI stopped dead at 40. But
here we are retesting highs and RSI is right at 60 and right about at the 200
day MA as well. So there does seem to be a bit of indecision here, and it is
not impossible to take another quick leg down and have a slightly “late” low in
terms of the cycle. But if that was the peak in rates, and the Fed doesn’t seem
to be done hiking yet, just slowing the pace of their hiking, then we may be
set up for that same 2018 situation.<span style="mso-spacerun: yes;"> </span>AND
we did see gold bottom at the exact same time AGAIN.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZqL4lDmgJcE1HRx-k0QME8wx23YxMc_hTGhvG8f9Uo0rtVzjARHTYhO2mBjWmrXpHRFz5aCRAzferlDmsuoYOql0ii-JaiG4frKk1PUEz9tktAJTXdZNG_1z-iynECMYyAKJPLAnf58LYANd0xUA5JVAEpmas-X_654o2qNWCORDP7cB21lFmFQ/s1022/zb.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="623" data-original-width="1022" height="515" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZqL4lDmgJcE1HRx-k0QME8wx23YxMc_hTGhvG8f9Uo0rtVzjARHTYhO2mBjWmrXpHRFz5aCRAzferlDmsuoYOql0ii-JaiG4frKk1PUEz9tktAJTXdZNG_1z-iynECMYyAKJPLAnf58LYANd0xUA5JVAEpmas-X_654o2qNWCORDP7cB21lFmFQ/w846-h515/zb.jpg" width="846" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">This is definitely
something to pay attention to in the coming weeks IMO. We don’t have another
FOMC meeting until March, so a lot can happen between then and now. So far,
unemployment is not doing what the Fed wants to fight inflation, but that is a
lagging indicator that by the time it changes, could be too late for them to
react in a meaningful way as to prevent a “hard landing.”<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Wanted to give an update
on the Patreon site as well as some signals from the models. I REALLY want to
launch this Feb 1, but still don’t feel like I’ll be up to it. Additionally, I
have some personal matters to attend to that I don’t want to distract me from
the site, so I’m going to push it back again to March 1 now, which I’m hoping
will be more than enough time to get some things settled. Until then, I will
continue to post signals from the models, articles and when we’re entering or
exiting positions as a sort of “free preview” of it on twitter an on this site
until we launch it.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Now as for the models.<span style="mso-spacerun: yes;"> </span>The trending model is reading a 74 now and
has continued to be above that 40-50 area that indicates an uptrend. We flashed
some signals that it was beginning to reverse 1 month ago but recovered. This
in addition to the profit-taking model signaling a peak, and the thought
process of this being a bear market rally was our reason for buying puts. Important
to note, the trending model confirms we want to hold a position, long or short
AFTER we get a signal to enter it, so it lags. It confirms later, so the fact
that it is still indicating an uptrend now that we are reversing is typical.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">The profit-taking model
however is showing 88 after this reversal. This indicates with a good level of certainty
that now is a good time to take profits on positions you entered recently. It does
NOT indicate a top. It also does not indicate a time to take profits on long-term
positions you have a multi year time horizon on. But it is indicating that we
could be instore for a correction here. How deep, and if it turns into a
significant down trend from here is undetermined so far, but is enough for us
to want to hold out on those puts.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">That’s it for now,
keeping it short because I have a lot to do and still not feeling great. I will
keep updating though if something significant happens.</span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">-Jonathan Mergott</span><span style="font-size: 12pt;"><o:p></o:p></span></span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-14720747944169842252022-11-15T16:16:00.000-05:002022-11-15T16:16:14.167-05:00Be Realistic<p><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">We’ve had a hell of a rally in Gold, Silver and miners, so I
wanted to post an update without having to be constrained to Twitter’s character
limits.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<div style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-size: large;">Let’s start with the Dollar, as that is what everyone has had
their eyes on and has no doubt, been dictating all moves in the markets for
some time now. After the Fed announcement where they raised rates 75bps (as
expected), DXY attempted to rally back to highs near 114, but fell short. <b>As I
pointed out on <a href="https://twitter.com/Jmergz1985/status/1589735279342280704">twitter</a>
and <a href="https://alchemyfinancials.blogspot.com/2022/11/boom.html">in my
previous article on Nov 6,</a> the canary in the coal mine here for DXY was the
failure at RSI 60 as price peaked at a lower high.</b> Sure enough, within a few
days we had a bearish cross over on the moving averages and the trendline break
was soon to follow. DXY attempted to regain the trendline on Wed the 9<sup>th</sup>,
and to hold the RSI 40 level that it has been above since June 2021, but it
closed below the trendline and then began cascading down, while also losing
that 40 RSI level.</span></span></div>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Weaker than expected CPI print didn’t help and today we got
it again with a weaker than expected PPI print. <b>Rather than a waterfall though,
today DXY is fighting to hold at the 38% Fib retracement from the May 2021 lows
to the Sept 2022 highs.</b> We are now short term oversold with a deviation from
the moving averages that is rarely seen, and when it IS seen, it typically
means a rally back to meet them is coming soon. <span style="mso-spacerun: yes;"> </span>Now it should be noted, that “meeting” the moving
averages, which currently sit between about 109.25 and 110.25 can come in
different forms. We could have a sharp rally in the next few days up about 3
points that tests those moving averages, OR we could simply consolidate for a
bit and wait for them to catch up. <b>But any way you cut it, the decline here
looks like it’s, at the very least, ready to pause. </b><o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTqxpgk25sWc9j65E54_jQ6AaLa6EoHkrr5zoMWF_0IgtIwXDhvogC5eGGEI_tAjEe-rqwpXC6qYB9Oo8UTyYp2vx3BZUgAFOPiYbjibFIgl1nLZaftUzUz0w8pZFNhVCZBAs1KL1DiPwuH5ZOf6D65HlBSJvLP0K4C-J9Orsh4Yf9_T0io5Ip8A/s1615/dxy%20daily.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="817" data-original-width="1615" height="435" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTqxpgk25sWc9j65E54_jQ6AaLa6EoHkrr5zoMWF_0IgtIwXDhvogC5eGGEI_tAjEe-rqwpXC6qYB9Oo8UTyYp2vx3BZUgAFOPiYbjibFIgl1nLZaftUzUz0w8pZFNhVCZBAs1KL1DiPwuH5ZOf6D65HlBSJvLP0K4C-J9Orsh4Yf9_T0io5Ip8A/w860-h435/dxy%20daily.jpg" width="860" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Looking over at the Euro for a mirror image of DXY confirms
the same things. After a break of major support at around 105, an area that was
a bottom from 2015-2017 and was tested 3 times and held, Euro broke below it
falling to 96 in Sept. <b>Today, we are retesting that major support level (now
resistance level) at 105, which coincidentally, is also where the 200-day moving
average sits.</b> We are now starting to get some push back on that rally here,
after a MASSIVE move higher. <b>We have a deviation in the short-term moving
averages in the Euro which typically indicates a pause, as well as a deviation
in price from those moving averages that confirms this. </b>Additionally, we have
the highest RSI print on the daily chart in almost 2 years and the highest
print on MACD in 2.5 years. We also have a massive divergence in MACD between its
signal line and moving average, which again, has typically indicated a pause in
the past.<o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcaPLU1OOP6JjT5JZ1uiW6preIE3cSB1gsIgJnZcDSa6Y6hAP3y3QljIas27UwhicXpplfhwGJmIYOkpHC6mJlfanvwzaN_Jhz8x84VIte5SX9262uaSQHSn-XhTGF8hYvkGVQXwbNtp8tre-9vl-3tl_DtP9fEzachwDWu1BojFQHu0lsxDZCIA/s1407/euro%20day.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="939" data-original-width="1407" height="573" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcaPLU1OOP6JjT5JZ1uiW6preIE3cSB1gsIgJnZcDSa6Y6hAP3y3QljIas27UwhicXpplfhwGJmIYOkpHC6mJlfanvwzaN_Jhz8x84VIte5SX9262uaSQHSn-XhTGF8hYvkGVQXwbNtp8tre-9vl-3tl_DtP9fEzachwDWu1BojFQHu0lsxDZCIA/w859-h573/euro%20day.jpg" width="859" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Jumping to the weekly chart on Euro we see another concern
here in the short term. <b>RSI is nearing that all important level of 60, a level
it typically peaks at during rallies in bear markets.</b> Add that to the major
resistance we’re at and faltering on a news event at the 200-day moving average
and we are starting to paint a picture that is indicating a pause here. Again,
a “pause” could mean a sharp pullback then back and forth consolidation for an
extended period (like it did from 2015-2017), a tight consolidation while
extended indicators “catch” up and overbought levels back down (like it did as
it rallied all during 2020 after a big move higher from COVID lows), OR it
could mean a bear market rally high, with eventual new lows to follow.<o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNfeWTh8cmkf-aJhbWQzWuEH9a4Jdf2S8VWgdzXZqZIOP9JV_av0lwAAFAXw_ati2bDd2j_4c_Bju7ziUTReSXkEHenun7rggluWvqnavAiCeNb-gY6YtRRFSHzKADpewlxzdw8bJGXSokcdgUBl6-9vRjNWBgfCyNM7EqhA89oTT4Q8NneDJBiw/s1409/euro%20week.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="929" data-original-width="1409" height="560" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNfeWTh8cmkf-aJhbWQzWuEH9a4Jdf2S8VWgdzXZqZIOP9JV_av0lwAAFAXw_ati2bDd2j_4c_Bju7ziUTReSXkEHenun7rggluWvqnavAiCeNb-gY6YtRRFSHzKADpewlxzdw8bJGXSokcdgUBl6-9vRjNWBgfCyNM7EqhA89oTT4Q8NneDJBiw/w849-h560/euro%20week.jpg" width="849" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">As everyone has already mentioned, <b>this drop in DXY has been
one for the history books but HASN’T been unique.</b> We saw a similar drop after a
similar rally from 2014-2015. A sharp move down after a lower high in April
2015 saw the downside catch right at the red moving average which, like today,
also sat near the 38% Fib retrace from the low of its nearly 1 year move higher.
<b>What came next was a sharp rally higher that failed at a lower high with RSI
topping at the 60 level on the weekly chart.</b> It then consolidated for 6 months,
eventually retesting highs before falling back to the consolidation lows again.
It was not the high of a bull market, we broke to new highs a year and a half
later. It was not the beginning of a bear market either, those lows near 93
held for over 2 years. That 7-point initial loss from highs at 100, when it
finally did break down, did so after hitting new highs and only broke down an
additional 5 points. The sudden drop from highs that came in just 4 weeks was
the majority of the move lower for the next couple of years.<o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqLGuwSlDkQhr-sFTCN76bUlkNWX3MOfACZrDfh8abYs51Ug0vuc2L_kMxp4vEO89dF92_y67rwm6g9FjOiVYLAjSFlK59mBLKjSmdZKV3ILBqgW_6FaxUqcgFBhPdF59FGzVABRxsve9heyOQXcZVqyKo0cAydHB8ORZ9N7Qyb6UY9djRdVm4Zw/s1611/dxy%20week.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="815" data-original-width="1611" height="431" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqLGuwSlDkQhr-sFTCN76bUlkNWX3MOfACZrDfh8abYs51Ug0vuc2L_kMxp4vEO89dF92_y67rwm6g9FjOiVYLAjSFlK59mBLKjSmdZKV3ILBqgW_6FaxUqcgFBhPdF59FGzVABRxsve9heyOQXcZVqyKo0cAydHB8ORZ9N7Qyb6UY9djRdVm4Zw/w853-h431/dxy%20week.jpg" width="853" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;"><b>I mention this because it is remarkably similar from a
technical standpoint to where we are today. I wouldn’t be surprised to see
dollar bulls and dollar bears BOTH disappointed by the next few months of
action in DXY. </b>If history rhymed here, we could see a sharp rally up to around
the 109-110 area on DXY (which would likely coincide with ~1-1.01 on the Euro) before
trending sideways for a frustratingly long time. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">It’s worth noting the correlation with Gold and DXY during
this time as well. It may SEEM like the 2014-2015 period was not heavily correlated
to gold vs today but there were a few interesting points that I think are
similar. <b>We can plot the big notable moves in gold over the last 2 years on the
DXY chart and it makes perfect sense.</b> I did so on the chart below. Low in DXY
Aug 2020 coincided with highs in gold and silver. Lower low in DXY Jan 2021 saw
a retest of silver at the $30 highs, but only $1960 on gold, then a fast reversal
in both from those levels. (In hindsight, that was one of the first warning
signs, failure to make a higher high with a lower low in DXY). <o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmtuXvWGSRvtifSv1HXJGE6CqJAEnkdTCIJOm_pOUK6yuHU5A1nS3Jc_E27PVkzcHr0GXlotGutXs-u-s4c14PBdXtHEZOZOPI3oFFEY7KVFCq4ngHvvYSp0G2khSig4ed5P7thDXLbXjgxSirgHwhdtJB-PbDm9duHk4v_EQKvsh6-J3UfOg1EA/s1613/dxy%20annotate.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="823" data-original-width="1613" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmtuXvWGSRvtifSv1HXJGE6CqJAEnkdTCIJOm_pOUK6yuHU5A1nS3Jc_E27PVkzcHr0GXlotGutXs-u-s4c14PBdXtHEZOZOPI3oFFEY7KVFCq4ngHvvYSp0G2khSig4ed5P7thDXLbXjgxSirgHwhdtJB-PbDm9duHk4v_EQKvsh6-J3UfOg1EA/w850-h434/dxy%20annotate.jpg" width="850" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">After a retest of Jan lows in June 2021, DXY exploded higher after
the June FOMC meeting where the Fed first began planting the seed of “taper” in
the markets mind, and ultimately the first steps in this tightening cycle. <b>Proportionately,
the move down in gold and miners after this was excessive vs DXY’s gains and
another warning sign for precious metal bulls.</b> (<a href="https://palisadesradio.ca/jonathan-mergott-gold-silver-what-happened-after-the-fomc/">That
was the warning sign I took that made me bearish on gold, citing similarities
here with 2013 and advising caution.</a>) A few months later, DXY began moving
to new highs and gold, silver and miners began dropping to new lows. Now, as
DXY looks to have peaked with a big move down, we are seeing a HUGE rally in metals
and miners (and everything, really). <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">In the 2014-2015 rally, DXY peaked at 100 in March 2015. At
the same time Gold was 1140.<b> DXY dropped sharply and gold took that cue to
rally over $150 to 1300 in just 3 weeks.</b> 9 months later, DXY is retesting highs
at 100 and gold is falling to new lows by another $100/oz. That was the bear
market low for gold. Despite the fact that DXY made a higher high 1 year later,
gold rallied strongly for the first 9 months of 2016 as DXY was weak and did
not break to new lows while the dollar hit higher highs. In fact, comparably,
it gave back very little in relation to new highs in DXY. The next 2 years is
what is interesting. DXY hit lower lows in early 2018 but gold did not hit
higher highs. <b>As DXY rallied back to near the highs at 100 from 2015, gold
rallied too, seemingly uncaring about what the dollar was doing at that point.</b>
As DXY retested 100, the 2015 high in mid-2020, <b>Gold tested 1750, a 35% gain
from the 1300 level where it was in 2015 when DXY hit 100 the first time.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Now that we’re on the subject of Gold, lets take a look and
then circle back to the dollar and what this could mean for gold going forward
if history does indeed rhyme with that 2014-2015 period.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">We have a lot of similarities with Gold as we do with the
Euro. We rallied $170, or about 10% since the lows 2 days after the Nov FOMC.
That gain came in just 9 trading days. <b>Currently, we are testing just below the
important 1800 level, which also near where the 200-day moving avg sits at
about 1765, and today, we’re starting to see gold struggle. </b>This area between 1760-1800
is a big floor that held gold prices for most of 2020-2022 with a couple exceptions,
until we broke down to new lows this year. That “floor” of support is now a “ceiling”
of resistance and bears seem to be pushing back, with bulls getting exhausted in
the short-term here. Much like the Euro, (and inverse to the DXY), <b>we are
seeing a very large divergence in price from the short-term moving averages,
and a large divergence between the moving averages themselves.</b> Again, same as
the Euro, this typically, at the very LEAST, indicates a pause is coming while
either price declines to “meet” them or the moving averages increase to meet
price while it consolidates. We also have the highest RSI and MACD levels in 9
months, with another big divergence in MACD signal line vs it’s moving average.<o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTMSmKz89B2rBin9vQ3hhkOEjuGKMjaZB3_9BAMjwiW5eLVMmFNbaaji8EgZO89SalgOKbmrkTEWevNnssvHROvfqUyzNCMKIBXlWsOZ3dSgyYWi70c0Ort54NrwR7T59kawi38P3sBtzdtMwhTAIKuANJ0viE_rdTDPhP4OCHCiTEYy9fgZGwLQ/s1410/gc%20day.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="936" data-original-width="1410" height="558" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTMSmKz89B2rBin9vQ3hhkOEjuGKMjaZB3_9BAMjwiW5eLVMmFNbaaji8EgZO89SalgOKbmrkTEWevNnssvHROvfqUyzNCMKIBXlWsOZ3dSgyYWi70c0Ort54NrwR7T59kawi38P3sBtzdtMwhTAIKuANJ0viE_rdTDPhP4OCHCiTEYy9fgZGwLQ/w841-h558/gc%20day.jpg" width="841" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Silver is similar, with the exception being it has exceeded
it’s 200 day moving average. <b>It’s testing its former “floor” of 22 and seeing a
big pushback today after initially rallying on a weaker than expected PPI number.
</b>Again, RSI is at the highest level in 9 months, as is MACD. MACD however, has seen
this level only twice before in the last 2 years. Both instances saw a sharp
drop follow. (It’s also worth noting, after outperforming gold most days since
it began rallying, we are seeing a SIGNIFICANT underperformance in silver
today, down over 2% while gold is essentially flat. <o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCKaty6fn67Zh_-l8Rkv-ABjZQFYe25HFFKv-r6gOKallxQ9uIr2P7wHd3UsksgG85R7Lb7sRD2rQbnIg7lShOAmA2lfaCI4GwGCCK86VP_dqawSBX-pHNz_owfW7GNdoej-JYk18_YGcKxUnJ2Rg-cUsc7Pi-B-j8-3ZQPBVlOrVvqvS5hfBPQw/s1418/si%20day.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="938" data-original-width="1418" height="561" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCKaty6fn67Zh_-l8Rkv-ABjZQFYe25HFFKv-r6gOKallxQ9uIr2P7wHd3UsksgG85R7Lb7sRD2rQbnIg7lShOAmA2lfaCI4GwGCCK86VP_dqawSBX-pHNz_owfW7GNdoej-JYk18_YGcKxUnJ2Rg-cUsc7Pi-B-j8-3ZQPBVlOrVvqvS5hfBPQw/w849-h561/si%20day.jpg" width="849" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">On the note of miners, you may begin seeing a theme here. <b>GDX
is testing near the 29 level “floor” it held all of last year. </b>Again, <b>testing
the 200-day moving average and struggling. </b>Again, seeing a <b>huge divergence in
price from short-term moving averages, and a huge divergence between those
moving averages themselves.</b> RSI turning down after highest level in 9 months,
MACD at areas it has failed at before and has only exceeded once in 2 years. Additionally,
we have a big gap at 27 that is begging to be filled, and strong support (former
resistance) near the 26-25 level that I think needs to be tested. I could say
the same points for GDXJ but will instead just post the chart. Everything is
the same for both. Same warnings we are seeing in the Euro as well and the
inverse signs we’re seeing in DXY.<o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7RBDOY5pvsaZlaGMyTalV3URaIA9czFpFEHQ6VrsMu0jYCd_tNh3ndIjUwynGB3axLHaxshKATpmFxJWVmaZ-ZFvQ2HockPc5Gm7SfxgNp7ogkCeL_nX7UcnxFfTIdhAoNvPGFLpnsdDyOeQjTM00g-QkHqh4Axf91aDUz5ytcNlvHUQHeNpCpg/s1411/gdx%20day.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="937" data-original-width="1411" height="562" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7RBDOY5pvsaZlaGMyTalV3URaIA9czFpFEHQ6VrsMu0jYCd_tNh3ndIjUwynGB3axLHaxshKATpmFxJWVmaZ-ZFvQ2HockPc5Gm7SfxgNp7ogkCeL_nX7UcnxFfTIdhAoNvPGFLpnsdDyOeQjTM00g-QkHqh4Axf91aDUz5ytcNlvHUQHeNpCpg/w848-h562/gdx%20day.jpg" width="848" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigp6JYQp29-ASPF1ip0ahF8J5zvu2FFk72MqoxOlnkJ7uy-9sNVS_BPoZsKhAR3gAOfJ_AqhZZ0af3Na7DIpg1qaxkwCQ9MZPBaSkUpiS12pKSy6vRQIPPgXZ6uSTgyrA45pMe0rhQKd9gQ172PlRRSjc4Qhn7ah0S7aYwBzuvKPXbvy8XA5-8nA/s1416/gdxj%20day.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="935" data-original-width="1416" height="561" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigp6JYQp29-ASPF1ip0ahF8J5zvu2FFk72MqoxOlnkJ7uy-9sNVS_BPoZsKhAR3gAOfJ_AqhZZ0af3Na7DIpg1qaxkwCQ9MZPBaSkUpiS12pKSy6vRQIPPgXZ6uSTgyrA45pMe0rhQKd9gQ172PlRRSjc4Qhn7ah0S7aYwBzuvKPXbvy8XA5-8nA/w850-h561/gdxj%20day.jpg" width="850" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Now here is my major concern, and here’s where we take it
back to the DXY rally from 2014-2015.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">I know the perma-bulls have been calling for “The FINAL low
in gold” for 2 years now and been completely wrong so far, all seem to think
this is finally it. This may come as a surprise to some of you (sarcasm), but I
disagree and think they are probably wrong yet again.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;"><b>I think what we are seeing here in DXY is going to rhyme a lot
with the 2014-2015 rally,</b> and what happened after as it began to break the
uptrend (by that I mean a consolidation, no new highs for the bulls, no bear
market decline to appease the bears. Just boring back and forth). <b>Equally, I think
gold could act similarly to what it did then as well.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">As I mentioned that breakdown in DXY in April 2015 sparked a
big, straight up rally in gold. After consolidating at around 1140 for a few
months, <b>we rocketed up 150 to 1300 as DXY broke down. Majority of that move
came in 12 days (We’re up 170 and it’s been 9 days so far this time).</b> We saw a
massive divergence between the 2 short-term moving averages, a huge divergence
in price and those moving averages and the highest RSI and MACD levels in 6 months.
<b>A lot of this move higher in gold is identical to the rally in early 2015. Additionally,
the catalyst for the move higher (a break down after a long and strong uptrend
in DXY) is identical to back then. </b><o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaKfUo9NOWgmTMMiol9OblSozRT970TTBIfXAyr26qK97S4KAFWd2m_CkLvXSI1HLrj12zxjakSRQNo91lMoloe7q-pKEZ-gvwx5OCCVqbSNTITEz3bv-oR9wDVXzEfI-qX58oqXkMzmM5d6YKxxa_ETHFSdSfqacJXc8R2rwhV7VJ_aaSMEG3pA/s1414/gold%202015.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="936" data-original-width="1414" height="569" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaKfUo9NOWgmTMMiol9OblSozRT970TTBIfXAyr26qK97S4KAFWd2m_CkLvXSI1HLrj12zxjakSRQNo91lMoloe7q-pKEZ-gvwx5OCCVqbSNTITEz3bv-oR9wDVXzEfI-qX58oqXkMzmM5d6YKxxa_ETHFSdSfqacJXc8R2rwhV7VJ_aaSMEG3pA/w858-h569/gold%202015.jpg" width="858" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Now again, if history were to rhyme, <b>what this may mean is we
are not done declining in gold,</b> <b>but we may be very close in both price and
time. </b>In terms of time, the final low in gold came 1 year later after the DXY
broke its uptrend. In terms of price, it was about 10% lower than its previous
low before the rally to 1300 started at 1140. <b>So that COULD indicate a final
low in gold coming Fall-Winter 2023, with price bottoming near 1450 (10% below
previous low at 1620).</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;"><b>Some of you might remember that 1400ish was a target of mine
for a final low for quite a while.</b> I elaborated on many reasons why in my article
<a href="https://alchemyfinancials.blogspot.com/2022/07/life-is-funny.html">“Cost”
from July 2022</a>. <span style="mso-spacerun: yes;"> </span>For the “too long, didn’t
read” crowd, the answer is the name of the article. <b>I am looking for price and
cost to meet at an area that makes profit margins razor thin for producers,
which historically, (like in the 2015 low), was an incredible time to buy
miners with multi bagger returns in the years that followed.</b> I HAD been
expecting, as gold is a volatile market, for price to decrease at a speed that
was faster than the increase in the cost of major producers, but that hasn’t
been the case so far. (It’s not easy to hit 2 moving targets with one bullet).
But the idea of it is sound, and playing out pretty accurately (so far). <b>ABX
and NEM both just reported AISC at about 1275/oz last quarter, and with inflation
still higher than 0, it continues to increase.</b> A decline in price within around
a 12 month period into the 1400 range, should certainly see costs within the
1300 range, even if they increase from here at a “slower rate” than they have
been. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Interestingly, this long-term chart on gold could support
that view, as 1400 was major resistance all throughout the bear market from
2013-2018, and 1440 was the 2020 Covid crash low. This area around 1450 is also
a confluence of Fib levels. But perhaps most important is a major uptrend line
that began at the 2006 lows, connecting the 2008 crash lows, 2015 bear market bottom
and the 2018 low. <b>If we were to extend this out about 1 year from now, it
intersects that area right around 1450 in late 2023.</b><o:p></o:p></span></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjtWlxuoo4WF4RX9G_rt2Aa0_78ajxea54bZEdTEvfeYKOXxQq4Yy48DbpNz-qbCDNVmX0a8FIqQQxUj892RExFdLsOMd_wg0ht7DdY7OsAjRCn_w4PbLrbR2we4iHDIQ5zA6mg0E8x8AASgQRIHZGRzxgXGsUPzQhVz-8aatJTnkNsGvsOOpPHQ/s1410/gold%20circle.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="938" data-original-width="1410" height="568" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjtWlxuoo4WF4RX9G_rt2Aa0_78ajxea54bZEdTEvfeYKOXxQq4Yy48DbpNz-qbCDNVmX0a8FIqQQxUj892RExFdLsOMd_wg0ht7DdY7OsAjRCn_w4PbLrbR2we4iHDIQ5zA6mg0E8x8AASgQRIHZGRzxgXGsUPzQhVz-8aatJTnkNsGvsOOpPHQ/w852-h568/gold%20circle.jpg" width="852" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;"><b>Obviously, it is a much better investment to buy producers
when profit margins are 100/oz on their way to 500/oz, then to buy them when
profit margins 500/oz HOPING that a moonshot up thousands of dollars in the gold
price will give you profit margins of 1500/oz (and the triple on your
investment that SHOULD logically follow that). </b>Unfortunately, that’s not what
most people do, as we can see few were buying miners into 2015 as profit
margins dropped to about 50/oz, but plenty were talking about “to the moon” in
Aug 2020 after gold had already rallied 50% in the last 6 months and profit
margins for major miners we at nearly 1000/oz.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Now down to brass tacks. As always, this is NOT financial
advice, always do your own research and all decisions you make on investments
are your own, I can simply tell you what I am doing and what I WOULD do in
certain situations.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">If you were like me, and buying when I outlined that <a href="https://twitter.com/Jmergz1985/status/1585040266712743937">“the boxes are
being checked for a rally” on Oct 25<sup>th</sup>,</a> <b>this is a good place to
take profits, which is being confirmed by my model as a “logical profit taking opportunity”
and that’s exactly what I am doing this morning.</b> <span style="mso-spacerun: yes;"> </span>Jan calls on SLV, GDX and GDXJ (All in or near
the money at the time of purchase) have doubled since I said this on Oct 25<sup>th</sup>,
<b>and all 3 have more than tripled since the Friday Nov 4<sup>th</sup> lows after
FOMC. </b><span style="mso-spacerun: yes;"> </span>To me, it seems obvious and
logical to take this opportunity to cash out on a little more than half of
these calls. T<b>his takes my initial cost off the table and a little bit of
profit. The remaining calls are all on “the houses money.”</b> If we continue
higher, I profit more. If we take a sharp, quick decline, it is all still profit,
just less of it then before. I can then decide if the pullback is acting in a
way that warrants adding back more of these calls or taking the remaining
profit off the table, but from here on out, it’s a ZERO risk position.<span style="mso-spacerun: yes;"> </span>(I should mention, as I talked about very
similar setups that were screaming for a pause in gold and miners that are
identical in the Euro right now, that I am also shorting the Euro here).<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;"><b>Note, I’m NOT selling long term investment positions.</b> What I’m
selling is from the cash portion of my gold portfolio that I have been using
for hedging for the last year and a half while we declined and adding to those long-term
positions with the profits from those hedges. Then, using that cash position as
leverage when we identify incoming rallies by buying calls on the ETFs. <b>This method
has SIGNIFICANTLY mitigated my downside risk on my portfolio during the
declines and given me the liquidity to add to my positions at great opportunities,
as well as emphasizing the upside when we are gearing up for a rally and continued
to build yet a bigger cash position for those opportunities and for future
hedges if and when we begin acting weak again.</b> I am not suggesting selling long
term investments, especially if you believe in them. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Whether we pullback in a way that looks like we want to buy
again, or whether this rally is done for now will entirely depend on what I said
in that Oct 25<sup>th</sup> tweet, “the reaction after a big move.” We just had
a HUGE move. Up 20% on GDX since that call. <b>If this rally has another leg to
run higher left in it, then I want to see buyers coming in on pullbacks.</b> They
can be sharp and decline quite a lot, but I want to see those moves get
supported if they occur. This would mean I want to see gold hold 1700 min,
Silver ~20/oz, GDX 25-26 and GDXJ 30-31. We will likely see some gyrations beyond
those levels on a few of them if we pullback strongly from here, but we will
have to analyze that as it comes and make the decision then as to whether this
still looks good or not. I will certainly update as to what I am doing when
that determination is made.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><o:p><span style="font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">In conclusion, be realistic. I know the “to the moon” crowd
is out again, proudly exclaiming their victory in calling this low (that makes
their records 1 in 423 by my count) and predicting 3,000+ for gold in the
coming months. It is certainly possible, I’m not gonna say it WON’T happen, but
I am also not gonna BET my positions on it. <b>I’m buying and selling on what is LOGICAL
and PROBABLE. I’m not treating the market like a Powerball ticket. </b>Since my
call on the 25<sup>th</sup>, you got +8.5% on gold, +15% on silver, and +18% on
GDX and GDXJ. Since the lows after FOMC, it’s +10% on gold, +20% on silver and
over 25% on GDX & GDXJ. <span style="mso-spacerun: yes;"> </span>All in 3
weeks if you were buying on my signals! We’re making a profit, and that is good!<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">Now take some. <span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="line-height: 200%;"><span style="font-size: large;">-Jonathan Mergott</span><span style="font-size: 12pt;"><o:p></o:p></span></span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-91793395084246058862022-11-06T23:26:00.016-05:002022-11-06T23:56:50.730-05:00BOOM!<p><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-size: large;"><span style="font-family: 'Source Serif 4';">It’s
been a boring few months in the gold market, up until recently. It’s actually
been a boring few months in most markets. <b>The basic theme has been, Dollar up, everything
else down. </b>If the Dollar is correcting, everything else has a nice little
rally, then the “everything bear market” resumes again. But there have been some signs of life
recently in a few things, and as most know, the signs of life I am paying
closest attention to of course, is gold.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p style="line-height: 200%; text-align: left;"><span style="font-family: 'Source Serif 4'; font-size: large;">While
Gold itself has been a bit shaky recently, testing back to its lows and even briefly
exceeding them on Thursday after the Fed rate hike, we haven’t seen a new low
in Silver since Sept 1<sup>st</sup>, over 2 months ago. Miner’s kept
underperforming for another few weeks though, with GDX, GDXJ and SILJ making lows
on Sept 26<sup>th</sup>. Then, all 3 rebounded pretty nicely only to fall back
down again, <b>but like silver, they did NOT make new lows.</b></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Now,
to an extent, this could be expected. After all, silver and miners had underperformed
gold drastically over the last year and a half or so. <b>The Gold/Silver ratio bottomed
in Jan 2021 at 62</b> and was still at ~68 in June 2021 when I first became bearish
and issuing warnings. <b>Two months ago, in early September, it reached 96.</b> The
only other time in almost 25 years that it was higher than that was the Covid
Panic in March 2020, when it reached 125 but only stayed above 100 for 3 months.
<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">It's
worth noting, while that was the highest the GSR has ever been, <b>it did reach
nearly 100 in both 1991 and 1941 as well, so this is the 4<sup>th</sup> time in
over 100 years it’s ever been at these lofty heights nearing 100:1. </b>(You don’t necessarily
need to be wildly bullish silver to see the benefit of favoring silver vs gold
here. Additionally, you don’t need to see the ratio drop to 20:1 to profit from
it. <b>1 oz of gold now could buy you almost 100 ozs of silver. At a 65:1 ratio,
where we were just 18 months ago, you could trade back 65 silver ozs for your 1
oz of gold and keep 35 ozs of silver for free. </b>My site is called </span><span style="font-family: Cinzel; font-size: large;"><b>“Alchemy
Financial”</b></span><span style="font-family: 'Source Serif 4'; font-size: large;"> because I like the idea of turning “paper” into gold. <b>The only thing
more appealing to me then turning paper money into gold, is to conjure free
metal out of thin air.</b>)<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">So,
it was overdue for gold to play “catch up” and begin underperforming versus silver
for a bit. From that standpoint, nothing unusual there, right? No, nothing unusual
per say, <b>except that historically it is much more common that silver is
outperforming gold because the tides are shifting, then it is just because gold
is “catching up” to silver and miner’s weakness.</b> That was the first bell to
ring for me.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">The
next bell was when we take a closer look at the technicals in gold. As we
started to make a double bottom in gold around Oct 20<sup>th</sup>, RSI was
significantly higher this time around then the first low at 1620 nearly a month
earlier (36 vs 26, and higher again on the 3<sup>rd</sup> test on Thursday,
holding 40).<b> In fact, RSI had stayed above 40 since the beginning of Oct,</b> only
dipping below that level for 2 days, Oct 19 and 20<sup>th</sup>, then moving
back above it sharply on the 21<sup>st</sup>. Nothing is ever picture perfect
in technical analysis, but that is close enough for me to consider it “holding
above RSI=40.”<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: 'Source Serif 4'; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPQOY7iLMGaLDxpG-B4G-wPiVnaO9U0HHarGPgxCHJTGoVvMz0lMB-aAg8qEJNPqICtn0X8HAUUGhC301tTcTCTnP9AjBdhqFwOl6HB5TC-IXhybw4DNrkftW6PAqskmcn1zwlmO7k_7CzsSfr_W2woh7PGV6TFSc7WniIx3bEfDGu5wKe-MeIJQ/s1920/gc_20221106230130898.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1256" data-original-width="1920" height="554" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPQOY7iLMGaLDxpG-B4G-wPiVnaO9U0HHarGPgxCHJTGoVvMz0lMB-aAg8qEJNPqICtn0X8HAUUGhC301tTcTCTnP9AjBdhqFwOl6HB5TC-IXhybw4DNrkftW6PAqskmcn1zwlmO7k_7CzsSfr_W2woh7PGV6TFSc7WniIx3bEfDGu5wKe-MeIJQ/w845-h554/gc_20221106230130898.png" width="845" /></a></span></div><span style="font-family: 'Source Serif 4'; font-size: large;"><o:p><br /></o:p></span><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">If
the short-lived dip below RSI 40 that quickly rebounded wasn’t convincing
enough, looking at silver helped solidify that “close enough” RSI view. As
Silver consolidated, bottoming repeatedly at 18, <b>RSI, which was 28 in early Sept,
had been holding above 40 on corrections ever since then, twice as long as it
had been for gold. </b>Both GDX and GDXJ had poor price action, testing nearly back
to their Sept lows,<b> but both also saw RSI stop DEAD at 40 on corrections and
bounce higher, holding above that level ever since those lows were printed.</b>
SILJ fared better than silver, GDX or GDXJ. RSI held closer to 45 on dips over
the last few weeks and <b>there was noticeable positive divergence in RSI as well,
going back to May. We can also see higher lows in MACD on Gold, silver, GDX,
GDXJ and SILJ building for months, coming right up to the 0 line then dipping
back down. </b><o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW08kAGPJLDmgd7_5VLZyNj9YMFqwh6Iyzine4bRwtKwNzRr3hhDGXE7RVZKdMuBRb-b74xWsh8oPeIxznGivCcjXkiWOn0PIooO4fw3H6XLJjfCpTAHUfPJuQVuQQx_XWu-MmmTZ0KjCHkFZVRQ8iUCeUYkScclKNyFQ9AGgmqStbuI_YJBLe1Q/s1920/si_20221106230132637.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1254" data-original-width="1920" height="561" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW08kAGPJLDmgd7_5VLZyNj9YMFqwh6Iyzine4bRwtKwNzRr3hhDGXE7RVZKdMuBRb-b74xWsh8oPeIxznGivCcjXkiWOn0PIooO4fw3H6XLJjfCpTAHUfPJuQVuQQx_XWu-MmmTZ0KjCHkFZVRQ8iUCeUYkScclKNyFQ9AGgmqStbuI_YJBLe1Q/w858-h561/si_20221106230132637.png" width="858" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">As
well as having positive divergence in MACD on silver and miners, and holding
RSI above 40, we can see 2 “fake out” moving avg cross overs on silver, one in
Aug that fell back down, another in Oct that collapsed as well and a 3<sup>rd</sup>
now. <b>Other than those 2 previous fake outs, this is the first moving average
cross higher since February. Silver gained $4 in the next 5 weeks after that.</b>
We can also see those moving averages have met on GDX, GDXJ and SILJ, all
looking to cross higher as well. Again, this is the first time in all the miner
ETFs since Feb. <b>After that cross over happened, GDX gained 30%, GDXJ gained 27%
and SILJ gained 25%.</b><o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiglxmqIAdyJA5YGqOQmJJthvvQuHGBwDTDA0S7tNnVz9W61yd_LKS2liRwp9LlcOOFcK1GPI3ADn_vMSvUyW8DyYuRGVV0WA0VTbN70u-tMvpakylEEkrx8LcJYI4gF2f6AYS91KQys1eH3Ec1HPE97NmmxhPTx3z6701S_p_PToWfNX2XQWNNVQ/s1920/gdx_20221106230135070.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1246" data-original-width="1920" height="555" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiglxmqIAdyJA5YGqOQmJJthvvQuHGBwDTDA0S7tNnVz9W61yd_LKS2liRwp9LlcOOFcK1GPI3ADn_vMSvUyW8DyYuRGVV0WA0VTbN70u-tMvpakylEEkrx8LcJYI4gF2f6AYS91KQys1eH3Ec1HPE97NmmxhPTx3z6701S_p_PToWfNX2XQWNNVQ/w856-h555/gdx_20221106230135070.png" width="856" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinPWgVTgHDAhOLt4XPPZob2hqjv3ujGn2uk4Z1ehpAVMj5vNomnQEKJ06xmmdQebN_eY1evD7FoHHEt7oL7uxRSDUmCcP-Gug3LXFvB9yvXYGf6HoNX2e8z5kA_84AgCVd2c0wtjSXKhuRGeaqaRuvbWW0iWLEgM5hlvm1uUsqe1dXGwjTxbopUg/s1920/gdxj_20221106230133434.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1252" data-original-width="1920" height="559" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinPWgVTgHDAhOLt4XPPZob2hqjv3ujGn2uk4Z1ehpAVMj5vNomnQEKJ06xmmdQebN_eY1evD7FoHHEt7oL7uxRSDUmCcP-Gug3LXFvB9yvXYGf6HoNX2e8z5kA_84AgCVd2c0wtjSXKhuRGeaqaRuvbWW0iWLEgM5hlvm1uUsqe1dXGwjTxbopUg/w857-h559/gdxj_20221106230133434.png" width="857" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOM-41DSSKe1i0YkamTqdmvsSsbY3GWJnYLqhrWWuRIkEteECmJb0zliQlG62xVzLbQOCTFxIATjgyk4A2XdWNMgElPy4rQL--Ux8-vYcw9n4TkPNHvt8Y6X62ZGkrsKZk38-1CIWfaEm9DNuqIayVM7BZ0xXceVBUKVbckKs3UQPEAVluJJwcYA/s1920/silj.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1256" data-original-width="1920" height="564" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOM-41DSSKe1i0YkamTqdmvsSsbY3GWJnYLqhrWWuRIkEteECmJb0zliQlG62xVzLbQOCTFxIATjgyk4A2XdWNMgElPy4rQL--Ux8-vYcw9n4TkPNHvt8Y6X62ZGkrsKZk38-1CIWfaEm9DNuqIayVM7BZ0xXceVBUKVbckKs3UQPEAVluJJwcYA/w861-h564/silj.png" width="861" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">I
will apologize for some redundancy to long time readers and followers, but I want
to reiterate and explain a few things for those who may not have heard me talk
about them before, or anyone who may not be familiar with a few key things I
look at and some of the technical analysis jargon.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">First,
In my observations in Gold over the last 14 yrs, and the history of it’s market
action that I have studied beyond just my experience, I have found a formula
that typically exists whenever precious metals are trending higher. <b>What we
typically see is silver outperforming gold, gold miners outperforming silver,
Jr gold miners outperforming majors. </b>(Silver miners typically should perform inline
with Jr gold and quality silver jrs have a tendency to outperform all of them).
So the formula is:<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> <b>Gold<Silver<Major Gold Miners<Jr Gold
Miners</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">If
you look back at most times when gold was trending higher, you will find this
to be the case. <b>Inversely, at times when metals are doing poorly, it is typically
the exact opposite. </b>Jrs perform the worst, majors, especially the ones who pay
dividends do a bit better, silver outperforms the miners, who are leveraged to
metal prices, and <b>gold performs the best, as it is the “safe haven asset.” </b>When
we see this formula begin to shift one way or the other, it’s likely the trend
is changing as well. <b>This is why the outperformance of the last couple weeks in
miners and silver vs gold is significant to me after such a horrid decline for
many months.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Another
thing I mentioned is RSI “holding above 40”. In assets that are in bull
markets, or are generally trending higher, <b>it is typical to see RSI hold above,
or bottom at 40 on corrections. At extreme points it can get very overbought.
In bear markets it holds below, or tops at 60 and can get very oversold for
periods of time.</b> Here are 2 past examples I’ve shown before, a bull market (Macy’s)
and a bear market (Ford).<o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifvqMghNaTud3t9JsxxRZJLVmGrHFVD501wJQvrZOT3U_XJ4qNHAad-R91pZ1b5rayPXeUis5B2r5cOncjtRJBJwyDIPqzLQXfAwPZ3wmmZ6k9r3DNB4xk_HJ5hSotWTs5x48X0C7LsvX4q2XtS-M5FZEL9Y1vpB4F-aTK63KoMfnii3UcEej83A/s1920/macys.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1255" data-original-width="1920" height="554" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifvqMghNaTud3t9JsxxRZJLVmGrHFVD501wJQvrZOT3U_XJ4qNHAad-R91pZ1b5rayPXeUis5B2r5cOncjtRJBJwyDIPqzLQXfAwPZ3wmmZ6k9r3DNB4xk_HJ5hSotWTs5x48X0C7LsvX4q2XtS-M5FZEL9Y1vpB4F-aTK63KoMfnii3UcEej83A/w846-h554/macys.png" width="846" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhB6A9Aj4_L5pealq9V2TbYsiAEhqfBnpZcuHPqv-Vwmbsh_Rt_E3G9fqnfO-O1zs3y20RbPeTjAckMXI_piuEmX6X7ZiuycovMwSBPCKfNJLLFk_GL3dNLTawCwyjnH8YZ_VUSZd_-8M0tmmqKGXobvYIHdwboJzy-cRU5Rjr10SYhNRzE4pVYkQ/s1920/f.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1246" data-original-width="1920" height="554" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhB6A9Aj4_L5pealq9V2TbYsiAEhqfBnpZcuHPqv-Vwmbsh_Rt_E3G9fqnfO-O1zs3y20RbPeTjAckMXI_piuEmX6X7ZiuycovMwSBPCKfNJLLFk_GL3dNLTawCwyjnH8YZ_VUSZd_-8M0tmmqKGXobvYIHdwboJzy-cRU5Rjr10SYhNRzE4pVYkQ/w853-h554/f.png" width="853" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Another
note is MACD. While many like to focus on the MACD signal line crossing the
moving average as a “buy” sign (Or a sell sign when it crosses below) <b>the cross
above or below the 0 line is what provides the best, long trending entries. </b>Note,
on this GDX chart going back to 2020 if you were to buy or short simply on the
cross of MACD above or below the 0 line. Look at how long and consistent the
trend higher or lower was vs trying to jump in every time in made a moving avg
cross. <b>Buy at the cross above 0 line, hold so long as it stays above. Short at the
cross below 0 line, hold so long as it stays below. Take profits on extreme spikes
and drops.</b><o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJg2BXhps2CivqSeFDgEIIul5afYhFuFn-o8894ec6wHVYnHtjAtgx5uP5O_Y8eaLKqJKw0HqcBRN2-tj9LunCYw3CBB24U0IsZ1k1i89Uc1EIid_lv7LEVYwK8WbNGKrDhH6ifxJn7hbXHtr0Rp6Ntd39uNB0dl0ymFvOhmHLBtwOyK_aEoYgJw/s1920/gdx%20macd.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1242" data-original-width="1920" height="553" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJg2BXhps2CivqSeFDgEIIul5afYhFuFn-o8894ec6wHVYnHtjAtgx5uP5O_Y8eaLKqJKw0HqcBRN2-tj9LunCYw3CBB24U0IsZ1k1i89Uc1EIid_lv7LEVYwK8WbNGKrDhH6ifxJn7hbXHtr0Rp6Ntd39uNB0dl0ymFvOhmHLBtwOyK_aEoYgJw/w855-h553/gdx%20macd.png" width="855" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">In
addition to 0 line cross over buy and sell “signals” from MACD, <b>it can also
present us clues on trend changes in terms of “divergences”,</b> which is when
price makes a higher high, but MACD does not, or price makes a lower low, and
MACD does not. <b>There are 2 negative divergences (red lines) on MACD here that
signaled the uptrend was going to break down and both times it did.</b> <b>There are
also 2 positive divergences in MACD (green lines) that signaled the downtrend
was about to turn and a rally was building. Both times that’s exactly what
happened.</b> <b>Right now, we are building a much bigger positive divergence in MACD than
either of those two last ones,</b> that is going all the way back to May this year
after a nearly 50% loss in 6 months. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">So,
take all of those points and add them together. <b>That is actually exactly what
the model I spent the better part of 10 years building does.</b> It analyzes all of
those points (and a few more) and weights them in accordance to what I feel is their
importance in predicting a bottom or turn in gold and miners. Then it gives a
value between 0-100. <b>When that value has
been ranging below 50 for a period of time, and then begins to consistently
start showing values above 60, then we are beginning to see an indication a
bottom is forming. </b>For reference, 2 weeks ago it showed values above 60 multiple
times for the first time in 6 months. <b>On Friday, it jumped to 76. THAT is
significant.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">If
you’ve been following and reading for the last few years, <b>the model has been
remarkably accurate at timing the major bottoms and pretty good at signaling to
get out of the way as things turned lower.</b> We got “buy” signals Nov 30<sup>th</sup>
2020, March 2nd 2021, Oct 1st 2021, and Jan 27th 2022. We warned “all is not
well” and got bearish late June 2021, Early Dec 2021, and May 2022. (All of
which is documented, and time marked on tweets, articles and interviews, feel free
to audit it all for yourself.) <b>The model is not built to “predict” tops and has
done a poor job doing so, but it is built to give logical profit taking points.</b> </span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">For example, one such instance came on March 10<sup>th</sup> 2022. As gold and
miners moved very strongly higher, <b>we got very high values in the model that suddenly
“slipped,” which is a strong indication to take profits. That was 2 days after
gold peaked. GDX was 38. </b>Over the next 6 weeks GDX kept climbing, but the
values in the model never returned to their peaks. GDX peaked at 41 then collapsed.
<b>You had a period of time of strength to continue to periodically sell into, but
in terms of “logical profit taking opportunities,” as opposed to “calling a top,”
that was about as good as it gets. </b>(We also saw DSI levels on gold and silver reach
93 and 95. Add that into the mix and you can feel pretty confident selling at
those points.)<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">There
are a couple of other points I want to mention. First, back to the Gold/Silver
ratio. After breaking October’s low last week, it is now back to levels last
seen in April, at 80. More importantly to me, <b>the moving averages here on the
weekly chart are crossing lower, the first time this has happened since July
2020. </b>At the time, the GSR was about the same level it is now, around 80. Over
the next 7 months it dropped to 62. Looking
at the daily chart, <b>once again we can see the importance of markets that are
trending higher and RSI staying above 40.</b> It did so while it trended up from
March until September. Then, it broke sharply below 40. <b>The moving averages on
the daily chart gave a bearish cross lower,</b> price made lower lows and on this
final rally higher in mid October, (a rally that reached a higher high than the
late September rally) <b>RSI moved up to 60, stopped dead, reversed and is now
below 40 again.</b> This has all the markings
of an uptrend that has peaked and is about to turn lower. <b>And GSR heading lower
has a close to perfect correlation with a general uptrend in Gold, silver, and
miners.</b><o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyxn4TLEcjQ2nzpjIu9LYwXYmqRRYqszruy71J3I7p8FoTu2mUI98x1-PPgEJGtPe7n7seJQ3BoeMbKIKF_zlK5CP0v7bjfRNcx8cslE1MqNr5zPrI__GAUIfnZiPB0RZloTizPcOM-7tuQ7y7lnTzuEP5WRbYK_JlQ27zEuUgRI0vAv5JqU1ZiA/s1920/gsr%20week.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="973" data-original-width="1920" height="435" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyxn4TLEcjQ2nzpjIu9LYwXYmqRRYqszruy71J3I7p8FoTu2mUI98x1-PPgEJGtPe7n7seJQ3BoeMbKIKF_zlK5CP0v7bjfRNcx8cslE1MqNr5zPrI__GAUIfnZiPB0RZloTizPcOM-7tuQ7y7lnTzuEP5WRbYK_JlQ27zEuUgRI0vAv5JqU1ZiA/w858-h435/gsr%20week.png" width="858" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXupeIscU2JOBI2Iw0z71DE5fbjFXWNIUhUmLB1W0Zx0wVlzwc-pFCTtQ3AfKu3QYEmQKYm9rAwKfTcwW2MpPcyhlNL64Jn02-YNci-r-g8i_aXJ5zutNw3uQ020JOZbHeHjOvUBWGJd3lh5R8flr1pAqfPchONzCplVsqlzicffyqHBRKqmp8Cg/s1920/gsr%20day.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="977" data-original-width="1920" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXupeIscU2JOBI2Iw0z71DE5fbjFXWNIUhUmLB1W0Zx0wVlzwc-pFCTtQ3AfKu3QYEmQKYm9rAwKfTcwW2MpPcyhlNL64Jn02-YNci-r-g8i_aXJ5zutNw3uQ020JOZbHeHjOvUBWGJd3lh5R8flr1pAqfPchONzCplVsqlzicffyqHBRKqmp8Cg/w860-h438/gsr%20day.png" width="860" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">On
the subject of ratios, there is also the GDX/GLD ratio. <b>Which is currently
consolidating at level that we have only seen it go below twice: The 2015 bear
market bottom, and the Covid crash in March 2020. </b>Now of course, that doesn’t
mean we couldn’t test these levels again or even break them, but it SHOULD make
you begin to consider, “Where does the higher risk and higher reward lie? In being long here or being short here?” On
the weekly chart we can see price consolidating at the 78% Fib retrace from the
March 2020 low to the Aug 2020 high. <b>Additionally, we can see a SIGNIFICANT “gap”
between the 2 moving averages. In 7 years, the deviation between these two moving
averages has only been this large 2 other times. The March 2020 Covid crash and
the 2015 bear market</b> <b>bottom.</b> Looking at RSI, we are recovering from oversold
levels, slowly creeping higher as price consolidates, in a very similar fashion
to how it did in the 2015 bear market bottom. In fact, those “oversold” levels
on RSI were only hit 3 times before, 2015 bottom, 2018 bottom and the 2020
covid crash.<o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0vir61ZHbOCQb9eo-d2AvW2NxDCugJed6ZjJESdg3pdAqIb0GsGE_zsUhM8S8YV2wEj-JRwqJEcQt2FC7lCaT8DOzhoT7SexinWeNkgV6Rr0scEfWB3LdIoM9BSEsa6QPVMflo3cdalWmZH0iB6VfTuGj1tx80sOr-XuS5kjX5UAC_ZF2PRogcQ/s1920/gdxgld%20week.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="971" data-original-width="1920" height="433" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0vir61ZHbOCQb9eo-d2AvW2NxDCugJed6ZjJESdg3pdAqIb0GsGE_zsUhM8S8YV2wEj-JRwqJEcQt2FC7lCaT8DOzhoT7SexinWeNkgV6Rr0scEfWB3LdIoM9BSEsa6QPVMflo3cdalWmZH0iB6VfTuGj1tx80sOr-XuS5kjX5UAC_ZF2PRogcQ/w856-h433/gdxgld%20week.png" width="856" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Flipping
over to the daily chart, there are a few other interesting points. First, we
see the same action as we do in GDX and GDXJ regarding RSI. <b>We have held the 40
level since late Sept.</b> It has been held back on rallies when it reaches 60, but
breaking 60 is step 2. Step 1 is that we are holding above 40 on pullbacks
which it hasn’t done in some time. Something else the ratio may be clueing us
in on is that <b>we have the first moving avg cross higher since February. </b>We had
a strong drop after the cross, but also a strong rally Friday that puts price
back above both moving avgs which will keep them trending higher. (<b>Should also
mention, we had pitiful performances from ABX and NEM after earnings announcements
last week, which put a very big hinderance on GDX,</b> so underperformance for a
few days there when looking at the GDX chart or the GDX vs GLD chart, should be
taken with a grain of salt as <b>those 2 stocks make up 23% of the GDX.</b>)<o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzuiVPT4CXbot6aioHuCTJ4dq8xzXWaS_tZgSNzAsOSNEmIOSxiNJy-OArRf6hKYLR7yTnLGB41wcjKkaUD0WBftlp4MoXwpWE1Dhhs_S-CrQIjyFBds97nJxF1dhIYtesVmKk0Lw6VqOHIDGRadHfEaY42Zrt-x1OjJwlCpK5Eon_g35u2D2qYA/s1920/gdxgld%20day.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="967" data-original-width="1920" height="435" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzuiVPT4CXbot6aioHuCTJ4dq8xzXWaS_tZgSNzAsOSNEmIOSxiNJy-OArRf6hKYLR7yTnLGB41wcjKkaUD0WBftlp4MoXwpWE1Dhhs_S-CrQIjyFBds97nJxF1dhIYtesVmKk0Lw6VqOHIDGRadHfEaY42Zrt-x1OjJwlCpK5Eon_g35u2D2qYA/w864-h435/gdxgld%20day.png" width="864" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Looking
at the orange box on the daily GDX/GLD ratio chart, we can see some
similarities to now. We consolidated at the 50% Fib retracement from the March
2020 low to the Aug 2020 high. Today we are consolidating at the 78%
retracement. <b>We got a moving average
cross over in late Oct, (Same as this year)</b>, then came back down to retest lows
and consolidate some more. The already quiet market got quieter and more ignored
during the holiday season as it bounced around, then it took off. <b>If history
rhymes here, we may be a bit early in getting bullish, but I’d rather be a couple
months early than a couple weeks too late.</b> We could see lows retested and this quiet,
ignored market stay quiet for a bit longer, <b>but in terms of quiet consolidations,
this is exactly the type that you see at major lows.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b><br /></b></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>I
have been looking at Christmas as a likely time for a bottom in metals and
miners for a few reasons. </b>One, is tax selling, which we are bound to see this
year after such a poor performance. Another reason though is because <b>all
through the bear market from 2013 to 2018, we saw 2 major lows each year and
they were very consistent from a cycle standpoint. One major low each year came
around early July and one came around the end of the year. </b>Last year, GDX hit a
low Dec 15 and retested it in late January this year. We took off in February.
We also got a small bottom and rally that occurred right at the beginning of
July this year. <b>Note this Gold cycle chart below from 2013 to 2018 and how
closely major lows aligned to those periods in July and around Christmas.</b> Then
note the lows in Jan and July this year on the current chart. Perhaps history
continues to rhyme, and this bottom cycle is one that gold likes to play out
when its in a bear market.<o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhALpt6mPu8Lfn-WIom2Z9tTxIs0Ifbi4TEgEzumwQiBkBTQsYz4FKCRMIQykS72FRpkaqEzHG1Yp5yd5UH_xxFaxPsI3T0ggeCeOaLRteC5kxi8nvJDNv6S-uE1scYYBrX3OjW2du8jBtysH5JFibZ_1n1XyaoZvkzHa_G8a_1Fee6N3GA488I3Q/s1920/gold%20bear%20cycle.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1251" data-original-width="1920" height="557" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhALpt6mPu8Lfn-WIom2Z9tTxIs0Ifbi4TEgEzumwQiBkBTQsYz4FKCRMIQykS72FRpkaqEzHG1Yp5yd5UH_xxFaxPsI3T0ggeCeOaLRteC5kxi8nvJDNv6S-uE1scYYBrX3OjW2du8jBtysH5JFibZ_1n1XyaoZvkzHa_G8a_1Fee6N3GA488I3Q/w856-h557/gold%20bear%20cycle.png" width="856" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">One
final point, and it may very well be the most important of all of them. <b>Two
weeks ago, the dollar sold off HARD and all the bears were there to claim
victory and pronounce its death for the 10 thousandth time.</b> Within days it was
ripping higher and then the bulls were back to being complacent with the trend they
have come to rely on all year, DXY up, everything else down. <b>In such a short
order it seemed like everyone, no matter bull or bear on DXY, got a big surprise.
There is a good chance there is about to be another one. </b>This time for the
bulls, again. </span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b><br /></b></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>DXY has been another great example of uptrends holding RSI 40 on
dips.</b> Notice, there was no clear trend in DXY from Fall 2020 to Summer 2021,
just sideways action. Simultaneously, RSI ranged from 70 to 30 and back again,
no clear indicators of a trend there either, <b>but as soon as the dollar began
making higher lows and higher highs in Summer 2021, we also saw dips holding at
40 on RSI and reaching very overbought levels at peaks.</b> It’s kept that up for
18 months. The drop that had bears so excited didn’t push below 40 on RSI, nor
did it break this uptrend line, but it’s the rally that followed that had alarms
ringing to me, (and why I have said before to pay attention to the “reaction
after a big move”.)<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>RSI
stopped DEAD at 60 and turned lower.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: 'Source Serif 4'; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK1hrCTqYsDnLLdQ8tjgzv0Rduu0BdhQUsaleIwHNDxItSlRrpK0yPS5hYtyX2PK3q0o6afc4aElT_6lQOqZrMf7198HJljzNnneSL3BqvXWHrO3r17OaktOMONSKURjBYvfGADBoY7bwma0F3H2nC1irr2W39ULCls2BdB05HpsgYVSC8FPf6dQ/s1920/dxy_20221106230648567.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="973" data-original-width="1920" height="430" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhK1hrCTqYsDnLLdQ8tjgzv0Rduu0BdhQUsaleIwHNDxItSlRrpK0yPS5hYtyX2PK3q0o6afc4aElT_6lQOqZrMf7198HJljzNnneSL3BqvXWHrO3r17OaktOMONSKURjBYvfGADBoY7bwma0F3H2nC1irr2W39ULCls2BdB05HpsgYVSC8FPf6dQ/w847-h430/dxy_20221106230648567.png" width="847" /></a></span></div><span style="font-family: 'Source Serif 4'; font-size: large;"><b><br /></b></span><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">We
haven’t broken the uptrend line yet, we haven’t broken 40 on RSI on the
downside, <b>but that reversal at 60 may be the canary in the coal mine for DXY.</b>
Now, does this mean new lows for DXY, or just a consolidation in the uptrend,
or a pause and correction? I don’t know and neither does anyone else, contrary to
what they may try to convince you of. <b>What does matter to me though, is that
even if this is just a pause and consolidation here, it could give enough space
for gold and miners to have a very nice run in the coming months.</b> One more factor
to weight with all the other positive signs for metals right now. And it could
be a very big factor as well.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">On
a quick personal note, I want to thank everyone for their kind words and well
wishes when about a month ago I had mentioned I was in the hospital and was
having some significant health issues. The last few months have been a very
difficult time in my life and continues to be, but things are improving. I am
not one to typically share personal things, so when I do it is usually
significant. Although it is often said sarcastically, I truly do appreciate
everybody’s “thoughts and prayers” and it is great to be back writing about the
gold market again, especially as it now looks like it’s about to get fun!</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">In
closing, everyone is always asking me the same question, so I’ll address it yet
again. <b>Is this THE bottom? I don’t know
and neither does anyone else, no matter how much of a Guru they claim to be or
how many twitter followers they have. No one has a crystal ball, myself
included. </b>Will this rally send gold to 2,000, 3,000 or maybe just 1750? It
doesn’t matter too much. We all have our thoughts and reasons why behind them, but
it is mostly a waste of time pontificating too much on “how high is up?” in my experience.
<b>We get the indications to buy and that’s
what we do. When we get the indications to take profits, we will do that too. When
we get the indications to get out of the way, we will. </b>It’s what we’ve been doing,
and it’s worked quite well. <b>The moral is the tide is turning so we’re
positioning to catch the wave and ride it for however long it carries us. </b>That’s
the signals we’re getting TODAY. Let’s worry about tomorrow when tomorrow
comes. Till then, stay safe and out of leverage. This market storm may not be
over, we may just be in the eye of it.<o:p></o:p></span></p>
<span style="line-height: 107%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><div><span style="line-height: 107%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></div>-Jonathan Mergott</span></span>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-16108785354501261852022-09-01T19:14:00.000-04:002022-09-01T19:14:32.119-04:00Large Spec Net Shorts Does NOT Mean We're at THE Bottom<p><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></p><div class="separator" style="clear: both; text-align: justify;">
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">A few weeks ago, gold and
silver bugs were cheering at the silver COT report, which was showing large
specs going net short silver for the first time in over 3 years. The narrative went like this: <b>“Last time this
happened in May 2019 at $15/oz, Silver doubled in 15 months.”</b> There is nothing
false about that statement. The last time this happened was indeed in 2019 at
15/oz, and silver did double from there 15 months later hitting $30/oz in Aug
2020. <b>The question isn’t if the statement is false, its “is this relevant to
where we are today?”</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Let me back up, as I am
sure there are some people who either have no idea what COT reports are telling
you or why they’re relevant, or worse, they’ve been sold on the incorrect
narrative gold perma-bulls have been shouting for literally decades, about how <b>“J.P.
Morgan/Deutsche Bank/Bank of America etc, silver shorts about to be squeezed
any minute now” and how that will send silver prices to the moon. </b>(Spoiler, it’s
never happened, and it never will.)<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">COT reports, or the
Commitments of Traders, is a report that comes out every Fri afternoon that shows
the position sizes of 3 major “groups” of traders: large specs, small specs and
commercials. <b>Large speculators are essentially hedge funds. As a group, they are momentum chasers, meaning
they have a tendency to add to long positions as price is moving strongly
higher until their net longs are at very high levels at the market peak, and
inversely, sell their positions as a market goes down until they, as a group,
have very little longs or are even net short at market bottoms.</b> For this
reason, they are often given the nickname “the dumb money”. Small specs are
retail traders. They are basically you and me (but with deeper pockets). Their
positions in a market are typically not very significant and rarely important
in terms of analyzing the COT report, so for the most part we are going to
ignore them.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">That brings us to the
commercials. <b>Commercials are the banks. Their positions have a tendency to be exactly
inverse to the large specs, as well as price. As a market moves higher, they
typically are increasing their short positions and as a market moves lower,
they begin to decrease them or even go net long into major lows.</b> This chart
below of Soybeans over the last 5 yrs is a perfect example of what I mean. The
large specs (green line) were net short soybeans from the end of 2018 until the
end of 2019, when price was ranging between 800-1000, while commercials (red
line) were net long 145k contracts in May 2019 at 800. 1 year later, price had doubled,
and large specs chased it all the way up, going from net short 123k contracts
at 800, to net long 250k contracts at 1600. The commercials on the other hand,
were massively net short at the top.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%;"></p><div style="text-align: left;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></div><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitKnb_XVAn1fbE3ynhqBIYORlBWcoATWu_zmxC4fsE7_8e2JDE79VZ5SKoGBoZ_tfo6cOX-nPbUU7omXyNWYGjjUxdMuTzcGjMcam7RBQYOacaxwC0Csh8fFnI2pbLcFlW3CBoWPbSdPGiX8cfZ7xHY9Ociqj6NbLm7auNjGm_KSJ83xqXm5M8ng/s1920/Soybeans.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="950" data-original-width="1920" height="621" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitKnb_XVAn1fbE3ynhqBIYORlBWcoATWu_zmxC4fsE7_8e2JDE79VZ5SKoGBoZ_tfo6cOX-nPbUU7omXyNWYGjjUxdMuTzcGjMcam7RBQYOacaxwC0Csh8fFnI2pbLcFlW3CBoWPbSdPGiX8cfZ7xHY9Ociqj6NbLm7auNjGm_KSJ83xqXm5M8ng/w1256-h621/Soybeans.png" width="1256" /></a></div><div style="text-align: left;"><br /></div></span></span><p></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Now here is where the misinformation
in the gold and silver sector come from. <b>All the talk of commercials (banks) being
massively net short as price is moving higher, and a short squeeze that will
send prices skyrocketing any minute now, is a fundamentally incorrect analysis on
how the market operates.</b> There is a very simple reason why we have never seen this
“J.P. Morgan silver position short squeeze” and why we never will. <b>Because the commercials
are not taking a position in the market betting on price direction either way.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>The commercials are
essentially opportunistic merchants.</b> If people want to buy, they want to be
there to sell it to them and vice versa. <b>They are not racking up a massive
short position in silver because they are betting on lower silver prices,</b> they’re
short position is simply the other side of the large specs who are eager to
buy. They profit from the transaction. That
is it. Banks don’t make “bets,” they invest in “sure things.” What you don’t see
regarding their “massive silver short positions,” is derivative holdings that zero
out all exposure to the market in any direction. <b>If prices skyrocket, they
profit and lose nothing. If prices collapse, they profit and lose nothing.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Wall Street is the most
competitive industry in the world. The most intelligent minds on earth don’t
work for NASA, they work for Goldman and Citigroup. These are organizations
that have trillions in assets and the smartest people in the world managing
them, with a goal to take as little risk with them as humanly possible and
still profit. <b>Why on earth would an entity like J.P. Morgan, be stupid enough
to leave themselves open to blowing up their entire firm over a bad directional
bet on silver? </b>Of course those short positions are hedged! Sure, it’s not
impossible that someone could leave themselves open to such a risk (Lehman Brothers),
but it is not very probable and is simply not how they operate in the futures
markets, or how commercial COT positions are supposed to be interpreted.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>So, the next time you see
a self-proclaimed “gold and silver expert” and “professional” in the market
talk about commercials or a major bank about to be “squeezed” due to their
silver or gold short positions, promptly disregard EVERYTHING they are saying.</b>
They are either ignorant of how the market works and therefore no expert or
professional in any capacity, (in which case you shouldn’t pay attention to
what they have to say), or they DO know better and are trying to profit in someway
off of the “doom” narrative of a collapse of a major banking firm and a precious
metals “moonshot” (in which case you shouldn’t pay attention to what they have
to say.)<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Ok, so where is the
problem here? If large specs, or “dumb money” always chase price higher and
lower and are always heavily on the wrong side at the wrong time, how is this
not spelling out a major low for silver and possibly gold as well? It’s simple.
<b>Because as a rule of thumb, large specs don’t sell bull markets.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Yes, the last time large
specs went net short silver was the last dip in 2019 down near the lows,
anticipating either a retest of 14, the low from both 2015 and 2018, or a break
below it. They were wrong and were forced to cover and chase price higher as it
doubled over the next 2 years. <b>But is that an accurate comparison to where we
are now?</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">From 2009 to 2011, silver
went from a low of $8, to a high of $50. 2 years of higher highs and higher
lows, exactly what an uptrend or a bull market is. From 2011 to 2013, silver
corrected from that parabolic high and consolidated between 25 and 35. In 2013,
silver began breaking down, making lower lows and lower highs and this
continued for 2 years until 2015, bottoming at $14/oz. From 2016 to 2018 silver
spent 2 years going sideways, retesting its lows as it consolidated at a major
bottom. Then, from 2018 to 2020, it spent 2 years going higher again, and from
2020 to 2022, another 2 years consolidating.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">From 2009-2011 as silver
made higher highs and higher lows, <b>large specs NEVER went net short silver.</b>
From 2011 to 2013 as silver consolidated going sideways from 25-35, <b>large specs
NEVER went net short silver. </b>In fact, for the total of those 4 years, the
position size of the large specs never fell below 6k contracts net long. <b>The first
time large specs positions dropped below that (and were nearly net short) was
in June 2013, as silver began making lower lows.</b> Their position size dropped to
837 contracts, down from 41k contracts 7 months earlier. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Over the next 6 years, as
silver continued lower, their long position sizes decreased significantly
versus the previous years when silver was moving higher and consolidating after
a big rise. <b>In March 2018, they were net short 13k contracts at ~16.50 an oz.
In November 2018 they were net short again by 11k contracts. In May 2019 they
went net short a 3<sup>rd</sup> and final time at $14.50/oz. </b>That is a total of
3 times they went net short during the consolidation at lows in a bear market,
and one time where they were nearly net short as silver began its decline in
2013, breaking down from its consolidation and beginning a trend of lower lows and
lower highs.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4';"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: 'Source Serif 4';"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvk1MR8ary_T8sq_ZVhC2YYt2Fq5xIR5y-Q8Gw_EeEYBbaWSS1V2V33O-FM3U_ob_cZ0e8KPijYfRXBq_1h7bUZdpL0Rf4bCxrZFUaJQgB0fHMhgCPmrRp5vUsDEQnusA4WkR4ZRtGF_L4vMU3Oiq8SaCAtMblH2iPhCXqocl0t71Wx3CH7rPPHA/s1920/silvernetshort.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="923" data-original-width="1920" height="616" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvk1MR8ary_T8sq_ZVhC2YYt2Fq5xIR5y-Q8Gw_EeEYBbaWSS1V2V33O-FM3U_ob_cZ0e8KPijYfRXBq_1h7bUZdpL0Rf4bCxrZFUaJQgB0fHMhgCPmrRp5vUsDEQnusA4WkR4ZRtGF_L4vMU3Oiq8SaCAtMblH2iPhCXqocl0t71Wx3CH7rPPHA/w1281-h616/silvernetshort.png" width="1281" /></a></span></div><span style="font-family: 'Source Serif 4';"><br /><span style="font-size: large;"><br /></span></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Today, we have a silver
market that was moving higher from the lows in fall 2018 to the highs in Aug 2020.
In one instance in May 2019, they were net short. They quickly flipped that
wrong position and 2 months later, they were net long 64k contracts. <b>From
2020-2022 as silver was consolidating between 20-30/oz, they were NEVER net
short silver.</b> Now, as silver has started to decline, making lower lows and
lower highs, surprise, surprise, large specs have gone net short again.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>So, you tell me, does where
we are today sound like the final low after a long, brutal decline in price over
a period of 2 years, and a long basing consolidation at those lows for another 3
years?</b> Or does it sound more like that initial drop in long positions that
large specs had in silver in 2013, that was almost net short as price BEGAN making lower lows and lower highs? <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Yes, large specs going
net short a few weeks ago is likely piled too far on the bearish side and A low
is likely to occur, as it has in the past when they’ve gone net short or
reduced their long positions significantly. In fact, that is exactly what
happened, and <b>I pointed out that I expected we were making A low in silver on
July 13<sup>th</sup></b>, and that we could<b> rally up to 21,</b> but this low was not a
good idea to go long on and a better opportunity would be shorting the rally
after it occurs. <b>Silver bottomed the next day on July 14<sup>th</sup> and 1
month later hit $20.85</b>. That was just 2 weeks ago and we are now at 17.40, a
17% loss and a new low.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">But much like in 2013, it
was just A low, not THE low. I know many are interpreting this as the end of
this decline being near, but I see it exactly opposite. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>This isn’t the bottom or
the end of the decline, it’s confirmation that we are indeed in a bear market,
and likely still the early stages of it.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">I know that’s not what
people want to hear, but that is the reality, and <b>I’ve been warning of this
risk for 15 months, since June 2021.</b> <b>I said miner’s underperforming is a big
warning sign, like it was in 2013 and it has been again.</b> GDX has lost 36% and
GDXJ has lost 42% since then.<b> I said miner’s lead the metals and they are
leading them lower today like they were in 2013 and they have continuously made
lower lows, just like they did then</b>. GDX, GDXJ, SIL & SILJ all broke to new
lows long before silver followed. Gold has yet to break 1680, but I think that
time is very near. <b>I said sentiment will get very bearish and stay there for
long periods</b> like it did from 2013-2015 and it has again. <b>I’ve pointed out COT
positions in bear markets can drop much lower</b> like they did from 2013-2015 and
they have again as well. <b>I’ve said price can get very oversold and stay there
for long periods</b> like it did from 2013-2015 and we have also seen that repeat
again. <b>All while perma-bulls accused me of “selling at the low,” shouting the
most dangerous words in investing in response to my analysis: “It’s different
this time.”</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Ladies and gentlemen,
there is nothing new under the sun. <b>History doesn’t always repeat verbatim, but
it does rhyme,</b> and this time has rhymed near perfectly with 2013. The macro
doesn’t matter. PE ratios don’t matter. Fundamentals don’t matter. <b>The only
thing that matters, is the human emotions of greed and fear.</b> That is what makes
up day to day price action, and that is why we can see so many similarities in
price action in the gold and silver sector today, with what happened in 2013. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Ironically, many of the
same people shouting “it’s different this time” are the ones who have shared
comparison charts of the S&P-500 today versus in 2008. Was the macro not different
then? Even the S&P components were different then! But human emotion is not,
and we can see that play out in nearly identical price action. <b>The Macro in the
1600s in The Netherlands was very different from the United States in the 1990s.
The fundamentals of tech stocks and tulip bulbs were different as well. Yet,
the chart of price action in both is identical, because price action is not dictated
by fundamentals or macro-economics. It’s greed and fear. That’s it.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Before I wrap this up, I
wanted to mention a few more things regarding the environment in the precious
metals sector versus 2013. <b>It continues
to be remarkable to me how similar the things people are saying and doing today
versus back then.</b> It truly is identical, and people don’t even seem to notice
they are doing it. For those who didn’t live and trade through it, I will give
you some examples of what I saw happening then. <b>You decide how similar it is to
today, and whether that is as worthy of serious concern as I have thought (and
continue to think) it is.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">First, everybody was in disbelief
that it was happening. <b>When the Fed hinted at taper in 2013,</b> the gold
perma-bulls crowed that <b>they could never do it,</b> that the entire economy and
financial system would collapse if they even decreased their printing by even
just a little. When they did, they said <b>“they’ll reverse and start increasing
their printing again within a month or 2”.</b>
Then it was that <b>they could never raise rates,</b> for the same reasons, an
immediate collapse. When they did, they said, <b>“one and done”</b> and that they’ll
be cutting again (from 0.25%, lol) in months. They screamed about the national
debt, and how rates at just 2% would increase our interest payments on the debt
by “X” amount, and the Fed would never allow that to happen. (That was 15
trillion dollars ago). <b>Everyone was waiting for the “pivot” </b>that would
certainly send gold much higher when it came. <b>It wouldn’t come for another 4
years, and when it finally did, gold had already rallied 25% from the 2018 low,
so the idea of buying gold when the fed pivots, was a misguided plan of action
to begin with.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">People were talking about
poor sentiment that continued to get worse, sharing charts like the <b>Gold miner’s
bullish precent index at levels below 10, which MUST mean we are at a bottom.</b> It
stayed below 10 for 6 months in 2013. (Today, the gold miners bullish precent
index has been below 15 for 2 straight months). <b>Many were talking about how miners
were trading at the same levels that they were when gold was 1300, but yet it
was north of 1550.</b> They thought that in the most competitive industry in the
world, <b>there was a free lunch</b> being left on the table for any idiot who can
look at a chart and see a discrepancy between miners and the metal to gobble
up. Easy money buying miners here, right? <b>Miners didn’t revert back to pricing
gold at north of 1550 and have huge gains, instead gold fell to 1300</b>. I’ve seen
a lot of people saying in the last few days, that GDX and GDXJ are trading like
gold is back at 1400. That does not mean an easy money opportunity, just as it
wasn’t then. <b>It’s a warning that gold is likely going to fall to 1400.</b><o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"> </span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">People were already on
the edge. <b>By the time gold was ABOUT to break support at 1550, GDX had already
lost 50% from its 2011 peak. (Currently, at 23, GDX has lost 50% from it’s 2020
peak of 46, and again, gold has not broken it’s support at 1680, yet.)</b> If
history repeats from this point, we have a dark future ahead for us. Many are
already on edge again today but are holding on because they know it is foolish
to sell when miners are already down 50%. They’re about to witness the worst losses
in a single day that their portfolio has ever suffered. <b>When gold broke support
at 1550, it was a total of $500 down to get to our final low at 1050 2 years later. Half of that $500 in losses came in just 2 back-to-back days once
support broke.</b> Major silver producers were down 20% in 1 day. Major gold
producers were down more than 10%. Jr’s
got obliterated. Many suffered such extreme losses, (and later forced dilution
at extremely low prices) that it rendered it nearly impossible for most investors
to get back to even, let alone to ever see a profit on those investments. </span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b><br /></b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>We
did see a bottom about 1 month after that and a decent rally following, but
then it was back to making lower lows in what ended up being a market that
started as a bullet to the chest, and ended with “death by 1000 paper cuts” 2
years later</b>, for an ADDITIONAL loss of nearly 50% from those break down lows on
GDX (From 67 in 2011, to 35 in 2013 BEFORE gold broke support, to 22 in 2013 AFTER
gold broke down, then to 12 in 2015 when it finally bottomed).<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">Being that miners had
already been so weak before the breakdown in gold, <b>everybody thought it must be
a flush out, capitulation bottom.</b> <b>It wasn’t. They’ll say the same again when
gold breaks 1680.</b> It won’t be capitulation this time, same as it wasn’t last
time. It won’t truly be capitulation until most of these talking head,
perma-bulls in gold just disappear entirely. When NOBODY wants to talk about gold at all. (Here’s an example. A PM analyst I
knew in 2015 left his job to go become a dentist, because the sector was that
bad. THAT is what you see at capitulation lows, not moderate depression amongst
an ever-stubborn group of perma-bulls. What we need is epic and total despair,
and we unfortunately are not there yet.)<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><br /></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b>The break is coming, and
very soon, I fear. Time is up.</b> With a long weekend ahead of us, <b>I wouldn’t be
surprised to see gold open next week down $50-100.</b> And then do it again the following
day. No, I am not kidding or exaggerating. I think we breakdown hard and very
soon. <b>I’ve done all I can to warn as many people as possible for the last 15
months, to try and help people from making the same mistakes I saw so many make
back then that bankrupted them.</b> If you haven’t taken any actions to protect
yourself, you are now at the mercy of the market. <b>The only thing left to say
is, “Good Luck.”</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;"><b><br /></b></span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-align: left;"><span style="line-height: 200%;"><span style="font-family: 'Source Serif 4'; font-size: large;">-Jonathan M Mergott</span></span></p></div>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-31140888842489558682022-07-06T16:30:00.002-04:002022-07-06T16:55:09.311-04:00Cost<p><br /></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Life is funny. Last year
in March, gold ~1680 and I had called for a bottom. We did bottom and had a
nice rally back up to 1920 by May. The move was a little steep, but I thought
after a pullback, we 'd be set up nicely for a move into the 2400 region,
possibly by Aug, which is the month gold makes peaks in far more than any other
month. By June, after the FOMC with the Fed dropping the “taper” bomb onto
markets, things took a very different turn and it was clear that 2400 target
for Aug was off the table. In fact, the whole bull market was possibly “off the
table” and the reaction of metals and miners afterwards turned me very bearish,
as I began having flashbacks of the 2013-2015 decline.</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">We declined significantly
all summer and fall, and when we didn’t break down after 6 months, I got
bullish again in Jan, <b>pointing out that consolidations in gold typically break
out after 18 months, and Feb would be month 18</b>. Sure enough, we began rallying
strongly in Feb and by March we were retesting all time highs. <b>2 days after the
peak, I pointed out DSI numbers on gold and silver at 95 and 93, so a top was
probably in for now, </b>but after a month or so of pulling back and shaking out
some late coming bulls, we’d be setting up a nice cup and handle from a TA
standpoint with a target of ~2400 that could be achieved again, in golds
favorite month to make highs, Aug.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Here we are again in June
with a very different picture, and <b>I will now refrain from ever calling for
2400 gold by Aug ever again. </b>(But just know, that if it happens, I was thinking
it). It seemed like we were ready to go, that the gold bugs had been vindicated
after watching gold go nowhere in the face of the highest inflation since the
70s. But alas, it was not to be. We had every tail wind we could ask for. We
got a retest of highs, then a collapse. That is a bad sign, and very
reminiscent of gold’s final rally to 1800 in 2013 before collapsing down 40%
over the next 2 years.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">On the one hand, I’m glad
I turned bullish when I did, because it was a huge move in miners from Feb to
April that was definitely worth catching. In hindsight, I had written in April
about the idea of this being a “false break before the real move” and dismissed
it as unlikely to me, due to the extremeness of the “false move” swing higher.
A 45% move higher in GDX over just 3 months that then unwinds, losses all of
its gains, and then breaks to new lows seemed like a less probable scenario.
But that is exactly what happened. I wish I had given this more credibility at
the time, perhaps I could have rung some warning bells sooner.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">But what’s done is done.
<b>What matters now is, “where do we go from here?”</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">I’ve seen a lot of charts
and metrics thrown around recently. Things like, “Zero miners in the GDX
currently above 200 day moving average”, “Gold miners Bullish precent index at 2-year
lows”, “COT reports showing lowest large spec long positions in gold in 2
years”, and anyone reading the room of gold stock investors, knows that
sentiment is in the toilet right now.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">“Buy when there is blood
in the streets.” So, easy answer, right? Not necessarily.<span style="mso-spacerun: yes;"> </span>All of these factors would make gold, silver
and miners a screaming buy right now IF, and ONLY if, we are in a bull market.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">I know there are many
gold bugs out there looking around at the state of the world we live in and
thinking that we are absolutely, beyond a shadow of a doubt, in a bull market. I
know plenty who said the same thing in 2013, and thought they were getting a
free lunch buying gold stocks at 30% discounts from where they were 1 year
earlier when the price of gold had been unchanged since then. But there is no
free lunch on Wall Street. The “discount” they thought they were getting
because the market was being “stupid” was a warning, and a trap for those who
bought it. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>I’ve never been fortunate
enough to be the smartest guy in the room</b> on anything. I have known a few who
were though and <b>not a single one of them was audacious enough to believe that
they figured something out that the smartest minds in the world, running
trillions of dollars all somehow missed.</b> (I know, Michael Burry, “The Big
Short”. That’s a 1 in a million shot, and you aren’t Michael Burry.)<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">The Perma-Bull gold bugs
always think it’s a low, always think it’s a bull market and time to buy, but
that just isn’t the case. I know plenty that tried to blame the 2013-2015
decline on manipulation, refusing to believe it was a “real” bear market. It
HAD to be some evil cartel of bankers and government tamping down on gold to
keep it from going to crazy, and that is the reason for its 40% decline in 2
years. (Despite the fact that this was the fate for most commodities in the
same time frame. Copper also lost 40% from 2013 to 2015. Soybeans lost 45%.
Wheat dropped 50%. Corn lost almost 65%. Nat gas and oil both dropped 75%. I
suppose all of those moves were normal, rational, market action, while gold’s fairly
tame drop in comparison was blatant manipulation.) Since then, most accept that
this period was a bear market for gold, but I have not forgotten their pathetic
attempts to shift the blame of their bad calls onto some invisible entity, dead
set on making them look bad. But I digress…<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Gold would be a buy here
IF we were in a bull market, but as Mark Twain said, “<b>It’s not what you don’t
know that kills you, its what you know for sure that just isn’t so.”</b> Let me
show you a few examples why. We’ll start with !GT200GDX, the index showing the
amount of GDX components that are currently above the 200 day Moving Avg.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVRMYvvQxOzvGPBO7BQvsG2PPE5vwZO4i3ATCZnLUd_PmRaeGvBKAKgSITyP5ojgccwGB2xm7odQs5DSb-cyd21AZHq7Jj1wwAwUOVkjjh-PCD3Rk82T0W3vyPdyr55ZNg67fPRZ9C65H1oyMcJYMXuHtEY6svsSdz3fyH1q8YV2Pwv_EwIoH_SA/s619/200day.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="579" data-original-width="619" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVRMYvvQxOzvGPBO7BQvsG2PPE5vwZO4i3ATCZnLUd_PmRaeGvBKAKgSITyP5ojgccwGB2xm7odQs5DSb-cyd21AZHq7Jj1wwAwUOVkjjh-PCD3Rk82T0W3vyPdyr55ZNg67fPRZ9C65H1oyMcJYMXuHtEY6svsSdz3fyH1q8YV2Pwv_EwIoH_SA/s16000/200day.png" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">We can see from the chart
that major lows in 2018, 2019 & 2020 were all marked by the index reading
at 20 or less, with 2018 and 2020 lows at 0, where we currently are now. Might
seem like a no brainer, but this chart only gives data going back to 2018,
during a time when gold was in a bull market. If we compared this to the
2013–2015 timeframe, I’d bet there were a lot of times we would see it at 0,
and for long periods while price stubbornly kept declining.</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">The 200 day moving avg is
kind of a cornerstone in Technical Analysis for determining if we are in a bull
market or not. When you are, price typically stays above it, or has corrections
that bottom at or near the 200 day MA at their worst points. In bear markets,
the exact opposite. Price stays below it most of the time and rallies typically
fail near it. The very nature of a study like this one ensures that readings of
0 on an indicator like !GT200GDX will happen often and stay that way in a bear
market. Inversely, In bull markets, expect to see elevated levels for long
periods. From July 2019 to the end of the year in 2020, (with the covid crash
as the only exception) the !GT200GDX indicator stayed above 80 for 1.5 years.
I’d be willing to bet, if we had the data to go back to 2013-2015, we’d see the
exact opposite, multiple hits at 0 and staying below 20 for nearly 2 years as
gold stocks got decimated.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkO8PgBTLqzIzdJSUo5YBwWPRx3h7Fc6xFWyxo-VeGVzMkEV_ohCmr-Z7_cFT6vpoicT-JP10xuRvwQwfD4EeBYdaO8DnejPfpMpagG6JGf5FBR8eyUrMLkiJ8E0agfhY5Ct7Yk68E8_D9fVch7V0QeeMBvLRme3jMCe2rwZlgxZpAGzyEhZmqNw/s1185/gdx200day.png" style="font-size: 12pt; margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="959" data-original-width="1185" height="766" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkO8PgBTLqzIzdJSUo5YBwWPRx3h7Fc6xFWyxo-VeGVzMkEV_ohCmr-Z7_cFT6vpoicT-JP10xuRvwQwfD4EeBYdaO8DnejPfpMpagG6JGf5FBR8eyUrMLkiJ8E0agfhY5Ct7Yk68E8_D9fVch7V0QeeMBvLRme3jMCe2rwZlgxZpAGzyEhZmqNw/w945-h766/gdx200day.png" width="945" /></a></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; margin-left: 1em; margin-right: 1em; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjso61l5OkqOXETiyoozomR6xZRfiMeSFUuZKufbpQvdVWFwSWr6gBrUPzDOS6NG9yz6dLDYkuEHKcdVxtuVzTKvn_82G5--49VbU082UUzV_G4a4tMbiv5atc78uJmm_9GnLrCairbRMS1bO5LUe38IEp5bNGWoZuJFslvKg4644KlLloXUQCYyA/s1191/gdx%20bear%20200.png" style="margin-left: 1em; margin-right: 1em;"><br /></a></div></div><div class="separator" style="clear: both; text-align: center;"> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_oyMDSDn80PHMdDpWN6yg56WesRb2EMM-CVBVCTnjfDgL1je6Gnbt-FHFNIk1Wk5-U2t_tX_L8tC0r7286z3ZmX4QhjrKzIMPjSr_XMVpB5Qtnx7Bl5Ac-hUGl1WR4o0nKwYqKv6_WTmQ6OKGpxf-br2MQFMrLi1W3dzwtnJ9sxKq4elMJye9qw/s1191/gdx%20bear%20200.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="953" data-original-width="1191" height="762" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_oyMDSDn80PHMdDpWN6yg56WesRb2EMM-CVBVCTnjfDgL1je6Gnbt-FHFNIk1Wk5-U2t_tX_L8tC0r7286z3ZmX4QhjrKzIMPjSr_XMVpB5Qtnx7Bl5Ac-hUGl1WR4o0nKwYqKv6_WTmQ6OKGpxf-br2MQFMrLi1W3dzwtnJ9sxKq4elMJye9qw/w953-h762/gdx%20bear%20200.png" width="953" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Above is GDX from 2009-
2012, a period when we were in a bull market, with the 200 day MA in red. Below
it is 2012-2015, a period when we were in a bear market. See what I mean? For a
VERY long period in 2013 we stayed significantly below the 200 day MA. It is
safe to assume during that period, there were 0 stocks in the GDX above their
200 day MA. That in itself was not a buy signal, as we can see price continued
to decline, and declined a lot. About another 50% from the initial July 2013
low at ~24 all the way to 12.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">I’ve mentioned a few of
these points before in previous articles but they are worth repeating here
because we are at a crucial juncture in my opinion. Many are going to go out
looking at these indicators and buy, thinking they’re catching a low on the way
to new highs. In reality, I believe they are catching the “middle” of a
downwards move in a market transitioning from a bull, back to a bear, that could still have a ways to go.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">In regards to Sentiment,
we can see the same looking at DSI reads on gold as well as $BPGDM, the Gold
miner’s bullish precent index. Here are charts on them. Same situation with
both. Long periods of very elevated levels during bull markets, long periods of
levels at or near 0 in bear markets. In 2013, $BPGDM spent 6 months never
getting above 10, all while price kept declining. I talked about this in my
last article in back in May. </span><a href="https://alchemyfinancials.blogspot.com/2022/05/quick-update.html"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Here
is a link to it</span></a><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">. This is an important point that’s worth
reading if you missed it.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBD5lSCMcsOHAr8K9IF8OMOK5DXeOnB6HhKAClWwzo1R2tW97PYBoAu7vK5u-S5lxvLUQMmEBfZ-DIKqFExwqZT6nZs33GF80DzWYM1IZTnNilSsJ23fKBevGmE15u3hLdF6LhqKvYr2M21yBozTex5BvC9zAUfDV1ggVdJiq5YAv9f4jm70aDWw/s760/FNgRwwVXEAEeo09.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="460" data-original-width="760" height="546" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBD5lSCMcsOHAr8K9IF8OMOK5DXeOnB6HhKAClWwzo1R2tW97PYBoAu7vK5u-S5lxvLUQMmEBfZ-DIKqFExwqZT6nZs33GF80DzWYM1IZTnNilSsJ23fKBevGmE15u3hLdF6LhqKvYr2M21yBozTex5BvC9zAUfDV1ggVdJiq5YAv9f4jm70aDWw/w901-h546/FNgRwwVXEAEeo09.png" width="901" /></a></div><p class="MsoNormal" style="line-height: 200%;"><br /></p><br /><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span><p></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixTcozLGcr5Gbla-eaN_CPPeHzZTic9vOCNuQKJLlQx1yl8EWp3uXNOEZgeNBMHyJslEIZHSIdny9g5fRCGHXMlPnT1LQlecyN0PUna1dG90EVGp5W4R8Q-RaG6EbJqR5zlczCYohnpb8UmTiRVQuoglrtBJ09sL1CZSrsvOSZoriJOQD04410bQ/s884/bpgdm.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="665" data-original-width="884" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixTcozLGcr5Gbla-eaN_CPPeHzZTic9vOCNuQKJLlQx1yl8EWp3uXNOEZgeNBMHyJslEIZHSIdny9g5fRCGHXMlPnT1LQlecyN0PUna1dG90EVGp5W4R8Q-RaG6EbJqR5zlczCYohnpb8UmTiRVQuoglrtBJ09sL1CZSrsvOSZoriJOQD04410bQ/s16000/bpgdm.png" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"></td></tr></tbody></table><br />
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Additionally, its worth
adding in COT reports. Large spec longs in gold are at the lowest level in 3
years. The last time large spec longs in gold were at these levels it was Sept
2021 and gold was 1720, on it’s way to 2100. The time before that gold was 1680
in March 2021, on its way to 1920 in just 2 months. But if we zoom the chart
out to include the 2005- 2011 time period, in order to reference this with the
previous bull market, as well as include the 2013-2018 bear market, we saw the
same thing happen right in 2013. Gold large spec long positions hit 110k, the
lowest level since the 2008 crash down to 700 (which was 80k). They were quickly
on their way down to 28k, then to 16k in 2015, and ultimately 1k in 2018.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjVnmrJ3t5jp9ezG6XJ0fNwuzmoRKm4mOsmIt9eu2IbhUonDsb5wag8eqno1aWCZjtNef9Rv7hocOktltBEoml2KR29kxiH1ozo1WeIcGn_iCNDkkBrrJYQK8gcp2fMOIFGiOXal-HKe0-wY3ESYRF-Auvg5AjpOmOXmgdIKfdwPPVxQesb7ApPQ/s1531/cot.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="749" data-original-width="1531" height="476" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjVnmrJ3t5jp9ezG6XJ0fNwuzmoRKm4mOsmIt9eu2IbhUonDsb5wag8eqno1aWCZjtNef9Rv7hocOktltBEoml2KR29kxiH1ozo1WeIcGn_iCNDkkBrrJYQK8gcp2fMOIFGiOXal-HKe0-wY3ESYRF-Auvg5AjpOmOXmgdIKfdwPPVxQesb7ApPQ/w974-h476/cot.png" width="974" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Ok. So, I’ve made my
point. <b>It looks to me we are likely not at a low, but in the middle of a
continued decline in a BEAR market now</b>. So, when do we know when we actually
ARE at a low? There is a lot of moving parts there and a lot of factors to take
into consideration as it is happening, like what other markets are doing, the
state of the economy, what the Fed is doing (or isn’t doing), as well as price
action in gold and miners that we will analyze day to day to try and determine
that when it comes. <b>But there is one indicator that has marked every major low
in metals over the past 20 years, and given multi-bagger buy opportunities on
miners in 2001, 2008, 2016, 2018 and 2020. Ready for it?</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>Cost.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Basic economics. As the
saying goes, <b>“the cure for high prices is high prices” and “the cure for low
prices is low prices.” </b>When prices are high, everyone producing a product is
going to take advantage by making as much of it as they can to cash in. The
increase of supply, assuming demand is constant and not also increasing, brings
prices down. The same with low prices. If you can’t mine gold profitably when
the price is $1000/oz, nobody is going to. The decrease in supply ensures price
will correct back higher again. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>Every screaming buy
opportunity in gold, silver and miners in the last 20 years has been marked by
the price of the metals falling to levels that were near the cost to produce
them</b>. In 2001, Gold fell to a low of $250/oz after Gordon Brown decided to sell
Britain’s gold reserves at the absolute low of the bear market that was about
to go 8-fold higher in the next 10 years. For the year 2001, Barrick had a
“total production cost” of $247/oz. Newmont’s costs that year were similar. Two
of the largest gold producers in the world at the time were mining for break-even.
The same was true with silver. At $4/oz in 2001, Hecla’s total production cost
for silver was $3.57/oz. A mere 40c profit per ounce produced.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxNQrVY2g0tr-wcrsVkEW7plaK7uJpzdqBdxw_R2r2H9L_Ql_2hlktCmOh-_6e9gTM-yKKnGW3a2adFipVv1fDEzWfAsUlntyqNwHcrV4Zyg99qMMIPTqGKFF-0UDB36kDEto0ZJWOvX8OIVP2N8LfGV2euVupQQ7FveQmKfvJVb-pi_ZeCnYk8A/s1185/abx%203.5x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="953" data-original-width="1185" height="782" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxNQrVY2g0tr-wcrsVkEW7plaK7uJpzdqBdxw_R2r2H9L_Ql_2hlktCmOh-_6e9gTM-yKKnGW3a2adFipVv1fDEzWfAsUlntyqNwHcrV4Zyg99qMMIPTqGKFF-0UDB36kDEto0ZJWOvX8OIVP2N8LfGV2euVupQQ7FveQmKfvJVb-pi_ZeCnYk8A/w972-h782/abx%203.5x.png" width="972" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF3cWIpiNGtRNPonV0FjHz00smZH8QqcqpZy84gYvjSHJc1v5cJyO4cooI8PRDXMC2QsV2K4TTTa_X44p6QQQzUtkkC1mnxqky6fkE1IKMnQSlVsb4K0qCTBs1w2equ8e6hRFEENy7C17oUBvej7d9__G9SZG2k8TutNJu9PKdUkZWqwuziLd15Q/s1190/nem3x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="962" data-original-width="1190" height="788" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF3cWIpiNGtRNPonV0FjHz00smZH8QqcqpZy84gYvjSHJc1v5cJyO4cooI8PRDXMC2QsV2K4TTTa_X44p6QQQzUtkkC1mnxqky6fkE1IKMnQSlVsb4K0qCTBs1w2equ8e6hRFEENy7C17oUBvej7d9__G9SZG2k8TutNJu9PKdUkZWqwuziLd15Q/w975-h788/nem3x.png" width="975" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbuxTgQwShPK9W-MVlX8gB6wx84e9rKOl0uPnZ2sFJDG9cMlEWr_MioesrbRWNz9wf87XK4CcTYfICvuTy58w9ieIHupycnkQNx1q2QcS1Z1zgIhs31bUrDUkMupz5CBQGq1_0cKnsanx_lB6Dy42Yu-IMHkx0BKsqAxmRzKcr_YZqnAMISJ0cJQ/s1190/hl12x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="955" data-original-width="1190" height="784" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjbuxTgQwShPK9W-MVlX8gB6wx84e9rKOl0uPnZ2sFJDG9cMlEWr_MioesrbRWNz9wf87XK4CcTYfICvuTy58w9ieIHupycnkQNx1q2QcS1Z1zgIhs31bUrDUkMupz5CBQGq1_0cKnsanx_lB6Dy42Yu-IMHkx0BKsqAxmRzKcr_YZqnAMISJ0cJQ/w977-h784/hl12x.png" width="977" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Could things have gone
lower? Sure. Could they have stayed low for a longer period? Of course, but for
the most part, this is unsustainable for a long period, or else there just
isn’t going to be gold and silver mined anymore.<span style="mso-spacerun: yes;"> </span><b>If you took that as a sign that metals prices
need to begin turning higher from here eventually, you had some great
multi-bagger opportunities in miners that gold investors love to talk about,
but most never get to see.</b> You could have bought Barrick in 2001 as low as 13.
It went to 55 seven years later, a 4.5x return. NEM was as low as 12 and went
to 60 by 2006, a 5x return. <b>HL could have been bought at less than $1, on it’s
way to 9 just 2 years later, and 12 if you held on till 2008. There’s the 10
bagger “white whale” gold stock investors keep looking for, and it was right
under your nose in some of the biggest NYSE listed producers.</b> No need to search
for obscure, illiquid, unknown JR’s, hoping geology, management’s competence
and markets all line up perfectly to get you that coveted 1000% return.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Let’s move on to 2008.
Markets were crashing and no asset was immune. Gold dropped 30% from 1000/oz to
700, and silver dropped from 21 to 8. Miners got the worst of both worlds as
stocks and metals dropped, with GDX tanking from 55 to 15. According to
earnings reports on NEM and ABX at the time, gold mining costs were ranging
around 550-575/oz, giving them still a fairly decent profit margin at 700. (It’s
important to note the calculations of “costs” at the time varied, with not all
producers using the same metrics. The “All-in sustaining cost” or AISC metric
wasn’t adopted by the industry until 2013. Cash costs are just the straight cost
to produce an oz, but is not reflective of the costs to run a mining company. AISC
account for the costs associated with exploration to replace those ounces
produced as well as administrative costs, etc. Basically, all the costs of SUSTAINING
a mining company long term. I mention this because 550/oz for NEM in 2008 was
reported as cash costs, so actual costs were likely much closer to break even
at 700 gold.) <o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Silver though was worse.
Falling to $8/oz, it was basically at cost for most silver miners. <b>Pan American’s
total cost on nearly 20m ozs mined in 2008 was 8.76/oz. Hecla’s total production
costs per oz were 8.52. Coeur mining’s costs were 12.50/oz</b>. Clearly this was
unsustainable metals prices and the market was due to correct back up higher,
and indeed it did, sending miners massively higher. NEM more than tripled in 3
years, from 20 to 70. PAAS went up 4.5x from a low of 9 to 42. <b>CDE gave you a
10 bagger, from 3.60 to 36 in the same time and HL did even better, from 1 to
11.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXcBynwW4P2ydy-IgvH3IaGJrudS5f1jqAxUU6sI0zAwanCmo5MrKI529OXVKxxv1FQfnNYormJ8qjRp-eTNRrs0_J0L0jGH_eUOljA0DA7i2j4h8Cc4OP3_8OVDUqmLHmzK2EMvWTzXc_wpx82X25LY-cQqdSfwQUt6rl_bBwsouyFZM-ICS_JA/s1187/cde10x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="954" data-original-width="1187" height="785" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXcBynwW4P2ydy-IgvH3IaGJrudS5f1jqAxUU6sI0zAwanCmo5MrKI529OXVKxxv1FQfnNYormJ8qjRp-eTNRrs0_J0L0jGH_eUOljA0DA7i2j4h8Cc4OP3_8OVDUqmLHmzK2EMvWTzXc_wpx82X25LY-cQqdSfwQUt6rl_bBwsouyFZM-ICS_JA/w976-h785/cde10x.png" width="976" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFvXblstPlhh2YZrJcGKigMt-aRyGLakN1z--mPetWio7aHxhaycWd9mkKiQQPvvWzvA6szzXcWCs2ALWgnzNSfV6oIkXS6-m-aVymmDBvFGmfOf5L6n1ulyOXCM9R0yTpgzKSih_M-IlEmf6HdUcTElpJTrNaSZSB9b0jkoMrmLImoSFMIE_-3g/s1191/hl11x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="959" data-original-width="1191" height="787" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFvXblstPlhh2YZrJcGKigMt-aRyGLakN1z--mPetWio7aHxhaycWd9mkKiQQPvvWzvA6szzXcWCs2ALWgnzNSfV6oIkXS6-m-aVymmDBvFGmfOf5L6n1ulyOXCM9R0yTpgzKSih_M-IlEmf6HdUcTElpJTrNaSZSB9b0jkoMrmLImoSFMIE_-3g/w978-h787/hl11x.png" width="978" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">By 2016, metals had
collapsed from their highs and miners, (who, like the basic economics example, were
rushing to sell as much gold as they could at 1900, even if their costs of
mining were 1400.) were frantically cutting costs as their margins disappeared.
Price collapsed and costs came down. By 2014, NEM’s AISC was 1002/oz with avg
realized gold price for the year at 1250. Getting close but not there yet. By
2015, price had dropped to a low 1050/oz and NEM over that year managed to
reduce costs by only $3 to 999/oz. That’s about as razor thin as you get.
Silver at the time was $14/oz, and costs were about the same. CDE 2015 AISC was
14.62. <span style="mso-spacerun: yes;"> </span>PAAS was 14.92, and AG was 13.43.
<b>AG rallied 9 fold in the next 9 months, from 2 to 18. CDE was 8x, 2 to 16. PAAS
4x and NEM was 3x. Higher cost miners had better returns, as most were
completely written off by investors. HMY went from 50c to $5. GSS did similar,
from 70c to 5.5.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgERshwgEIP-VTbKFCttsLtwjnPvX5GbApOt5mvUj6NIQXzXdd8lYfzLDErkkAAqN8VTkbDy10cX5uSTMGH8DW_vltBv4ruratQ_dyuPCJqRnLPgZndpKPjwjHZI8J_W2pN-FBOrU6l1Qk6TcD3K4e7Y_6w_UPcZEFLr3vg5xo7Etqas3LNmZs6Ig/s1191/hmy_20220706160058162.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="961" data-original-width="1191" height="781" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgERshwgEIP-VTbKFCttsLtwjnPvX5GbApOt5mvUj6NIQXzXdd8lYfzLDErkkAAqN8VTkbDy10cX5uSTMGH8DW_vltBv4ruratQ_dyuPCJqRnLPgZndpKPjwjHZI8J_W2pN-FBOrU6l1Qk6TcD3K4e7Y_6w_UPcZEFLr3vg5xo7Etqas3LNmZs6Ig/w969-h781/hmy_20220706160058162.png" width="969" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZc_4Wur9bwJdYmWEUA9TlSjcqf0fZ56OrDKjuueXCFYtXJo9ggj0mMHfss-m3a_iQ8eGBn-jl5kX5k0QFWBCfOZ5IRrmPtLBEDA0VRQIKYALrsz0L3AB1XXrHbSFGaaQ8l_hip3tSyL-Gi2Hz6hPcsODE2f45AeLNeqIc6-AVKTi2Bh0hf3fxbw/s1182/ag8x.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="958" data-original-width="1182" height="788" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZc_4Wur9bwJdYmWEUA9TlSjcqf0fZ56OrDKjuueXCFYtXJo9ggj0mMHfss-m3a_iQ8eGBn-jl5kX5k0QFWBCfOZ5IRrmPtLBEDA0VRQIKYALrsz0L3AB1XXrHbSFGaaQ8l_hip3tSyL-Gi2Hz6hPcsODE2f45AeLNeqIc6-AVKTi2Bh0hf3fxbw/w971-h788/ag8x.png" width="971" /></a></div><br /><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">By 2018, not much had
changed. Costs were about as low as companies could get them, holding at near
1000 an oz for gold and 14/oz for silver. Gold tanked in Aug from 1375 down to
1150. Not as razor thin as times in the past, but very close. Silver, once
again went to 14. Again, not just thin, negative in some cases. AG’s 2018 AISC
were 15/oz. HL was at 11.50 and PAAS was 11. CDE stopped reporting AISC
all-together, which should probably give some insight into where their costs
was in relation to their peers (higher). Many silver miners slipped a bit in
2019 from 2018 lows, but the multi baggers were still there even if you didn’t
catch the exact bottom. <b>3 years later, AG from 4 to 22, HL from 2 (to 1.50)
then to 9, PAAS from 12 (to 10) then 40, CDE from 4 (to 3) then 12.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">While the 2018 to 2021
period covers the covid crash, it’s important to look at that period too. Gold
fell from 1700 to 1440. Costs were still around 1000/oz so this was still a
very good profit margin for gold producers, but just like in 2008, gold held its
profit margin and silver exceeded it, dropping to 12/oz. AISC at the time were:
PAAS= 11.40, AG=14, HL=12. (CDE in 2020 was still not reporting AISC. Interestingly,
the word “cost” appears only 4x in their 131pg annual report, and in none of
those 4 instances, do they actually give a per oz number, cash, AISC or
otherwise) If you had missed out buying in 2018, you got a 2<sup>nd</sup>
chance here with many miners dropping back to those levels or exceeding them.
PAAS and AG both retested lows from ~2018. <b>Higher cost miners like EXK exceeded
them, dropping back to $1, its 2016 low. (After which it did a 5x, and then in
2020 did an 8x 1.5 yrs later.) HMY in 2020 fell to 1.7, near its 2018 low, then
rocketed up over 4 fold to 7. AEM met its 2018 low at 30, then tripled. All of
this in just 5 months.<o:p></o:p></b></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>Gold investors are
obsessed with the idea of 5-10 bagger returns</b> on JRs in a bull market, and they
have a good reason to be, because as I’ve shown, its not only possible, <b>its
happened 5 times in 20 years</b> even with major producers. The problem is their
approach is typically to get in AFTER a massive move betting on a continued
move higher and a long 10 yr bull market. <b>Just because we had a nice decade
long run in 1970s and 2000s doesn’t mean you are guaranteed one this time
around.</b> <span style="mso-spacerun: yes;"> </span>It worked buying into gold after
it ran to 700 in 2006, and again at 1000 in 2008-2009. It didn’t work at 1550
in 2013 though, and clearly it hasn’t this time either.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Simple fact is, as I’ve
mentioned before, <b>everything went faster this time around. </b>Economy collapsed,
Fed wasted no time printing and the govt didn’t waste time spending like
drunken sailors. Gold went from “market panic crash” at 1400, to up 50% in 4 months.
Silver tripled that return, from 12 to 30, a 150% return. In 2008, the Fed kept
QE running with no consequences from inflation for the next 5 years. Within 1
year of starting up the bond buying this time, we were already at 5.4% inflation.
<b>For all the criticisms that the Fed waited too long to act (and they did), the
time between easing and tightening didn’t give gold much to work with.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">So if the way to make a killing
in gold and silver stocks is to buy when we are nearing cost, what does that
mean for right now? Well bad news. NEM and ABX costs as of last quarter are
around 1165/oz. That’s a long way from the current price of 1730. The good news
is, those costs are rising quickly, about 10% just since Q4 2021 for both
Barrick and NEM. While inflation may be peaking here due to an expected
economic decline, any positive number below 8.7% just means costs are
increasing less fast than before. I think it’s safe to assume that unlike other
recessions like 2008 and 2020, we will likely not see $20, or -$30/barrel oil
like we did then. (My guess? Somewhere in the 60s. $3/gallon or less is an improvement
from 5, but not the 1.xx range were used to in recessions). Being that oil is a
major cost for mining, this will continue to put pressure on their bottom line.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">Gold is falling apart,
the lows at 1680 will likely give way so where do costs and gold begin to meet?
First, there is no guarantee we’re dropping to the cost of mining, but it’s
happened before so it seems possible. It’s also the best time to buy miners historically.
IF we see a similar situation, I believe these roads will intersect somewhere
around 1400. </span><span style="font-family: "Times New Roman", serif; font-size: 12pt;">If costs at 1165 for the major
miners like NEM and ABX increase by another 10% over the next few quarters,
they’re AISC will be about 1280/oz. At 1400 gold, that’s a pretty thin margin. (Of course, if costs rise more in a short period, that level might be closer to 1500. This is the part we kind of have to play by ear).</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">From a technical
perspective though, we can see a lot of significance with 1400. A trendline from the
lows in 2006, 2008, 2016 and 2018 line up right at 1400 currently.
Additionally, 1400 was the “ceiling” of the entire bear market. From a TA standpoint, a breakout and retest of that bear market ceiling area would not be an uncommon thing to see. It’s also the
38% Fib retracement from the 250 low in 2001 to the recent highs at 2100.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgpWAErAQTfCnAX8YvISubs8BNawHFhlPW-ogvIvMMUNyuxAMaIdaBiYS_CW1A7FezxNxmH7JNws9kb23xjaO-ZVTSV2whOHZCOmmqsFjkF4cUBfktOC_UYb740ATuxRLmbxL167gN4dc1iRhCtemt54BMMErYWMILABJB-Dq6TfdopDr672t8Yw/s1184/gold1400.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1184" height="782" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgpWAErAQTfCnAX8YvISubs8BNawHFhlPW-ogvIvMMUNyuxAMaIdaBiYS_CW1A7FezxNxmH7JNws9kb23xjaO-ZVTSV2whOHZCOmmqsFjkF4cUBfktOC_UYb740ATuxRLmbxL167gN4dc1iRhCtemt54BMMErYWMILABJB-Dq6TfdopDr672t8Yw/w960-h782/gold1400.png" width="960" /></a></div><br /><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">The problem is that’s
down 20% from here and knowing how silver and miners trade in relation to gold
would spell out some devastating losses. If silver dropped inline with gold (It
won’t, it’ll drop more) that would be 15/oz (13.30 if it’s a 30% drop). (As of
Q1 2022, PAAS AISC is at 13.30, AG’s shot up to 20, which will likely come back
in line ~15-16 soon. But that looks like a logical level for silver) <b>If these
things occur, expect miners to revisit 2018 and 2020 lows.</b> Currently a 30% drop
here in GDX sends us to 18 again. <b>If you’ve been invested in PM miners for more
than 1 day, you know that expecting a 30% drop in miners with a 20% drop in the metal is
incredibly wishful thinking.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>Right now we may be
setting up for a pause in the bleeding. </b>The only 2 times gold has been lower
than it is now in this consolidation, were the 2 times it tested 1680. Silver
is testing the 61% Fib retracement from the 2020 low to the high at 30/oz.
Additionally, this area near 18.50 was support from 2013-2014, then resistance
from 2017-2020, so it should offer some support testing it again this time. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0gAPjxqhcMBVGdEpClkCepo7E-JSEsMqJH_uYyz7CDH_GScq8XXH4yvE1sLvcxTYkbCsdfwBl_NA_cvedlgMK0gzi5trnmYv7lspqPvFUQS4QbP6TF0JSpHXYFus9q5LHwrJKNRrEBACz7RGIa2npNdPw6tmwzjTHgtfMx-gUrm9FfdUgBl-QHA/s1185/si_20220706161815221.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="958" data-original-width="1185" height="779" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0gAPjxqhcMBVGdEpClkCepo7E-JSEsMqJH_uYyz7CDH_GScq8XXH4yvE1sLvcxTYkbCsdfwBl_NA_cvedlgMK0gzi5trnmYv7lspqPvFUQS4QbP6TF0JSpHXYFus9q5LHwrJKNRrEBACz7RGIa2npNdPw6tmwzjTHgtfMx-gUrm9FfdUgBl-QHA/w963-h779/si_20220706161815221.png" width="963" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">GDX is testing ~25, which
is the 23% retracement from the 2011 high to the 2015 low. This area was also
resistance from 2017-2019, then provided support in 2019. Weekly RSI is the
lowest its been since the 2018 bottom, but as we can see from that reading at
21, while we are currently at 31, we can go a lot lower. GDXJ looks similar,
just worse. After already losing 50% from Aug 2020 highs, its now testing the
78% Fib retrace from the 2020 low. This level ~30 also coincides with support,
as we can see many instances of lows and bounces from 2013-2019 near this
level.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><o:p> </o:p></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhR-HmteXJr7b7oakdlu8J877y2S5GuiGyJRuIAH6Qw2a5OasVP1zZDi00f3bDG1wHFpHhf_jo5zShJJ7AjlzJvmz1zj_q90aw2XnZipJhacwehJU4iUlqRpGTTEnv0USO0CHimI5HGWjHCSnTdnu3D2gmpwc633EtyNFJixH_7Z7kzL1sswg_E1g/s1178/gdx_20220706162219398.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="962" data-original-width="1178" height="811" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhR-HmteXJr7b7oakdlu8J877y2S5GuiGyJRuIAH6Qw2a5OasVP1zZDi00f3bDG1wHFpHhf_jo5zShJJ7AjlzJvmz1zj_q90aw2XnZipJhacwehJU4iUlqRpGTTEnv0USO0CHimI5HGWjHCSnTdnu3D2gmpwc633EtyNFJixH_7Z7kzL1sswg_E1g/w993-h811/gdx_20220706162219398.png" width="993" /></a></div><br /><p></p>
<p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKe4vs6R-53Na3y3s2h1tewUrM7B6MJQ69dKPI8PonHg173DuvKjT84m7LbXret_Uu4cWc7c_PZBDPWFOIxaasyUmgxVIsupoZF50wSlFrbWnNCcoU-JUTlqX0Wh4U-QRSF3jvizrNYXVHeNNwpbQGr4EK1-0Ha5j2_6EPnIqA3Vmq-tAyfOynvw/s1191/gdxj_20220706162219578.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="956" data-original-width="1191" height="806" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKe4vs6R-53Na3y3s2h1tewUrM7B6MJQ69dKPI8PonHg173DuvKjT84m7LbXret_Uu4cWc7c_PZBDPWFOIxaasyUmgxVIsupoZF50wSlFrbWnNCcoU-JUTlqX0Wh4U-QRSF3jvizrNYXVHeNNwpbQGr4EK1-0Ha5j2_6EPnIqA3Vmq-tAyfOynvw/w1004-h806/gdxj_20220706162219578.png" width="1004" /></a></div><br /><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">I suppose it’s worth
mentioning the pitiful performance of SILJ, now closing in on the 23% retracement from all time high to low, again
an area it bounced at in 2013 and not too far off now from 2018 lows at 6.84.
Just another 20% down to erase all its gains for the last 4 years.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq1yw2P7VoCaZ3GZpPjKjB325lOCW2MVdtSGLlcbxGbhEmkjAVtqfwLPbWFhcaq-hqk1VqC7fbpQjoswlWFnVma2WJ_zIhHs1Ndn8g2aEwAmkr7mr6ynwp-WGD8mo1dXnEAhPlfaNveUw9MmUFCbU2qZediOYvSK4iOoQCyrWXT5eKvuTIrlKuUQ/s1195/silj_20220706162219754.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="957" data-original-width="1195" height="812" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq1yw2P7VoCaZ3GZpPjKjB325lOCW2MVdtSGLlcbxGbhEmkjAVtqfwLPbWFhcaq-hqk1VqC7fbpQjoswlWFnVma2WJ_zIhHs1Ndn8g2aEwAmkr7mr6ynwp-WGD8mo1dXnEAhPlfaNveUw9MmUFCbU2qZediOYvSK4iOoQCyrWXT5eKvuTIrlKuUQ/w1014-h812/silj_20220706162219754.png" width="1014" /></a></div><br /><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">We may get a bounce here,
but I wouldn’t try to play this long. It MIGHT be worth taking some liquid, in
the money protection out by buying puts, but we’ll cross that bridge when we
get there. Don’t try to go long a bull market.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">One more point I want to note.
People have said how I haven’t posted as much here or on Twitter, or done very
many interviews recently. Truth is, I spent all of last summer screaming the
warning signs that I thought were coming in gold. I thought what we’re seeing
now would begin unfolding then. I got an incredible amount of backlash and
ridicule for my opinions by permabulls (who have been largely quite recently).
People who scoffed at the idea that gold would be weak due to taper fears and
bottom when the fed began hiking when I said it in June, finally began
accepting that as the likely blueprint by Jan, which was of course, too late. Everyone shouted the same words I heard 1000x before, the most dangerous words in investing, <b>"It'S dIfFeReNt ThIs TiMe",</b> only to now watch miners drop almost identically to how they did in 2013.</span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">It was tiring. It burned
me out and I kind of lost interest. Since then, been trying to focus on other
things. Gardening and hiking have been nice hobbies. With the help of a friend,
I’ve been stewing over some business ideas as well that I may wish to launch in
the future. For now, the trend is down so if there’s nothing to do in your
portfolio, do something else, and I have been.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>If there’s something
important to say, I’ll be there to say it.</b> As I did in Jan right before gold
turned higher. As I did in March when DSI numbers were signaling a top. When I
think we reach that multi-bagger, near cost, buying opportunity in gold, believe
me, I’ll be on Twitter and on here saying it. My goal has always been to help
the smaller PM investors navigate a volatile market, while trying to cut through
the Perma-bull crap and conspiracy theories to get to the stuff that actually
matters, like how to ACTUALLY make 1000% in miners by buying when price is near
cost, not because Basel 3 is a game changer that will send gold to 10k by next week.<b>
I’m not going anywhere. I’ll be there screaming when the time is right.</b>
(Perhaps it can be done on an better platform in the future?)<o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><br /></span></p>
<p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;"><b>Remember, leverage kills</b>.
You won’t go broke picking a few bad stocks. You go broke picking 1 bad stock
with leverage. If you have leverage, get out. Live, learn, move on. <b>This is a
bear market and your only goal here is to survive it.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman",serif; font-size: 12pt; line-height: 200%;">-Jonathan Mergott</span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com1tag:blogger.com,1999:blog-1868364813347908197.post-88764919735857135232022-05-25T11:48:00.001-04:002022-05-25T11:49:48.697-04:00Quick Update<p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">I'm about to head out on vacation for the next week,
hiking around the Blue Ridge Mountains, and will likely have spotty service so
I wanted to post a quick update on gold before I leave.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Gold is up almost 100 from its low 1 week ago,
managing to not have a daily close below 1800. We ran right up to resistance
~1870, that we failed at in Nov last year.
It is also the 23% Fib retracement from the 2018 low and is currently
right where the 30 day EMA sits. Now it appears we are weakening a bit.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN6EJZRa0G8LP06cIwgCA7VxNW_lIzsfWp3vHbsCz7IwT2Y5uZODST53Iied5ufZBuCFRQB1OSq9BtwI3QT2uTXy32bCGHi0Yva7M1Wz7PJ42fLJoIhGzXNHhIL-c2KNNoyigIGf53gpdVpFl3vvDbss-rOnsNAH1WSUezkHWwfRBnIhAVl-_4Qg/s1920/gc%20resistance.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1318" data-original-width="1920" height="629" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN6EJZRa0G8LP06cIwgCA7VxNW_lIzsfWp3vHbsCz7IwT2Y5uZODST53Iied5ufZBuCFRQB1OSq9BtwI3QT2uTXy32bCGHi0Yva7M1Wz7PJ42fLJoIhGzXNHhIL-c2KNNoyigIGf53gpdVpFl3vvDbss-rOnsNAH1WSUezkHWwfRBnIhAVl-_4Qg/w916-h629/gc%20resistance.png" width="916" /></a></span></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">I am not enthused about this price action. Gold
chugged higher after an extreme drop and being very oversold but only managed
to claw back less than 100 of the 300 its lost in the last 3 months. I would
have hoped to see closer to 1900-1920 before a pause and pullback. This weak
price action I think is a warning here to proceed with caution. Very oversold
conditions have pared off a bit, and while this might be slowly building a low,
it equally could be getting ready for another drop.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiV6QU2xHrBkPApOcs6gKiHW3jjRuzHZaBhVUcY6LTgbHpqTR84R3YeLB9dZYKT0Apxr8idnWR-a1W8nf793wXw_IZ2TADhmtuVnsRX3gFJ6osV7MsN7aQ9MEDO2ESl_XWFgzhdmAFIXxxtiwsQWIcCI7-MDYSWFGJpwchUJvjGOXrMcV5LE3kpgA/s1920/silver22.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1309" data-original-width="1920" height="630" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiV6QU2xHrBkPApOcs6gKiHW3jjRuzHZaBhVUcY6LTgbHpqTR84R3YeLB9dZYKT0Apxr8idnWR-a1W8nf793wXw_IZ2TADhmtuVnsRX3gFJ6osV7MsN7aQ9MEDO2ESl_XWFgzhdmAFIXxxtiwsQWIcCI7-MDYSWFGJpwchUJvjGOXrMcV5LE3kpgA/w924-h630/silver22.png" width="924" /></a></span></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Although the price action in Gold is not enthusing to
me, I am even less enthused about silver and miners here. For 2 years, Silver
consolidated above 22. There were only 2 times it traded below that level, Sept
2021 and Dec 2021 and in each instance, it bounced back above within 24 hours. It’s now been 2 weeks that we’ve held below 22
and have now bounced back to test that level, and we are beginning to roll
over. Support becomes resistance, resistance becomes support. This is not a
good look for silver right now.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">We can see something similar in SILJ as well. The area
around 11-12 has held as support at the worst parts of the correction that
began last June, and now we have broken below and held below for a substantial
period of time. We have bounced to retest that previous support area and are
failing here, which is also right near the 13 Day EMA, (substantially weaker
than gold which was able to claw back to the 30 day). Additionally, we have 2
big gaps down from this plunge. The nearer of the 2 is at 11.50 to 12. The last
few days we have topped out near 11.50, unable to fill the first gap. There is
virtually nothing on this chart that is instilling me with the confidence to buy
right now.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHdbm84G60XVZicyTUf1sbjVDzRPuTnaLkaJ-OsvXJIQ429lQBMcrFRwscibBujuUQP246YVl7Lly-G7jPDO6AjjECb5OqscoKXLeLpI7JoDm_vwikEVX8D86o2duzV8LWsPAFDQvKVj73ISCGoBT86QIkA_1QGHNo0WpZ-5UhcDMyNA1BP02Usw/s1920/silj11.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1320" data-original-width="1920" height="647" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHdbm84G60XVZicyTUf1sbjVDzRPuTnaLkaJ-OsvXJIQ429lQBMcrFRwscibBujuUQP246YVl7Lly-G7jPDO6AjjECb5OqscoKXLeLpI7JoDm_vwikEVX8D86o2duzV8LWsPAFDQvKVj73ISCGoBT86QIkA_1QGHNo0WpZ-5UhcDMyNA1BP02Usw/w941-h647/silj11.png" width="941" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">GDXJ is similar. Although it was able to bounce back
within a few days of breaking the major support it held after last summers
weakness, it too has 2 gaps to fill, the first at 40-41 and is stopping dead at
that level, unable to find buyers over 40.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKMWRiEQ-0xHFjKYzMzO86Y89rxfqtHc5BFyxNqeO4iGmaBbnT2EhhnUP2d_m7ju0N43zrvKZk_q0ioGDDzJBmdaWVXGcL2jRwiRSQFzmVbNo_T6UE4QEDT5UGUltirfqmqVCHjthObugeY9SpI6QOpa0HTFBaAsYf-OycVs1kpZk0SsvLeg61ZQ/s1920/gdxj40.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1301" data-original-width="1920" height="637" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKMWRiEQ-0xHFjKYzMzO86Y89rxfqtHc5BFyxNqeO4iGmaBbnT2EhhnUP2d_m7ju0N43zrvKZk_q0ioGDDzJBmdaWVXGcL2jRwiRSQFzmVbNo_T6UE4QEDT5UGUltirfqmqVCHjthObugeY9SpI6QOpa0HTFBaAsYf-OycVs1kpZk0SsvLeg61ZQ/w940-h637/gdxj40.png" width="940" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">GDX looks the best simply because it did not even
flirt with breaking support near 29-30. But on the flip side, the 1<sup>st</sup>
gap in GDX at 33.50 to 34 it still has not reached unlike GDXJ and SILJ which
are at least ATTEMPTING to fill them. This price action in miners is almost
identical to what we experienced last summer to winter, except then it took 4
months for GDX to drop 30% from its high of 40, and this time around we had a
30% loss in just 4 weeks. If I am being honest and objective about my analysis,
and following the same rules and cues that made me cautious last summer, then
there is little difference in price action today to make me wildly bullish
right now.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi76JgFKHQd9z2kpxe2kuKhXqwMo7x5reEFrhrkf8_AK6aEdGltaeahOOcKLWdAb9lxut7ISHMQ92LssfCFufWmOV29zImLDogU7wXLv0FyyYIDqNDFHIJGGT82Cm4aWigdEnBG6OLg3958CKNuvebYeEUeP8o-cb9ebhgMjDfFdf3yDgdQfLbhIg/s1920/gdx%2034.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1324" data-original-width="1920" height="656" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi76JgFKHQd9z2kpxe2kuKhXqwMo7x5reEFrhrkf8_AK6aEdGltaeahOOcKLWdAb9lxut7ISHMQ92LssfCFufWmOV29zImLDogU7wXLv0FyyYIDqNDFHIJGGT82Cm4aWigdEnBG6OLg3958CKNuvebYeEUeP8o-cb9ebhgMjDfFdf3yDgdQfLbhIg/w951-h656/gdx%2034.png" width="951" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">I’m not here to tell you what to do, simply to point
out what I see, how I interpret that, and what I myself am doing. So from that
standpoint, I don’t think this is a good time to be trying to buy producers,
and I will be holding off on doing that for the time being. There are a lot of
Jrs that have gotten very cheap recently that are worth nibbling on here, but I
am not trying to spend all my cash reserves just yet as I have a feeling all
markets will continue to get worse and it may last for a good amount of time.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Markets are overleveraged. If SPX continues to grind
lower, it WILL affect PMs and miners, as well as crypto, commodities, etc. Best case scenario is a crash. In that event,
we all know what to do, we have been conditioned by it from witnessing what has
happened post 2001, 2008 and 2020. That being said, the fact that everyone is
waiting for a crash to buy is a major reason I think we may not see one.
Instead, we may actually see a bear market for the 1<sup>st</sup> time in 40
years, and by that I mean, grinding lower while everyone tries to pick a bottom
and is forced to bail as we break to new lows over the course of maybe a few
years.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Everybody has an opinion on the economy here and
looking at price action in markets, I think it supports mine, and that is this:
The biggest factor contributing to the weakening economy right now is
inflation. I know many have expected 1970s style inflation peaking into double
digits, but the fact of the matter is that since 1977, cumulative inflation is
~370%. At the same time, adjusted for inflation, median income in America is down 5% and household debt
is up 35%. The middle class simply have no room in their paychecks and no room
on their credit cards to continue to pay higher prices for the same goods and
services. The result is a decrease in spending and a contraction in the
economy.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Everyone seems to think Powell is going to rush to
print again as the economy contracts because that’s what the FED does, but when
the economic contraction is caused by inflation which was a result of printing,
more printing now will do more harm than good. He royally screwed up by not
acting fast enough and now he must maintain his course continuing to tighten
while the economy takes a nosedive. The problem is we now have a similar
situation to 1980. When inflation peaked at near 20%, the Fed had to hike aggressively
to 20% to fight it. But it didn’t just go away because of that. 2 years later,
inflation was still 6% and the Fed funds rate was 9% all while GDP was -1.8%. I think it is likely we can still see presistant inflation, a weak economy, and higher interest rates then we have been use to over the last 15 years for some time. After a decade of inflation in the 1970s that hurt the middle class and benefited the rich,
we had a decade of high interest rates in the 1980s that hurt the middle class and benefited
the rich. The result of which is the massive wealth gap we see today. And now
we’re doing the same thing again. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">I fear the policies we enacted after covid were
America’s nail in the coffin. The economy will never recover fully, debt is too
high, and we are now destined for a stagnant economy with little to no growth
and at the very least, low but persistent inflation that we will never recover
from. Essentially, we are embarking on the path Japan has been on for decades
now.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">But I digress. Let me wrap this up with something
positive. Sentiment in Metals has taken a major turn from overly bullish, to
very bearish over the last 2 months, and that is very positive from a
contrarian standpoint. Additionally, COT reports on Silver and Gold have seen
large specs rush to sell their longs which is something we typically see at
major bottoms. The issue here with these 2 things is that sentiment and COT
positions are relative to whether we are in a bull market or a bear market. I
shared the chart below on twitter before, showing Gold DSI and how it differed
in it’s peaks and lows when gold was trending higher and when gold was trending
lower. Bearish sentiment is not always a buy. You can see that DSI levels went
to near 0 bulls many times, had small bounces then right on to new lows when gold was in a bear market. Below
that chart is the Gold miners bullish precent index which shows the same thing.
Currently now it is ~20, which has basically marked all major lows since the
bull market began in 2018. IF we are in a continued bull market, it is likely
this is also a major low. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0-KhEtNrmZRJmiEy05V6CgkX4T4cq1u1WANEeH_JhGm0U3AjlMStvOEnRaBNz52EZFiGlXzacliIfltatfVAMcvU4fUGJtABmcODD5TDK4R3rShGZx4QpV2_f_Bi-Wz5RqupM7gvtc-jpfkoI-Vrp3q7Mcto42y935WoK5aYVMvu0auIaXX2b4A/s1920/goldcot.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1840" data-original-width="1920" height="780" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0-KhEtNrmZRJmiEy05V6CgkX4T4cq1u1WANEeH_JhGm0U3AjlMStvOEnRaBNz52EZFiGlXzacliIfltatfVAMcvU4fUGJtABmcODD5TDK4R3rShGZx4QpV2_f_Bi-Wz5RqupM7gvtc-jpfkoI-Vrp3q7Mcto42y935WoK5aYVMvu0auIaXX2b4A/w815-h780/goldcot.png" width="815" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxN0tEF_ItNUU9lZq8FUiLt4h3oeLLHsNg52VO8NAJJbRP5lzPaN7SiMizpwh-lmgCh7xpVpGX9SoWA6_ySMyBwHtJFOHP8iA2tA7kEnF4BiJ9q6pVBo-jS8bYn-G6zIQ6kp1bfzFEOc7KXaXLprcf9QYe8gasnbE--GHPT_ubgUKTmo4rvxr-_g/s1920/silver%20cot.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1825" data-original-width="1920" height="786" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxN0tEF_ItNUU9lZq8FUiLt4h3oeLLHsNg52VO8NAJJbRP5lzPaN7SiMizpwh-lmgCh7xpVpGX9SoWA6_ySMyBwHtJFOHP8iA2tA7kEnF4BiJ9q6pVBo-jS8bYn-G6zIQ6kp1bfzFEOc7KXaXLprcf9QYe8gasnbE--GHPT_ubgUKTmo4rvxr-_g/w829-h786/silver%20cot.png" width="829" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp8EwoMGmubKhq0Mnl5AQnTlJ41n2NPtzFpY78fMmsU92zhubEAd4SsxevaaCFb9wKKdkqCXY-SHbN4Ptohe-zm8u9euc0W7Fa6Ovra-SkMceWygkBvLsCdaNLOhYN__pG5l9e6CjZ3nVkecwHpd88zwD14pb6sgZWkX6_tZ0th3X47WdVSd7pyA/s760/FNgRwwVXEAEeo09.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="460" data-original-width="760" height="505" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp8EwoMGmubKhq0Mnl5AQnTlJ41n2NPtzFpY78fMmsU92zhubEAd4SsxevaaCFb9wKKdkqCXY-SHbN4Ptohe-zm8u9euc0W7Fa6Ovra-SkMceWygkBvLsCdaNLOhYN__pG5l9e6CjZ3nVkecwHpd88zwD14pb6sgZWkX6_tZ0th3X47WdVSd7pyA/w835-h505/FNgRwwVXEAEeo09.png" width="835" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQJgEMKt6-SqYQbopZC6tZLpiqSW7gjVSFTbNKkDwncONou-9LOIurmzTSHTFRN7e87DAG5fQQu1ueQdq87dAHQgwyASUkYehuwGyCqOXZCzYLAM9RUxIathzxAg8IqR7GcN0fS51yZHz2WrDiqqhO-J6U57vi6cA4fD0W-2iReQfGK9vDSlp5Kg/s1920/bullish%20precent.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1453" data-original-width="1920" height="607" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQJgEMKt6-SqYQbopZC6tZLpiqSW7gjVSFTbNKkDwncONou-9LOIurmzTSHTFRN7e87DAG5fQQu1ueQdq87dAHQgwyASUkYehuwGyCqOXZCzYLAM9RUxIathzxAg8IqR7GcN0fS51yZHz2WrDiqqhO-J6U57vi6cA4fD0W-2iReQfGK9vDSlp5Kg/w802-h607/bullish%20precent.png" width="802" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">However, if we are transitioning into a bear market, it’s
likely we can continue to see sentiment drop with price for long periods of
time. Long term, I am a gold bug at heart and therefore bullish, but short
term, price action is not encouraging. I THINK this is likely pressure being
put on gold that is related to all markets which are experiencing selling
across the board, due to an oncoming recession. But I would be remiss if I didn’t
take into consideration the similarities in the economy right now to what we
saw occur in 1980 when inflation peaked and the long and difficult battle the Fed
had hiking rates to fight inflation while the economy contracted. In THAT
situation, gold had already peaked and was grinding lower and would continue to
for a significant period of time. (20 years actually, which I do not think will
be the case this time around, but we could see a stagnant period like from late
2016-2019. After the massive rally in
gold and miners early 2016, we corrected from those highs significantly and
just grinded sideways for over 2 yrs, dropping 1 more time in 2018 before we
began moving higher. This also occurred during a Fed tightening cycle.)<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">To sum up, I’m looking here to add small amounts to cheap
Jrs with good assets and good management who will be able to expand those
assets and shareholder value, regardless of the direction of the metals.
Producers I will not be buying till they can “show me” something good here. I’m
in no rush to spend all my cash as I expect either a crash to buy heavily into,
or continued grinding lower for some time where I can keep picking up small
amounts over the coming months. There are some positives with metals here, mainly
in sentiment after a brutal drop, but I will repeat something I said when this
happened in June. Violent moves down like this are rarely isolated incidents
that just reverse back and break to new highs shortly later. If the lows here
do hold, we likely have a few months of back and forth range bound action till
we’ve shed off every hopeful long that we can, and then we can resume moving
higher. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">There is a lot up in the air right now in markets and
the economy. No matter what your view on a market is, it’s a good time to be
skeptical about everything and consider opposing points of view. Times like
these, uber bulls or bears can get wiped out, Cash is a good thing to have so
don’t be too quick to dispose of all of it.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><p>
<span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">-Jonathan Mergott</span></span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-89558059557858536622022-04-26T10:41:00.016-04:002022-04-26T11:06:23.835-04:00May You Live in Interesting Times<p><span style="font-size: large;"> </span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">It
should be apparent over the last few years why this is a curse, not a blessing.
Alas, things continue to get more interesting. In addition to a pandemic, a
resulting economic collapse, high inflation (a result of their “solution” to
the economic collapse), we can now tack on War in Europe, a declining economy,
an inverted yield curve predicting yet another recession, and skyrocketing
interest rates (the solution to the inflation that was the solution to the
collapse that is most likely going to be a major catalyst in the next
collapse). Lather, rinse, repeat.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">There
is so much going on regarding the economy that I could probably go on endlessly
on various different things, but I won’t bore you with all that. (That I save
for my friends and girlfriend. And sometimes the cat when they all stop caring).
As I’ve said before, I prefer to watch price action in the market as the
biggest “clue” in what is being thought and focused on, rather than focusing on
the macro and developing a thesis for how the market will trade based on that. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">In
my view, the problem with that mentality is two-fold. First, your analysis of
the data and what the data will be, may be wrong, and second, even if you're right about the data, your interpretation of how the market will trade off of
that data could be very far off. <b>If you’ve
been “watching and learning”</b> over the last few months/years, you can probably
think of at least a couple <b>“marco” focused guys</b> who’ve had rigid
interpretations of how the market should be trading, <b>that have been terribly
wrong.</b> As Mark Twain said, <b>“It’s not what you don’t know that kills you, it’s
what you know for sure that just ain’t so.”</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Let’s
dive into gold, silver and miners.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I’ve
shared the gold “cup and handle” chart a few times before, and from the big
picture aspect of this chart formation, there is nothing unusual here even
after this sell off. In fact, I think we could stand to see further declines
without doing too much longer-term technical damage. There is an 18-month
downtrend line of declining highs we broke strongly above back in February.
Currently, its sitting nicely aligned with the 61% Fibonacci retracement from
the 1680 lows in March and August, to our recent highs at 2100, right at about 1830.
<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJzdmKfknIsdXAT6im9Hk5UJbVK4jBAsFgNCSE4VDYeI_T00khvsc1YO7LxEjBpDPuj6QZ7Sw8Qfhkn2ZVtvHms2q4-kvwWafXkV9yWEdjyn7NfWIYzcWVQrvXCzKUvedUwLfa_IVzXadKJlFzuBjh_BHt2mTDS_tfyOJM8-0RfOAHVoHGCZlUng/s1920/gc1.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1298" data-original-width="1920" height="471" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJzdmKfknIsdXAT6im9Hk5UJbVK4jBAsFgNCSE4VDYeI_T00khvsc1YO7LxEjBpDPuj6QZ7Sw8Qfhkn2ZVtvHms2q4-kvwWafXkV9yWEdjyn7NfWIYzcWVQrvXCzKUvedUwLfa_IVzXadKJlFzuBjh_BHt2mTDS_tfyOJM8-0RfOAHVoHGCZlUng/w699-h471/gc1.png" width="699" /></a></span></div><span style="font-size: large;"><br /><br /></span><p></p><div style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: times; font-size: large;"><span style="line-height: 107%;">This area at 1830 also makes up the “ceiling” that gold had from June to
when we broke above in February. (With an exception in Nov when we pushed above
by about $50 to 1880. That rally proved to be short lived, but </span><span style="line-height: 107%;"><a href="https://twitter.com/Jmergz1985/status/1445448878984101890" target="_blank"><span style="color: blue; line-height: 107%;">we were able to nail the
turning point in early Oct</span></a></span><span style="line-height: 107%;"> beforehand and made a pretty nice profit on it.) <b>It would
be perfectly normal from a technical analysis standpoint, if gold were to
retest that broken trendline level</b>, so we still have a good amount of room
here before needing to worry.</span></span></div><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>That
being said, we are VERY oversold short term right now.</b> RSI on 4 hr gold hit 19
this morning, the lowest level since mid-November. (After that decline, gold slouched
for about a month, then began drifting higher. 2 months later, it ripped up
17%, or $300 to retest all-time highs in just 5 weeks. A similar situation now still leaves us setup
well for a summer rally and Aug peak. A 17% gain from 2100 is 2450, pretty
close to the projected target of this cup and handle). <o:p></o:p></span></span></p><div style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>This
decline has been very harsh and very fast and its likely time for a pause here.</b>
Gold is sitting at support near 1890-1900 that it’s tested and held at twice
before. Daily RSI is right at 40, a level that has held on every pullback since
December, and is a level we typically see readings above during upwards
trending markets, which I’ve talked about before. (Inversely, downwards
trending markets often see highs on RSI around 60.) In hindsight, we can see
that a little over a week ago, when gold tested the 2000 level, RSI peaked and
reversed at exactly 60 as price reversed and also closed below that 23% Fib
level. That may have been a warning sign a correction was forthcoming.</span></span></div><div style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><p><span style="font-size: large;"><span style="font-family: "Times New Roman", serif;"><span> </span></span><span style="font-family: "Times New Roman", serif; text-indent: 0.5in;">If
you’ve been focusing on Silver, you might be a bit more pessimistic. While it’s
important to take into account how silver is acting, GOLD is always the one in
the driver’s seat for the metals that should be given more attention. And if
you’ve followed me for any period of time, you’ve probably heard me say “watch
the miners”, as I give a higher weighting to their performance than either silver
or gold, and here’s a perfect example why:</span></span></p>
<p class="MsoNormal" style="line-height: 200%; text-indent: 0.5in;"><span style="font-size: large;"><a href="https://twitter.com/Jmergz1985/status/1366771525765001216" target="_blank"><span style="font-family: "Times New Roman", serif; line-height: 200%;">I
had called for a low March 2, 2021</span></a><span style="font-family: "Times New Roman", serif; line-height: 200%;">. A major factor in that call was a reversal higher
in GDX (the same thing that occurred on the low on Nov 30<sup>th</sup> 2020,
which we also nailed for a nice $200 rally). Gold kept slumping for a few more
days after that and GDX marked a few cents lower the next day then began moving
higher. By the end of March, Gold had retested that low at 1680, double
bottoming. Silver though, as highlighted by those 2 circles, made a lower low
later in March. One looked like it could be bullish, the other looked certainly
bearish. The tie breaker, and the one that gave you the best hint of what was
to come next was the GDX, which bottomed 4% higher than it’s low earlier that
month.<o:p></o:p></span></span></p></div>
<p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAe0YFsEPA7x9-1mFN_3-rCnWgTXJaSpQHsViJvstBRqzNELrdokw1-o6jAIRVzVyS5G5RIEdjuSkjZHGXgEOctNufozlUaNZf90H53m2ro8hitwDZGJZWoCRyBJBjyV1zA4BozjklATOb8muaFrKsaz3aAThIMICeyPdiq7NjcHPuuq3U5i15Jw/s1920/silvervmarch.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" data-original-height="1290" data-original-width="1920" height="470" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAe0YFsEPA7x9-1mFN_3-rCnWgTXJaSpQHsViJvstBRqzNELrdokw1-o6jAIRVzVyS5G5RIEdjuSkjZHGXgEOctNufozlUaNZf90H53m2ro8hitwDZGJZWoCRyBJBjyV1zA4BozjklATOb8muaFrKsaz3aAThIMICeyPdiq7NjcHPuuq3U5i15Jw/w701-h470/silvervmarch.png" width="701" /></span></a></div><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Once
again, we have a similar setup. Gold has tested these lows near 1900 a few
times now and held, while we see silver making a lower low. I think much like 1
year ago, silver is painting a more bearish picture that may not necessarily be
true. On the upside, we stopped and reversed from the lows early in the day
today on silver and then gold and miners followed, so we may indeed be seeing a
bit of a pause here in these declines. There is very strong support below these
levels, here at 23.50 as well as 23, 22 and the final lows at 21.50 hit last fall
and winter. Granted, on the lowest side of that range around 21.50, that is
still down almost 8% from where we are now, but we’ve already dropped 12% in
about 1 week. <b>Precious metals are
volatile assets. Best get used to that kind of volatility sooner rather than
later.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Another
point on silver, we reversed and headed lower right at resistance at the 23%
retracement from the 2016 lows to the 2020 highs. RSI also stopped and reversed
lower at 60, the same as it did in gold. This again, was a SMALL warning, but it
was a warning. Reversals like these are usually not a bad sign to maybe bail on
the last of the “dip” buys you made on the way up. <b>Perhaps overly cautious, but
when you’re dealing with assets that can drop 10-15% in a week, it’s not a bad idea
to be a little extra cautious with additional money you put in to “trade” or
dip buy to leverage profits on the way up.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Moving
on to miners, GDX has had a horrid few days here, declining 16% in 1 week. But
we are now approaching an area of support in the 33-35 level that was the
ceiling for GDX all through the summer and into the winter. <b>Just like Gold and
Silver, GDX is also very oversold in the short term.</b> Additionally, we had a pretty
significant bounce off of today’s lows. At the worst point, GDX was down about
5.5% and bounced 2% off that level. In comparison, gold bounced $8 from its
lows and silver bounced 20c, or about 1%. <b>So this relative outperformance at
the end of the day for miners when at major support may be solidifying that idea
that we’re making at least a short term bottom here.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjImRK4_fLZOu7wHA3ISvJU1e00vJsM2MJjGGnk2mv00AvyBIykwRU6-mKBkTQosO3hMuQVNM9VhdnzxuIlNnKLaXtuWTO2SEhlEhyOto3GZcgrmuAjZIlOWOySpZxbDRkciPl7EvYQyKMyG2UboHdvtuAlXXcXLJi3IzzXtD7yIM8WUf9-2bhcyA/s1920/gdxnew%20gap.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1295" data-original-width="1920" height="472" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjImRK4_fLZOu7wHA3ISvJU1e00vJsM2MJjGGnk2mv00AvyBIykwRU6-mKBkTQosO3hMuQVNM9VhdnzxuIlNnKLaXtuWTO2SEhlEhyOto3GZcgrmuAjZIlOWOySpZxbDRkciPl7EvYQyKMyG2UboHdvtuAlXXcXLJi3IzzXtD7yIM8WUf9-2bhcyA/w701-h472/gdxnew%20gap.png" width="701" /></a></span></div><span style="font-size: large;"><br /><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Not to digress too much but I want to make a point here. <b>I've said "watch the miners" so many times they should put it on my gravestone.</b> But if you've been employing that mentality over the course of the last year,<b> I hope you understand now why I say that. </b>We saw gold peak on March 8th at 2100. GDX hit 40 then reversed hard, down about 10%. As gold consolidated at a level almost $200 from the high, GDX continued higher. <b>Countless down days in gold the last couple of months saw GDX open down 1-2% then end the day green again. </b>Miners shrugged off all weakness in gold and kept chugging along.</span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;"><b>This is the EXACT opposite of how they acted all through the summer till about Jan this year.</b> Every time gold was up, miners didn't care and kept heading lower. Consequently, that entire time period when they were acting this way was not a great time to be holding them. <b>When I turned bearish in June last year, this was a major reason why.</b> A lot of people dismissed the relative weakness as manipulation, or the market being "stupid", saying my claim that miners lead metals was completely untrue.</span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">The fact is, <b>we've called several major lows in gold and miners over the last couple of years, </b>most of which were to the day or within a day or 2 of the lows and <b>all of those were preceded by miners reversing losses and exhibiting relative strength to the metals. </b>Inversely, I was one of few bears in June citing this as a reason for concern and <b>repeatedly had my analysis dismissed.</b> For the next 8 months, PMs and miners proved to be a terrible asset to be holding.</span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">Miners leading metals isn't always the case. As many have been quick to point out, 2 or 3 major lows over the last decade or longer this was not the case for. The last article I wrote, <a href="https://alchemyfinancials.blogspot.com/2022/01/bull-state-of-mind.html" target="_blank">"Bull State of Mind"</a> I pointed this out. <b>In 2016, there was no warning at the lows, gold and miners just took off like a rocket, and I warned we will likely see similar when gold finally bottoms this time,</b> but I believed after an 18 month consolidation, if gold was going to break down, it would have done so by now. <b>This was a major reason why I turned bullish again.</b> Another major reason was hearing <b>many of the people who criticized my analysis in June,</b> that there is <b>risk in PMs until the fed begins hiking rates, begin to finally throw in the towel and accept that that was likely going to be the case. </b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;"><span> </span>I'm an introvert. When the room gets too crowded, I start worrying. I'm glad so many finally figured it out, but <b>it was 6 months too late and it was time to be planning for the bottom, not planning for risk</b>. I said this bottom will likely give no hints when it arrives and will be difficult to catch by the methods I typically use and that was exactly the case. The rally ripped out of nowhere catching many off guard. Despite getting no clear "signals" that I usually go off of, it's worth mentioning we still caught that low nearly perfectly. <b>After 8 months of being bearish, I turned bullish again and posted that article on Jan 27th citing my reasons why. On Jan 28th GDX retested lows at 28.67, then turned and took off, gaining 45% in 2.5 months. </b> The point is, more often than not, watching the miners gave you the best clues for turning points in the metals, and whether or not it was safe to come out and play. For 8 months since June, it was not. The last few months have been very noticeably different.</span></span></p><div style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; text-indent: 0.5in;"><span style="font-size: large;">After
any type of move, be it long term or shorter term, I pay a lot of attention to
the <b>counter trend reaction.</b> Looking longer term, GDX is now testing the 50%
retracement of the entire move up from the lows around 29 in late Jan, to the high just 1 week
ago <b>at 41. Two steps forward and one step back is completely normal, healthy
price action here, </b>(even though it took us 2 and a half months to take the 2 steps
forward, and 1 week to take the 1 step back). We have some elasticity here for further
declines just like gold and silver, but I think we should start firming up here
now.</span></span></div><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">In
the shorter-term aspect of looking at the <b>“corrective” move, we just suffered a
fast 6-point drop.</b> One step back would be a 3-point rally. If price were to
rally to near 38 and begin to falter, that may be a cause for concern, signaling
further declines but we need more time to analyze how we are reacting here.
Worth noting, <b>38 is right where the moving avgs currently sit, that are both
turning down sharply and about to give a bearish cross lower.</b> A rally up to near
that level that can not hold for a long enough time to turn them higher and give
us a bullish signal would also back the theory that a concern about further
declines is warranted. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I
want now to talk about what my concerns here are, and even though I am still
bullish, there are a few of them. The first is a bit unusual and is highlighted by the purple lines in the GDX chart. <b>Today’s gap down was
at the EXACT same level as the gap lower after the June FOMC.</b> For those that
remember, it was the pitiful performance of miners relative to metals and the Fed
hinting at a tightening cycle beginning soon that was the reason I turned
bearish on PMs and miners after that happened. (And it was the right call. GDX dropped
20% from there and did basically nothing for the next 8 months) The similarities
in this drop and that gap are a bit too much to ignore. </span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">The reason we pay
attention to charts is because <b>a chart is simply a visualization of price
action.</b> Price action is the result of the <b>human emotions of fear and greed that
drive buying and selling.</b> These emotions and behaviors have never changed throughout
history, which is why we can look at charts of tulip bulbs from the 1600s,
railroads from the 1800s and tech stocks from the 2000s and see <b>the exact same
pattern play out over the course of those 400 years.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">That
being said, there is no “fear of taper” anymore or anything else regarding this
tightening cycle. Fed is talking about 50bp hikes now and the 10 yr is an inch
away from 3%, the highest level in almost 4 yrs. (Since fall 2018, as gold was
making its final bottom and the fed was making it’s final rate hike. They
started cutting a few months later). The Fed can go ahead and hike, it doesn’t
matter, <b>the market has made the hikes for them already.</b> If there’s an
underlying<b> fear in gold right now, I don’t think further tightening by the Fed is
the reason.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I
don’t particularly see a reason right now for extreme fear in gold, so I do not
think this is a similar situation to June. I of course, could be wrong. <b>In a
few months, we could be looking back and see the reason quite clearly, as is
the case with the majority of investors in the market. By the time you catch
on, everyone knows, and you’ve missed the chance to act.</b> A major difference I’m
seeing between now and June is this: In June, gold was getting killed and
miners were getting killed even deader. Right now, miners are getting killed (AFTER a 45% run higher in GDX) but gold’s action is not at all bad, in my opinion. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Additionally,
it’s not just a factor of price action, <b>but of price action over a period of
time.</b> Last summer, as gold and miners got killed, the was no relief bounces.
<b>Every very oversold time when it was logical that we SHOULD see a bit of a
bounce, we didn’t.</b> This went on for WAY longer than is healthy in a market that
should have been trending higher. <b>Multiple times we saw gold up $20 only to see
GDX open up a dismal 1%, then lose it all and close down 2.5%, despite metals
holding their gains.</b> It’s possible we can get that, it’s only been 1 week so we
need to give this time to see if price action repeats as it did then, and
caution may be warranted. Or, if things begin to firm up here, as I think they
should.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Moving
back to the gold chart I do see another concern. Again, we pay attention to similarities
in <b>patterns because they are depictions of human behavior that have a tendency
to repeat again and again.</b> What concerns me here is the striking similarities
in the 2 runs up to 2100 in Aug 2020 and just recently, highlighted in the
black boxes. <b>Not only is the price
action identical in both instances, but price itself is as well.</b> Both these tight
consolidation patterns happened after a straight up move to 2100 and are
consolidating at the exact same levels. The concern is what happened next, a
dive down to 1760, rally of $200 then a decline of $300 to 1680 over a period
of 6 months. Obviously, we will have some waiting to do before new highs if
this plays out the same and begins breaking down much more from here, and I don’t
think that’s what any of us want (unless you’ve been severely underinvested). <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbc2H6j2G-2XoBWl2OhWEtR-zt-v1-zz16WssDA9JivhIOWNHuW3hhfIp8j5Jukla5nD6bpuiSquzJ_qXj483YSAjo78vJQCbzofqTeBiLJzFgyAvrempjvKF58VTGUD3h7gX7roAyt9UJnZ7ru7rYIauhpgzKJd8W1jbHJL7taodhlNta0GwvJQ/s1920/gold%20concern.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1312" data-original-width="1920" height="478" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbc2H6j2G-2XoBWl2OhWEtR-zt-v1-zz16WssDA9JivhIOWNHuW3hhfIp8j5Jukla5nD6bpuiSquzJ_qXj483YSAjo78vJQCbzofqTeBiLJzFgyAvrempjvKF58VTGUD3h7gX7roAyt9UJnZ7ru7rYIauhpgzKJd8W1jbHJL7taodhlNta0GwvJQ/w699-h478/gold%20concern.png" width="699" /></a></span></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">There
are differences though. In Aug 2020, gold was hitting a new all time high up
50% from where it was just 6 months earlier. Today, after a tiring, 20% down 18-month
correction, we have retested those highs beginning from a higher starting point
over a shorter period of time. <b>This reminds me more of the final few months as
gold tested 1000 in 2009, before breaking out and doubling over the next 2.5
years.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">In
Feb last year, weekly moving avgs gave a sell signal on gold that was followed by
a steep decline to 1680. <b>MACD crossed
below the 0 line and RSI broke below 40,</b> both are levels we want to see hold on
a weekly chart if there is to be a long-continued bull move higher. (2009 to 2011,
weekly gold RSI stayed above 50 and MACD decently above the 0 line on every
correction for over 2 years.) After that correction, gold moved strongly higher
and every correction after saw RSI hold above 40 while MACD stayed neutral,
completely flat at the 0 line. <b>Weekly moving avgs gave a bullish cross higher
in Feb and soon after we’re retesting all-time highs.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwMP3ZklFwW34vWB5QfLnU25I-Mm7FVYoQtq75PKlzMH14n2MrXY0numUVr6iKlghBtrnfZTqhEclykhVZzbKssX4sxThq7XZbsZ4Xo_A_9Xv6qN3KQydpHE5q8vQRpFgsO7EXk3-nDpqGsz6aTFqXejmxDRsRUvKu0VwFvTslwzsk6PR12ruafQ/s1920/gc2day.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1300" data-original-width="1920" height="477" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwMP3ZklFwW34vWB5QfLnU25I-Mm7FVYoQtq75PKlzMH14n2MrXY0numUVr6iKlghBtrnfZTqhEclykhVZzbKssX4sxThq7XZbsZ4Xo_A_9Xv6qN3KQydpHE5q8vQRpFgsO7EXk3-nDpqGsz6aTFqXejmxDRsRUvKu0VwFvTslwzsk6PR12ruafQ/w704-h477/gc2day.png" width="704" /></a></span></div><span style="font-size: large;"><br /><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">2009
was nearly identical action. A moving avg bearish cross in Aug 2008 saw gold
decline sharply to 700, the 2006 highs. <b>RSI broke below 40 and MACD crossed
below the 0 line.</b> A few months later, gold had rallied, MACD crossed back above
the 0 line and stayed above it while RSI stayed above 40 as well.<b> Moving avgs
gave a bullish cross higher and soon after we were testing the all time highs
at 1000/oz.</b> We took a few more months to breakout entirely, but we got there.
After that, <b>RSI never went below 50 on any correction. MACD stayed above 0 line
as well. Corrections in gold came down to the 30 week moving avg</b> then resumed
moving higher while the moving avgs themselves also trended higher and <b>did not
give another bearish cross “sell signal” for 3 years, all while gold doubled in price.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje4qIUrxbzl_9JrcIRBDzYJ1VKXZD6BvkmYj5Xw1OapMKBZ8A86mbEipRnb63bZnoBaD86drp9O4zJ8f9qJOLkNPX4Duu52PlH6KcrwycjGW0hVO80hpN6Ige1GaSLKbl80xdFrTSZ-MYSWUAt38TyvmQP4S-1yCo-rRgYGeqUIGN_rinGQ7o9Lw/s1920/gc2008.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1309" data-original-width="1920" height="489" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje4qIUrxbzl_9JrcIRBDzYJ1VKXZD6BvkmYj5Xw1OapMKBZ8A86mbEipRnb63bZnoBaD86drp9O4zJ8f9qJOLkNPX4Duu52PlH6KcrwycjGW0hVO80hpN6Ige1GaSLKbl80xdFrTSZ-MYSWUAt38TyvmQP4S-1yCo-rRgYGeqUIGN_rinGQ7o9Lw/w719-h489/gc2008.png" width="719" /></a></span></div><span style="font-size: large;"><br /><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>These
were the key signs to be long and stay long for the long term, and I think we
will see something similar again.</b> Moving avgs have crossed higher and weekly
gold is now testing right in that area. MACD is comfortably above the 0 line
and can still afford some cooling off here. <b>RSI has held above 40 since last
June and is currently 52,</b> so it can also cool off a bit still. Longer term,
things look good, and I have no reason to believe this is anything but just a
correction for now, but <b>we do need some more time to hash things out and make
sure this doesn’t continue to bleed and repeat price action like we saw over
the summer. The extreme drop in miners, is still a little concerning.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">Another concern here is something in technical analysis people like to call the <b>"false break before the real move"</b>, and it's exactly that. It's when a market is consolidating and breaks lower or higher initially, only to reverse that move and break in the opposite direction for a longer term, trending move. If that is the case here for gold, <b>then this false break moved up 25% from our lows at 1680, and that has to be one for the record books in terms of a "false" break.</b> While it is certainly possible with this ever increasing volatility, <b>I think it's unlikely and refer back to the 2009 analogy</b>, that this is likely a retest of highs and final coiling that will eventually breakout and give us a long term trending move to new all time highs.</span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">There
is one more obvious risk to address here and it’s the <b>“Master Key” in terms of
market risks across all asset classes, and that is a recession.</b> Gold likes to
run up ahead of recessions, as it did from 700/oz to 1000/oz leading into the
financial crisis, and as it did from 1150/oz to 1700/oz as it did leading into
Covid and the 2020 market crash. <b>1 month ago, the 10 and 2 yr yield curve
inverted. In 50 yrs, there has never been a time this hasn’t resulted in a
recession and there has been no recessions since then where the yield curve
inversion didn’t proceed them. So, it’s been 100% accurate with 0 false signals.</b>
That’s a far better record than any economist or analyst I’ve ever seen. I’m
siding with the yield curve that a recession is coming and is likely the
culprit of “higher costs” through both inflation and rising rates. It seems
very likely at this juncture that the <b>Fed has made a critical error in not tightening fast enough and will now push rates to a breaking point in the face of a struggling economy. </b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">On
average, a<b> recession typically follows around 12 months after an inversion.</b> In 2008,
the yield curve inverted 16 months before the recession. In 2020, it was only 9
months. 12 is the average, but in this overleveraged, highly indebted, increasingly
volatile world we live in, there is no reason it can’t happen much sooner. The
market has resumed tanking and has lost over 7% in just 3 days, approaching back to the lows of this corrective move, and doing so alarmingly fast. <b>My thinking was that
gold will have time to run leading into a recession within 12 months, and there
will be an opportunity for profit taking and cash raising on gold positions BEFORE
a market crash, which in both 2008 and 2020 led to a slew of margin calls that
took everything down with it, including gold.</b> But we very well can be a lot
closer to a recession and a major crash than I think. <b>12 months is just the
average. There’s no reason it can’t be 4 months, or 6 months.</b> (And make no
mistake, leverage and volatility have done nothing but increase. This affects
all asset classes. In a massive crash, everything gets sold. To most investors,
gold is simply a hedge, not a position. Apple is their position and when Apple
is down 30% and their “hedge” is up 20%, which do you think they’re going to
sell?)<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Now
keep a few things in mind. If a recession and crash is closer than we think,
<b>this doesn’t mean cash out on your retirement account. </b>When the yield curve inverted
in May 2019, the market went up 20% after that. When the crash came, it was
down 20% from that level when the inversion happened… for about 2 weeks. <b>If you
nailed buying EVERYTHING back at the low, you got a nice discount. But most didn’t
and missed a 100% rally in the SPX over the next 2 yrs.</b> In reality, most looked
at 50% declines in the SPX in 2009 and 2001 and assumed similar, so when the
SPX was down 25% in March 2020 they sold expecting another 25% down and that of
course, was the bottom.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">With
that being said, it was a great time to have SOME cash. I bought HL for $1.60
in March 2020 and that is the type of opportunity that is terrible to miss, so
<b>if you have not reached the point in your investing career where you have
realized having at least a small cash position available at all times is wise,
you might want to think about that. </b>If a recession is on our horizon, <b>we know
how they will “fix” it. We’ve seen this movie before.</b> 0% interest rates, quantitative
easing (ever expanding, likely to include outright stock purchases next time
around) and govt spending. And the <b>beneficiaries of these policies will be gold
and stocks</b>, so having some cash to buy at panic prices would be ideal.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">One
final note regarding Jr miners. Many have been frustrated regarding small Jrs
not really moving on this last rally in gold. As a few have correctly pointed
out, <b>investing in Jrs is investing in what typically is the most profitable,
but final stage of a gold bull market.</b> Chances are you’ve seen the “bubble
model” chart below and while it is meant to represent a bubble, in reality it’s
a fair representation of any bull market, as by nature the final stage and
highs of a bull market will be typically bid up in speculative euphoria to levels
far beyond any realistic valuation. We just suffered a long, painful 18 month
correction in gold, and in that time nearly everyone proclaimed, “gold is dead”
and that it’s “on it’s way out as an asset class”. This quick spike back to all
time highs has not convinced any of them that they were wrong. If anything,
they’re likely shrugging it off as a double top, panic reaction to Ukraine invasion,
etc. <b>We are far from the speculative euphoria that comes from a rush of money
flowing into small gold and silver stocks.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj69JdLsfxAWIRMvPdLbfPf4pGRYI-79Q0fndMFLq_x_ClFg31nUY2AxuMSYi217fahZC4ablh3tlqkq1DXmoGlzxEeMWY2OhXI9-s1TpMvxOhWFesZH1wRH1buK3aWJvc0uR0KspBLD8yhV7diSpXhlhF5zeYjxWKQhb158y33ewNGQm-r98vdsQ/s900/stages_bubble.webp" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="558" data-original-width="900" height="424" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj69JdLsfxAWIRMvPdLbfPf4pGRYI-79Q0fndMFLq_x_ClFg31nUY2AxuMSYi217fahZC4ablh3tlqkq1DXmoGlzxEeMWY2OhXI9-s1TpMvxOhWFesZH1wRH1buK3aWJvc0uR0KspBLD8yhV7diSpXhlhF5zeYjxWKQhb158y33ewNGQm-r98vdsQ/w685-h424/stages_bubble.webp" width="685" /></a></span></div><span style="font-size: large;"><br /><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Let’s
look at the bull market cycle of tech stocks for example. Around 2010, smart big
money institutions were buying stocks like Apple. While that move seems obvious
now, back then we had the European debt crisis and there were many concerns of
a double dip recession. Tech wasn’t as clear a buy then as it may seem now. <b>In
2010, AAPL was about $8-10 </b>(adjusted for split). Over the next 5 yrs it went to 32 and <b>by 2015, it
was all CNBC could talk about, and every retail investor in the world was in it
drooling all over every earnings report.</b> By that time, the smart, big money had
made their profit and were looking for what’s next. Who is going to grow into
the NEXT Apple? <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">In
2014 when it debuted, no one was talking about ARKK. A fund consisting
of “innovative” small tech companies, most of which with little assets and
revenues, and almost all of it with no earnings whatsoever. <b>While the whole
world is laughing at Cathie Wood right now, after ARKK has lost 66% from its
highs, that ETF went from $15 in 2015 to $150 in early 2021. A 10-fold return
in about 5 years. </b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">Now, we have likely seen the peak in tech, so we have an
entire picture of beginning to end to analyze here in this bull market cycle.
<b>What started with big institutional money buying large tech companies, ended
with retail investors yoloing call options on unprofitable small tech companies
based solely on hope.</b> The themes of the last few years have been retail
investors pumping up things like ARKK, TSLA and GME. I personally can’t think
of a better depiction of the end (perhaps an exaggeration though) of a bull market cycle than that.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="line-height: 200%;"><span style="font-family: Times New Roman, serif; font-size: large;">The
moral of this story is, <b>as a Jr mining investor, you’re buying ARKK in 2015</b>. A
basket of companies with no earnings and little in assets all hoping to be the
next Apple. Some will have fantastic gains, some will do ok, some will go
under. Jr mining is the same. They all are money pits throwing cash into the ground
in the hope of increasing their assets. Some will succeed in increasing their
values and do fantastically well and become the next Newmont. Some will do ok, some
will go under. (And ultimately, like all bull markets, many that don’t do a good
job increasing the value of their assets will still do ok, as market
speculation will send them way higher than is justified by logical valuations, same as with ARKK).<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">There’s
reason why NEM hit new all-time highs and most Jrs haven’t budged, outside of
individual good news stories that have driven a few higher. NEM is the largest gold miner in the world. They
have the best assets and the best management. It’s got a 57 billion market cap,
they pay a 3% dividend, and they’re the only gold miner on the S&P 500 (and
many big funds are limited by market cap size, credit rating etc in stocks they
can buy, making NEM one of the few they can invest in). <b>In other words, to the
smart big money buying into the beginning stage of a bull market, they’re
Apple. When the big money has made their profits and retail is foaming at the
mouth over NEM’s gains, you are already positioned in what they are going to
look towards next in the euphoric speculative end phase of the bull market,
that is usually the most profitable.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">To
sum everything up, <b>we do need a little time to see how things play out.</b> Violent price
swings one way or another don’t mean much if they can’t hold over a significant
period of time. But I do think we are due to find some support here and pause a
bit. More correction can certainly come, <b>but until I see any significant reason
otherwise, I am remaining bullish longer term</b> with the obvious <b>caution that a
recession can be headed to us sooner than we think.</b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"> I’ve said it before and I’ll
repeat it, volatility will only increase over time so be VERY careful using
leverage, and ideally stay away from it all together with the headwinds we have
right now. Make a plan to build some cash if you don’t have some, but don’t
panic sell your retirement account. <b>Most importantly, do what you must to
ensure your portfolio SURVIVES until payday comes.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify; text-indent: 0.5in;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b><br /></b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;">
<span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">-Jonathan Mergott</span></span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-86615241083389609262022-01-27T21:09:00.003-05:002022-01-27T21:23:06.748-05:00Bull State of Mind<p style="text-align: justify;"><span style="font-size: large;">Jan FOMC played out exactly the opposite of the Dec FOMC
meeting. In Dec, gold was breaking down, silver was hanging on to the 21 area
by a thread and GDX was threating to break to new lows again. We got a strong
reversal that flushed out some bears and gave metals and miners time to pause.
Fast forward now to Jan FOMC, and gold is at 1850, testing the downtrend line
its failed at 6 times before, silver gets a jolt of energy, surging up to
nearly 25, and miners start looking like they want to join the party as well,
shooting up quite a bit in just a few days.</span></p><p style="text-align: justify;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhTBoQ-3aZCVPzeyzkGgGAHncg_jefVeKNxtD5pmCwUjxGGKA2pEq_C_Gd_qA6KwzwdeS2z1We14kvSYBHgZquQHHeLvT-Sl3ITGs2ud9Ji0etjOn7BcxXNm8euZYabHA64rQWnFVMhmlLIWZU2AsYe64HEOwd06Eh2hBtYncWXxJ0WEuEF0CrUcQ=s1186" style="font-size: medium; margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="959" data-original-width="1186" height="744" src="https://blogger.googleusercontent.com/img/a/AVvXsEhTBoQ-3aZCVPzeyzkGgGAHncg_jefVeKNxtD5pmCwUjxGGKA2pEq_C_Gd_qA6KwzwdeS2z1We14kvSYBHgZquQHHeLvT-Sl3ITGs2ud9Ji0etjOn7BcxXNm8euZYabHA64rQWnFVMhmlLIWZU2AsYe64HEOwd06Eh2hBtYncWXxJ0WEuEF0CrUcQ=w920-h744" width="920" /></a></span></p><p class="MsoNormal"><span style="font-size: large;"><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">But alas, it was just a dream.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Miners unwound pretty quickly while gold held in and silver
still looked fairly bullish. If you’ve been following me for a while and
reading my articles or listening to interviews, you know I put a higher weight
on the performance of miners vs the metals. <b>The fact that miners unwound while
metals stayed looking pretty decent was more likely a bearish sign then an opportunity
for miners to “catch up.” </b></span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">After any major move up or down, we want to watch the
counter move afterwards. Do we lose all our gains, or see buyers come in strong
at a higher low? Does a move down from highs rip back upwards, or begin to fail
at a lower high, indicating an opportunity to short? Miners couldn’t hold their
gains on a pullback, so that is that. No legs to that rally. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">In June I advised caution in precious metals and miners,
citing the Fed’s hinting of a tightening cycle and the similarities to the gold
market in 2013 as my reasoning. We’ve talked for months about hedging risk on
investment positions in Jr miners by buying puts on ETFs like GDX & GDXJ.
<b>Of course, my analysis was ridiculed by perma-bulls who screamed about buying
every dip because “this is it.” That the Fed couldn’t taper, or the world would
implode. That they would never raise rates in the face of 7% inflation because
it would kill the economy and explode the national debt.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">They tapered, they accelerated the taper, they’re going to be
done with tapering entirely in 2 months, and nearly everyone now is certain of
a rate hike in March. They’re even already talking about reducing their balance
sheet by selling assets back to the market, possibly beginning this year. <b>In that
time since June, GDX and GDXJ broke to new lows in Aug, again in Sept, and are
breaking down again to new lows as a write this. GDXJ has now lost 1/3 of its
value just since June.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Folks, there was ample opportunity to protect your
investments from downside risk over the last few months by buying hedges that
could have mitigated your losses, as well as providing you with cash to buy
with at lower levels. <b>(If you had only LISTENED to what the market was telling you!)</b> If you did this, congrats you’re sitting in a much better
place then you would have been right now. <b>If you didn’t, sorry to say but you
missed the boat.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>I have been greedier than most in the gold market.</b> While
many have been buying every dip along the way, we have remained hedged, nibbling
only slightly on a few names for long term holdings while expecting a significant
amount of more downside than most have been looking for and waiting patiently
to make much larger purchases then. So far, that has paid off quite well, and
will likely continue to for a brief period of time. But there is an old saying
in the market, <b>“Bulls make money and bears make money but PIGS get slaughtered.”
I’m not trying to be a pig here, and I definitely am not trying to get
slaughtered.</b></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>At this point, risk/reward on the short side is not
appealing anymore.</b> That is not to say we won’t go lower, or that it might not
be painfully lower. (The last 15% of a 50% correction has a tendency to hurt
more than the first 35%) We can certainly have a fast flush out that could be
very painful. But at this stage of the game, looking at risk/reward and the
probability of further downside versus infinite risk to the upside after an 18-month
correction, considering the time left for further selloffs to continue, <b>it
feels to me that both from the perspective of time and price, that ship has sailed. </b></span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Many are finally coming around to the idea of Fed tightening being the driver
in PM weakness and to expect some harsh drops coming soon. (Where were they 6
months ago?) <b>I prefer to stay ahead of the crowd. We have been so far. So now
is not the time to plan for the drop, as many now think is inevitable, it’s the
time to plan for what comes after.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>Which means it’s time to get back into a BULL state of mind.</b>
Let’s take a look at why.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>March FOMC is 6 weeks away. The Fed is GOING to hike.</b> So
far, history has rhymed quite well, with the change in control in the gold
market shifting to the bears as soon as taper fears began both in 2013 as well
as in 2021. Gold bottomed on the fed rate hike announcement in 2015. While
history may not repeat exactly, it is reasonable to expect something similar.
This is not a lot of time to start making a wish list and a LOGICAL plan to
execute it. </span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">We probably have more downside from here, and we might even trail
lower after the rate hike is announced, but in my opinion, we are nearing a
point soon that I think will be a very attractive place to take positions for
the intermediate and longer term. <b>If you missed out on making a plan to protect
yourself to this downside risk, make sure you do not miss the opportunity to
make a plan for adding to your long-term investments that is likely coming very
soon.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>After 18 months of consolidation in gold, its time to make a
move.</b> I say this because in the last 15 years, Gold has had 4 major
consolidations: 2006-2007, which lasted 16 months and broke higher for a 90%
gain from the correction low. 2008-2009, which consolidated for 18 months and
broke higher for a 180% gain from the correction low over the following 3 years. 2011-2013, which lasted 19 months and broke lower beginning the bear market
that didn’t bottom for another 2 years. And then there is today. 2020-2022
which in February is an 18-month consolidation from the Aug 2020 highs. Gold, now
at 1800, is currently 7% above its “floor” at 1680. <b>Historically, we are reaching a point in which consolidations in gold begin to resolve. </b><o:p></o:p></span></p>
<div class="separator" style="clear: both; text-align: center;"><br /></div><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhSSYBM2n4VonKT3wDNCS3lrd2wUnRNXNdgFyGdCHbM-9k8zhoyo7iIGXcpl9r2GHIyxbEXg8SZ5m2eaAhj_ZjhFwbuVS3wXK3L1VYWTtz28_bWf71gLS_OOBDXz6yzQGXRiZczFJI4pVm0nhJc586yU7ILkJ6scVy0PuzsC5PZWthsZBf3KVyVjw=s1193" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="962" data-original-width="1193" height="751" src="https://blogger.googleusercontent.com/img/a/AVvXsEhSSYBM2n4VonKT3wDNCS3lrd2wUnRNXNdgFyGdCHbM-9k8zhoyo7iIGXcpl9r2GHIyxbEXg8SZ5m2eaAhj_ZjhFwbuVS3wXK3L1VYWTtz28_bWf71gLS_OOBDXz6yzQGXRiZczFJI4pVm0nhJc586yU7ILkJ6scVy0PuzsC5PZWthsZBf3KVyVjw=w932-h751" width="932" /></a><br /><p class="MsoNormal" style="text-align: justify;"><br /></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>While I’m not ruling out a break of 1680 still, I’m beginning
to think the odds that it happens are far less than what I thought they were
over the summer.</b> Even if we do break lower, I was never expecting the magnitude
and duration of a “bear market” this time around like we had in 2013-2015 low.<span style="mso-spacerun: yes;"> </span>So, a break of 1680, will likely be limited
in both time and downside potential, assuming we don’t have an all-out market
crash that takes everything down, like in March 2020. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Here are some charts a shared on Twitter. While there are
many aspects of this consolidation that are similar to 2013, it also is
starting to look very similar to 2006 as gold began drifting higher towards the
end until it broke out. <b>If you are of the belief we are still early in this
bull market cycle for gold, this might be a more logical analogy. <o:p></o:p></b></span></p><p class="MsoNormal" style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEimQ9MKEm9RHS29WM8hA-ABUXvEextWc3fHCsd6uEHCTfhESgTuHdSmGVEJCz6SGjZX0c0AtN-KEaw2t9xCXJQF_WFfoILkQgFxDZpbo-0BIt1qdtN4pvCaOQJTdoUkImMQFQTSdTcUepnVm3acPWZ8z7qwqsyRTVz_chY7woTpTKLI-d7aXkdeDw=s989" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="623" data-original-width="989" height="586" src="https://blogger.googleusercontent.com/img/a/AVvXsEimQ9MKEm9RHS29WM8hA-ABUXvEextWc3fHCsd6uEHCTfhESgTuHdSmGVEJCz6SGjZX0c0AtN-KEaw2t9xCXJQF_WFfoILkQgFxDZpbo-0BIt1qdtN4pvCaOQJTdoUkImMQFQTSdTcUepnVm3acPWZ8z7qwqsyRTVz_chY7woTpTKLI-d7aXkdeDw=w930-h586" width="930" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh1aWL8mUvH6DLZif3lFt20FHIrtQPYm8xbZJScE1vYqplvyngXBbdl0NkW07mfiT99Kit3UT2dfkYrtw7zPxU53G05f4WCr_-NsxRWQf2PT5_5mkXiI30z_rFH_oJmFWSkg1sHkcJzgPqS4K71qbUVRi4HEGnUtSJYP6Oc8BKABpDfdl4R4dO7TQ=s998" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="623" data-original-width="998" height="579" src="https://blogger.googleusercontent.com/img/a/AVvXsEh1aWL8mUvH6DLZif3lFt20FHIrtQPYm8xbZJScE1vYqplvyngXBbdl0NkW07mfiT99Kit3UT2dfkYrtw7zPxU53G05f4WCr_-NsxRWQf2PT5_5mkXiI30z_rFH_oJmFWSkg1sHkcJzgPqS4K71qbUVRi4HEGnUtSJYP6Oc8BKABpDfdl4R4dO7TQ=w927-h579" width="927" /></a></div><br /><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Let’s look at an example of what I mean regarding a LOGICAL
plan. Below is weekly GDX. Currently down 35% from the Aug 2020 high. It is struggling
to hold on to this area near 30 that was the ceiling for the entirety of the
bear market. The next major area of support is near 25, down an additional 15%
from here. That would make it a 45% correction from the high. <b>Could we go down
55% to support at $20? Or 60% to $17, the 2020 crash low as well as the 2014
and 2018 low? Of course, it is certainly possible, but that much of an extreme
is likely not PROBABLE.</b> (Remember, we’ve been right to be greedy and bearish,
but we don’t want to be a pig.)<o:p></o:p></span></p><p class="MsoNormal" style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiCdeyYTRLQUWUHQn-ZiEhOpZvrbgCROkImz1WiLGoBXi4J1byKqaW4XymFxHP8fUjNe88bV13r9mocdkrTwTkgAdN6MrWBZfmOCSsFyQOmtHdHn1dXlU_QlD7SQ6C80wRWxSABFJ79K8AxhVya-Mrwkl_Ulcq3xf14rQwbsoBv4lY75zaahAv53Q=s1181" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="970" data-original-width="1181" height="763" src="https://blogger.googleusercontent.com/img/a/AVvXsEiCdeyYTRLQUWUHQn-ZiEhOpZvrbgCROkImz1WiLGoBXi4J1byKqaW4XymFxHP8fUjNe88bV13r9mocdkrTwTkgAdN6MrWBZfmOCSsFyQOmtHdHn1dXlU_QlD7SQ6C80wRWxSABFJ79K8AxhVya-Mrwkl_Ulcq3xf14rQwbsoBv4lY75zaahAv53Q=w930-h763" width="930" /></a></div><br /><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Now let’s take a look at Abbra Silver, as it’s a Jr many
people like and one of GV’s top sitfolio holdings. If the floor gives way on
miners and GDX suffers a 15% loss from here, the Jrs will be a mixed bag. Some
will likely plummet; some will barely budge. Some may simply decline in line
with GDX. A lot in terms of a “plan” will have to be constantly updated as
markets change and a bit played on the fly as it happens, but assuming a 15%
drop in GDX, a 20% drop in a volatile small cap silver Jr is a conservative and
probable expectation. </span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Looking at OTC (ABBRF), Abbra hit a high of 68c, not in
Aug 2020, but May 2021. (The Aug 2020 high of 35c was equal to last week’s high,
actually. <b>Again, I think this speaks clearly to the aspect that the change in control from bulls to bears in metals happened in June,</b> as that was the high in many jr's that were bucking the trend of the majors and metals up until that point). Since June, it is currently down 60% at now 27c. A 20-25% correction
from here puts us at support right near 20c, <b>which would be a 70% correction
from highs hit only 6 months ago. </b><o:p></o:p></span></p><p class="MsoNormal" style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi-V84M1T9UFUVT724e_85WUABNnSyKRyJORBJW14b-TBJHHMRAygHfJrEzBLtghAWqcxarssoFdIGb4qGOc4-6XocwnmgPhc27TYMGUQimalKJfe-hOsUFJa_9v-4w7iaQdKcDGhqm_rjFDCXxAnwj-77cFTvO6yn94lSH1SYvM5DDM0qzV7SZgg=s1183" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="957" data-original-width="1183" height="751" src="https://blogger.googleusercontent.com/img/a/AVvXsEi-V84M1T9UFUVT724e_85WUABNnSyKRyJORBJW14b-TBJHHMRAygHfJrEzBLtghAWqcxarssoFdIGb4qGOc4-6XocwnmgPhc27TYMGUQimalKJfe-hOsUFJa_9v-4w7iaQdKcDGhqm_rjFDCXxAnwj-77cFTvO6yn94lSH1SYvM5DDM0qzV7SZgg=w929-h751" width="929" /></a></div><br /><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Could we go to 15c? Sure. 10c? Of course, but its far less
probable and too greedy an expectation in my opinion. Keep some cash in case it
happens, market crashes are always a risk any given day. But start looking at
these names that you like, <b>placing a REASONABLE expectation of a range in price</b>
they may fall to in the coming weeks, then decide based on your own conviction,
what you are willing to pay for them and how much capital to commit when they
get to those levels. Most importantly, don’t forget to execute when we get
there. <b>Everyone likes to talk about buying the correction, until it comes, then
they worry they’re catching a falling knife.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Speaking of “catching a falling knife”, something important
I want to note. I’ve mentioned before that <b>I tend to weight the market’s price
action greater than macro analysis.</b> The simple reason for this is that there
can be varying opinions on the interpretation of current underlying factors,
and even more interpretation of what future underlying factors will be and how
the markets will react to them (because markets are forward looking, so what
the data is now is already irrelevant.) <span style="mso-spacerun: yes;"> </span>I have my ideas about what’s driving a market.
Some will of course disagree and have their own ideas. We can spend weeks
debating what the key drivers are in a market and never reach a conclusion, or
we can just look at price action.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Put more simply, <b>I put a higher weight on what the market IS
doing vs what I THINK the market SHOULD be doing.<o:p></o:p></b></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">In line with that thinking, I generally wait for the market
to give me some indication of a turn before diving in to buy on declines. Along
with other criteria I use, a big factor is miners outperforming and turning
higher ahead of metals. This method has worked very well in the past and <a href="https://twitter.com/Jmergz1985/status/1333429230508662785">allowed me to
nail the Nov 30<sup>th</sup> 2020 low in gold</a> to the day by watching the
miner performance (which turned and bottomed 4 days earlier). <a href="https://twitter.com/Jmergz1985/status/1366771525765001216">It also was a
major factor in calling the low in early March, which was 1 day early to the
exact low on the GDX</a>. (it dropped another 8c from the previous day’s low). <a href="https://twitter.com/Jmergz1985/status/1445448878984101890">It also caught
us a nice rally in early October.</a><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Many who have criticized my “watch the miners/miners lead the
metals” thesis, often cite the 2016 low as an example where that wasn’t true,
and they are right. At the bear market low, miners consolidated and broke lower
while gold maintained. Miners were not giving us any clues as to an impending
further breakdown in metals then, they were just absolutely capitulating. Within
days though, they turned and turned HARD. <b>In 3 weeks’ time, gold was up 10% and
GDX rallied nearly 40% off its low at 12.50.</b> While there were no clues as to
the low, the relative outperformance to the metal soon came and even buying then at around 17 on GDX
left you with a nearly 100% profit 8 months later.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">I mention this because it is very possible to see something
similar when we get to the final low. Buying into declines from here may feel a
lot like catching a falling knife. It’s important to remember a few things. <b>First,
we are buying longer term investment positions. Those are the type you want to
buy when they are cheap and declining.</b> Secondly, don’t bet the farm all at
once. Plan for multiple “tranches” of buying and expect to do so over a period
of a couple of months perhaps. Also, leave a little cash left over in the event
things go lower than we expect, or take longer. The last bit can be deployed as
we begin to get confirmation we are turning higher.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>Adding LEVERAGE to our positions when things begin to start
cooking, THAT is when we want to wait to see miners lead and outperform metals.</b>
By leverage, I’m talking about any position you put on in addition to your
investment portfolio to make a little more as we start to run. Typically, I do
this with calls on the ETFs and some producers. <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Whether you want to use options or just buy the stock is up
to you, but I feel this is an important aspect of taking advantage of prices
moving higher. We wouldn’t be buying jrs if we didn’t believe an explosion in
metals prices will send them soaring, but it is also due to their own building
of their assets. Some do better than others at times then rotate their
outperformance. </span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Producers on the other hand, are simply leveraged bets on
metals directions. If gold begins trending higher for a period of time, so will
the GDX, that is a guarantee. A jr may not if say, they have a poor drill
result or do a financing. Everyone wants to find the jr that’s going to give
them a 5-10 bagger, but the fact is GDX in the money LEAPS will give you a 5
bagger too if we return to Aug 2020 highs at 45 in the next year. And there are
a lot less variables with a basket of established, major producers if gold is
moving strongly higher than trying to increase the market cap of an explorer by
5-fold.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Another point on producers. <b>For the duration of this
decline, we have been holding our Jr investment positions and additionally the
highest QUALITY gold stocks we can find.</b> To me that has meant 1 producer, NEM
and the royalty companies. That’s been a good call as an equal weighted basket
of NEM, FNV, WPM, and RGLD has outperformed GDX since June by 10%, and GDXJ by
20%. <b>But as things begin to bottom and turn higher, the biggest profit is in
the LOWER quality companies.</b><o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">I’m not saying go all in on a high-cost producer with
mountains of debt. But for example, <b>that same equal weighted basket of FNV,
RGLD, WPM and NEM got smoked by HMY coming out of the 2016 low, which
outperformed them by 325%. The same with CDE which outperformed by 275%. </b>The
simple fact is, if a producer like HMY is producing at a cost of 1400/oz when gold
is 1400/oz, investors know there is no profit here until gold turns, and it gets
dumped, hard. <b>The moment that starts to turn, the pendulum swings back in the
other direction with equal force.</b> GDX rallied 170% from its 2016 low by Aug
that year. <b>Both CDE and HMY went up 10 fold from their lows, all in just 8
months.</b> Higher costs equal higher leverage, and have a tendency to scream when
coming out of major lows.</span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjmdQlxq-Xc06nT_ynN62GAz7C1lBJspkhzuhNrAxvZR_WiiJuhcyQoifSear6Eh2i29wrMQoCHr1p2-SABx4OBO8b5Sw9tVTOjN3elBmCmv9cxi6io-l7qpGPLeFz0dpGatXN5KMwwRpi_trVSYwEzUZK1Ivj5In55pR00RrfHaGBRxdE1UUYScQ=s1187" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="953" data-original-width="1187" height="728" src="https://blogger.googleusercontent.com/img/a/AVvXsEjmdQlxq-Xc06nT_ynN62GAz7C1lBJspkhzuhNrAxvZR_WiiJuhcyQoifSear6Eh2i29wrMQoCHr1p2-SABx4OBO8b5Sw9tVTOjN3elBmCmv9cxi6io-l7qpGPLeFz0dpGatXN5KMwwRpi_trVSYwEzUZK1Ivj5In55pR00RrfHaGBRxdE1UUYScQ=w907-h728" width="907" /></a></span></div><span style="font-size: large;"><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhhJ2Q41xzG03pRuD-8TIe1J7UTDFd96HrfknDAKH2VXIQgqMQgCsrZZ2xPwzZkhX2QPJjWvu3PKUu3bXbgTzAtx1kRPsXHGVsPq-cssxA3w-tQjGHjqBWM2JziQ2YlNCY9_huhGYJa3Xnzd-kZxRT7jRZpst5FFbjnFr0a5hXssQoMd1CdnM3fgA=s1181" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="963" data-original-width="1181" height="731" src="https://blogger.googleusercontent.com/img/a/AVvXsEhhJ2Q41xzG03pRuD-8TIe1J7UTDFd96HrfknDAKH2VXIQgqMQgCsrZZ2xPwzZkhX2QPJjWvu3PKUu3bXbgTzAtx1kRPsXHGVsPq-cssxA3w-tQjGHjqBWM2JziQ2YlNCY9_huhGYJa3Xnzd-kZxRT7jRZpst5FFbjnFr0a5hXssQoMd1CdnM3fgA=w896-h731" width="896" /></a></div><br /><o:p></o:p></span><p></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Many people have asked me what Jr’s I like for when things
turn higher, and I’ll be the first to say, stock picking jrs has not been my
strongest suit. I’ve mentioned before, there are a lot of guys who I think have
done a great job picking quality jrs with great 5-10x potential, and there are
also a lot of guys who done a great job on timing and direction. <b>These are two
very different things and being good at one doesn’t make you good at the other.</b>
I’ve seen almost nobody who has done an exceptional job at both timing and direction
in metals, as well as nailing the best 10 baggers.</span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">I have done a lot better in terms of timing and direction myself.
One isn’t necessarily better than the other. Everyone is looking for the stock
with a 5 fold potential over a few years, <b>but by simply timing and positioning
correctly in GDX puts and calls over the last 6 months, multiple major swings
higher and lower have netted us the same 5 fold return on our leverage and
hedges while most 5 bagger potential Jrs have been stuck in the mud.</b> (Something
to keep in mind.) <o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">If you are trying to research the best jrs to begin buying
in the near future for long term investments, there are a few great people who
have done some quality research you can start with by piggybacking on the free
information they have shared and the due diligence they have already done themselves.
<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">The first is <b>GV’s Silver Sitfolio and Gold Fever portfolio</b>,
available here <a href="https://www.goldventures.org/">https://www.goldventures.org/</a>.
Additionally, there is great write ups he has provided that are shared on twitter
and the Wallstreet Silver subreddit.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Another must follow for his picks in my opinion is <b>Erik
Wetterling, aka The Hedgeless Horseman.</b> You can read his website here <a href="https://www.thehedgelesshorseman.com/">https://www.thehedgelesshorseman.com/</a>
. <b>Don Durrett</b> is another who has done quality research and is a must follow on twitter
as well. His website is <a href="https://www.goldstockdata.com/">https://www.goldstockdata.com/</a>
<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">Everyone now is focusing on a downside break in miners, so
we’re going to look a step ahead at the bullish potential coming out of this. <b>Like most
of the market, their realization came too late</b>, and the expected poor
performance they think is coming will likely hit a pinnacle in despair and bearishness right when its time to
buy. <b>I know that investing in precious metals and miners the last 18 months has
been like going through Hell, but you know what they say to do when you’re
going through Hell, right?<o:p></o:p></b></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;"><b>Keep going. </b></span></p><p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">We’re almost there.<o:p></o:p></span></p>
<p class="MsoNormal" style="text-align: justify;"><span style="font-size: large;">-Jonathan Mergott</span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-62177062195430609072021-11-24T12:38:00.024-05:002021-11-24T12:53:04.709-05:00Taper Tantrum 2.0: Rate Hike Hysteria<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">It was my
suspicion since June, when I outlined some frightening similarities in gold to
that of 2013-2015, that we were setting ourselves up for a similar fate.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">The basic
pattern of this was, down for all of 2013 the moment gold got a whiff of the
Fed's intentions to begin tapering their QE program. (The "taper
tantrum"). When the taper was announced in Dec 2013, we bottomed and
rallied strongly for the next few months. (Buy the rumor, sell the news. Once
the rumor set in of a taper, gold moved down strongly. When the news became
fact, the fear had run its course and we rallied). We then resumed moving lower
around March 2013, all the way to the final low in Dec 2015, which was when the
Fed announced they were raising interest rates by 1/4 of 1%. Gold then rallied
about 30% from 1050 to 1350, and the GDX rallied about 170% from a low of 12 to
a high of about 32 in just 9 months.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">As they
say, "history doesn't repeat but it does rhyme" and indeed it did
this time around. The moment the Fed hinted at a taper in June 2021, down went
gold. Miners and silver began drastically underperforming, (a big warning sign
I look for). Rallies were anemic at best and often non-existent. The
opportunity to "sell on the bounce" almost never presented
itself. That was the case for the next 4 months. <b>The fed announced it
would begin tapering 15b in purchases a month on Nov 4th and we bottomed 1
month before hand</b>, presumably knowing that the taper was set in stone by
that point.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;"><b>GDX then rallied 20% over the next 6 weeks. GDXJ and SILJ
both gained about 30% in the same time.</b> (Interestingly, the
rally on this taper announcement lasted 6 weeks, exactly half the time as the
2013 taper announcement rally. 20% gain on GDX and 30% gain on GDXJ was also
exactly half of the gains in 2013, 40% on GDX and 60% on GDXJ)<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 13.5pt; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;"><b>But one thing that was VERY different this time around, is how
much we went down.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">In 2013,
Gold had tested support at 1550 3 times then broke down strongly to a low of
1180 by Dec. It was a loss of about 20%. Miners got slaughtered. GDX dropped
from 40 at the beginning of the year, to 20 by the end of it. A 50%
loss. GDXJ was worse, from 72 to 28, a 62% loss.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;"><b>Things weren't NEARLY that bad this time around,</b> but
it was still an ugly 4 months for those who did not heed the warnings of the
past. <b>Gold tested strong support at 1680 3 times and HELD.</b> GDX
went from a high in May of 40, to a low of about 29, a 25% loss. GDXJ
fell from 56 to 38, a 31% loss. Both were almost exactly half of what we lost
leading up to the taper announcement in 2013. Both of those are significant
differences in the gold market this time around.<o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">That
brings us to today. Gold rallied from 1770 to 1870 over 2 weeks from Nov 3 to
Nov 18th, then lost it all in 3 days. Needless to say, this is not what
"dips" in a bull market look like. <b> In fact, what it
looks strikingly like, is exactly what happened leading from the March low to
the May high, and the drop in June after the FOMC.</b><o:p></o:p></span></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">
</p><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in; mso-margin-top-alt: auto;"><span style="font-family: trebuchet; font-size: large;">After the
consolidations on this chart (In the boxes) gold ripped higher quickly, topped
out then lost all of the gains, going right back to the consolidation area
before hand in both June, and now.</span><span style="font-family: "Times New Roman", serif; font-size: 13.5pt;"><o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; font-family: "Times New Roman",serif; mso-fareast-font-family: "Times New Roman";"><o:p><span style="font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtSAQmLgSAuhW65i9G6TYE8XLti9FHtRsyas1r7ombSB4Dnw0ua5U004G7Z_VhsaybBjGYZcH6SPhdyPF-Welmg1dQAWS0nb71Ci5ksCBqzyaIr85dZJTpT223HF4ZGXlMnuc8TME7rg/s1180/goldbox.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="964" data-original-width="1180" height="740" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtSAQmLgSAuhW65i9G6TYE8XLti9FHtRsyas1r7ombSB4Dnw0ua5U004G7Z_VhsaybBjGYZcH6SPhdyPF-Welmg1dQAWS0nb71Ci5ksCBqzyaIr85dZJTpT223HF4ZGXlMnuc8TME7rg/w906-h740/goldbox.png" width="906" /></a></span></div><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;"><b>I hate to be the bearer of bad news friends, but
it looks like this run is over.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;">It's no fun being the lone gold bug who is
bearish, (the permabulls are relentless) but after last time around, I've
gotten use to standing alone on my position. <b>There seems to be a direct
correlation between lonely opinions and accuracy of market calls.</b> (Who
would have thought?) I THOUGHT we had a little more room to run, and I thought
if that wasn't the case, we'd have a little more time for planning and analysis
on the market action if we began acting weak, but we didn't get that. We got an
all-out plunge instead. (Again.)</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;">I didn't exit some positions in time and
remaining gains were evaporated. It's fine, profits were booked along the way
and there is no use crying over spilled milk anyway, its in the past. So, what
now?</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;"><b>Rate hike hysteria.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;">With taper out of the way and the fed clearly
embarking on a tightening cycle, we know what comes next. Employment has
improved, inflation is high and <b>there is no way around raising interest rates
now. </b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;">Spare me all the explanations on why they
are trapped and can't do it. P<b>eople said the same about taper in 2013 and were
wrong.</b> Then they said, "Well, taper is a mistake and they'll be back
tracking in 6 months." They were wrong about that too. They
said the same about rate hikes in 2015 and were wrong. Then they repeated it
was a policy mistake and they'd have to frantically cut again 6 months later
and they were wrong yet again. <b>They said all the same arguments again 8
years later about taper 2021, and surprise, surprise, you guessed it, they were
wrong.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;">Once again, the same people or a new crop of
them are reiterating the same arguments they and others were wrong about
in 2013-2015. The fed will end Taper and increase QE. They're trapped and can't
raise rates. If <span style="mso-spacerun: yes;"> </span>they raise rates,
they'll will have to drop them again soon. Etc, etc. They were wrong then;
they'll be wrong now.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-size: large;"><span style="color: black; font-family: times;"><b>They WILL raise rates</b>, it’s just a matter of
when. As of right now, the market is expecting June-Sept 2022 and I think
that's about right. (Although I think it will be sooner rather than later).
Until that point comes, Gold looks to be headed lower. (If history repeats like
it did on this taper announcement, we will also likely bottom slightly ahead of
a rate hike announcement).</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;"><b>I don't know how low, but I do know moves in
gold almost always overshoot in both directions, so prepare to be terrified
when it happens.</b> If I'm guessing, 1500 sounds like a reasonable expectation
if gold breaks support at 1680 (which I think it will). Being that 1500 sounds
"reasonable", I'm preparing for "unreasonable" and that
could be 1400, which would retest the former resistance ceiling in gold during
the entire bear market.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">That’s down roughly 20% from here on Gold. <b>You
better believe that if the metal goes down 20%, miners will get murdered.</b> I
think GDX could drop 30% and maybe more over the next 6 months if 1680 gives
way.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">It’s important to understand a few things. <b>First,
my goals may not necessarily align with yours, and that can be the case with a
lot of people whose work you may read or listen to interviews from</b>, so keep
that in mind. <o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;"><b>My goal is to build JR gold and silver positions
when they are cheap.</b> These are <b>long term</b> investments that I do not believe are
dependent on gold going to 3,000/oz to be profitable. They’re undervalued and have
good assets. Additionally, majors will have no choice but to buy them as
reserves continue to deplete. <b>When the market makes a turn downward, like I believe
it is doing now, I am hedging those positions by buying puts on ETFs and
producers. </b>We could go down 5% over 2 weeks, or 30% over 6 months, there is no
way to know how long or how far, so I react on sell signals by protecting
myself. When I believe we are turning higher, I take profits from my hedging
positions and buy more Jrs, usually now at a good discount. I then add positions
to leverage to the upside in the leading producers. Again, it could be a few
weeks or much longer and higher so I react accordingly and ride till upwards
momentum begins to stop. <b>You never know how far or how long a move will last, but
it’s impossible to profit from it if you’re not in it.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Lather, rinse, repeat.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">If what you want to do with your investments is
buy, hold and not look at them again for 5-10 years, most of this is probably irrelevant
to you, and that’s fine everyone has different goals and styles that suit
them.<span style="mso-spacerun: yes;"> </span>But I would still believe it is
missing opportunities to protect yourself from losses in the meantime.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">For example, buying and holding 1000 shares of GDX
from 2011 at 60 until after Aug 2016, when GDX rallied 170% from the 2015 low
at 12, would still put you at down 50% over that period of time.<span style="mso-spacerun: yes;"> </span>Even exiting the market at 40 in 2013 when
GDX began breaking lower and underperforming metals would have allowed you many
opportunities to buy back twice as many shares at half the price or less in the
coming years. By Aug 2016, after that 170% rally from 12 to 32, you would
actually be up about 7% instead of sitting on a 50% loss over the course of 5
years.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;"><b>Miners lead the metals, and the bull market
formula is: JR silver>Major silver ≥ Jr Gold> Major Gold ≥ Silver>Gold.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">This is what I’m looking to see if price trend
is to flip bullish or bearish. Miners have held up ok on this dive, but silver
is really letting go. <span style="mso-spacerun: yes;"> </span>It looks like the formula
is about to flip backwards again and I expect miners to have lack luster rallies
to sell into (again) over the next coming weeks. <b>We look very much like we are repeating
what happened in June.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Going to wrap this up with a couple of basic
charts.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Weekly gold gave a buy signal when the moving averages
crossed late 2018. That buy signal held through every correction until Feb
2021. In May it crossed higher again but was slammed down quickly, making it
look like a fake out. On this last rally, moving averages “met” and LOOKED like
they may cross higher again but suffered the same fake out fate as we’ve now slammed
down again. RSI has been holding at 40, but being pushed back at 60, indicating
no clear direction or control in the market as of yet. MACD crossed below the 0
line and has tried twice to push back above it again and failed as well.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: times; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrnlh73VX698tACHxES40KW9B5-ILWIljSZ5Rr4HhCjneksEWFTk4ONhRp29iO6VQyNwDlJC8pVvG4U7r4zBgBs6x24d-cFlw9-4btl5jjxhuQFtAgm47DrglJFw-Le_-19kzKnBL1Fw/s1187/goldmanow.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1187" height="775" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrnlh73VX698tACHxES40KW9B5-ILWIljSZ5Rr4HhCjneksEWFTk4ONhRp29iO6VQyNwDlJC8pVvG4U7r4zBgBs6x24d-cFlw9-4btl5jjxhuQFtAgm47DrglJFw-Le_-19kzKnBL1Fw/w958-h775/goldmanow.png" width="958" /></a></span></div><span style="font-family: times; font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Now here is that same basic Moving average
crossover signal from 2009 until 2013.<span style="mso-spacerun: yes;">
</span>It’s virtually identical. Buy signal in early 2009 remained through all
corrections until crossing lower in May 2012.<span style="mso-spacerun: yes;">
</span>In Aug 2012, we got another “buy signal as gold tested 1800 for the last
time, but it was again, a “fake out” and reversed lower again early 2013. <span style="mso-spacerun: yes;"> </span>RSI also held 40 throughout that consolidation
and was pushed back around 60 as well. (It did move slightly higher, to ~66 on
the last tap of 1800 though) MACD had crossed below the 0 line the same time as
the moving average sell signal, rallied back above, then reversed lower after
about 3 months.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: times; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFhEY6a1pbGHKh8lpvlNaVcOl58sM_gnnc2e3z78Fhzu95Yatiw9PtYziAUZDhxxFASDGdzy3pJAgHhN9SYsPMDQfTrEDvGimc92tQeX5oWTZZKfv0Kv_C0_QXQbo_MsnXpmxDWVi7-A/s1182/gcma2013.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="962" data-original-width="1182" height="782" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFhEY6a1pbGHKh8lpvlNaVcOl58sM_gnnc2e3z78Fhzu95Yatiw9PtYziAUZDhxxFASDGdzy3pJAgHhN9SYsPMDQfTrEDvGimc92tQeX5oWTZZKfv0Kv_C0_QXQbo_MsnXpmxDWVi7-A/w961-h782/gcma2013.png" width="961" /></a></span></div><span style="font-family: times; font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">The next test of 1550, the floor gave out, and I
expect a similar, although less drastic move if we break 1680.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Here is the same Moving average signal on GDX.
It crossed lower 5 months before gold, then broke its floor at 50, down 20% to
40, which it also “led” gold on by about 9 months. We got the same fake out
rally that quickly lost it again and it fell HARD, but the miners led and
warned of this first. Additionally, RSI broke below 40 in mid-2012, 6 months
before gold broke down. The last rally pushed it just above 60, then it tanked
to incredible oversold levels as miners dropped over 50% in less than 1 year.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: times; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1Ttg5lU7wedexC4SPtzJjaPdcPkbHA5HJGymrZ56-5nI6h9-ohOg2m-6Jla6cC9SxWCVey9hgVz5d2rNRMemhk3OwYdxfyGl_3HEQeHxI4oBp3sPmdIt59cA2clHj6hPppCqoqZsCCw/s1192/gdxma2013.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="958" data-original-width="1192" height="777" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1Ttg5lU7wedexC4SPtzJjaPdcPkbHA5HJGymrZ56-5nI6h9-ohOg2m-6Jla6cC9SxWCVey9hgVz5d2rNRMemhk3OwYdxfyGl_3HEQeHxI4oBp3sPmdIt59cA2clHj6hPppCqoqZsCCw/w965-h777/gdxma2013.png" width="965" /></a></span></div><span style="font-family: times; font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">Now here is the GDX today. Moving Averages gave
a buy signal late 2018.<span style="mso-spacerun: yes;"> </span>They briefly
crossed in the 2020 crash but corrected quickly. They crossed lower in Jan
2021, about 1 month ahead of gold. We got the same fake out cross higher in
May, then they crossed lower again by July-Aug. Unlike gold, they have stayed
lower on this rally, not even rising up to meet each other. Also, unlike gold,
the GDX broke to a new low below its march low, while Gold has Continued to
hold its low at 1680. This is exactly what it did in 2013 as well. Also similar
to what happened 2012-2013, RSI on the GDX broke below 40, twice actually, in
March and again in Aug-Sept. The May rally saw RSI top out at 60, but this last
rally only made it to 56.<o:p></o:p></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><o:p><span style="font-family: times; font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: times; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTWnl-jmitYRfYDjhmIsOHyQmfsHSeGV5S4MdUc7lwInkCZe13W_CoDtTzbz9gq1y_sn_EuUcH7HX8ct__zznAVcWuT_Kb4aumeOHX_Kjh9nIT4yHkuP3BoTUun9kW670j7NGNTOsliw/s1195/gdxmanow.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="958" data-original-width="1195" height="779" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTWnl-jmitYRfYDjhmIsOHyQmfsHSeGV5S4MdUc7lwInkCZe13W_CoDtTzbz9gq1y_sn_EuUcH7HX8ct__zznAVcWuT_Kb4aumeOHX_Kjh9nIT4yHkuP3BoTUun9kW670j7NGNTOsliw/w972-h779/gdxmanow.png" width="972" /></a></span></div><span style="font-family: times; font-size: large;"><br /></span><p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">It seems to me, after this rally since early Oct
got pushed back strongly, that the warnings in miners and metals that were
there 2012-2013 are repeating again now in a strikingly similar fashion.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">I think this is worth paying attention to. As
always, this is not investment advice and all risks on positions you take are
your own. <b>Do your own research.</b></span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black;"><span style="font-family: times; font-size: large;">But while you’re doing it, it’s worth looking at
some of these clues from the past.</span></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="color: black; font-family: times; font-size: large;"><span>-Jonathan Mergott</span><span><o:p></o:p></span></span></p><br /><p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com3tag:blogger.com,1999:blog-1868364813347908197.post-48468402538660646912021-10-21T13:43:00.020-04:002021-10-21T21:16:14.461-04:00Is the Bottom in for Gold?<p></p><p style="margin-bottom: 13.5pt;"><span style="color: black;"><span style="font-size: large;">The last couple of
weeks in Gold and Silver saw some pretty good gains. What was even better, were
the gold and silver miners, and better still, the Jr miners. Anyone who's been
following me for even a short period of time probably knows some of the
things I like to repeat over and over, but for those that don't, I'll do
it again. The first is my gold bull market formula:<o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="font-size: large;"><b><span style="color: black;">JR Silver>Major Silver ≥JR Gold>Major
Gold ≥Silver>Gold</span></b><span style="color: black;"><o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="color: black;"><span style="font-size: large;">And the second:<o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="font-size: large;"><b><span style="color: black;">Watch the miners.</span></b><span style="color: black;"><o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="color: black;"><span style="font-size: large;">More often than not, moves in the miners give
clues to what's coming next for the entire sector. <a href="https://twitter.com/Jmergz1985/status/1445856161983385602" target="_blank">We were able to identify underlying strength in gold and silver early in October, and relative outperformance in GDX was a major clue a bottom was in</a>.</span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="font-size: large;"><b><span style="color: black;">There was a similar situation almost one year
ago.</span></b><span style="color: black;"> On Nov 30th 2020, looking at a few
factors including relative performance of GDX to gold, I called for a low when
gold was at 1760 and the GDX was at 34. <a href="https://twitter.com/Jmergz1985/status/1333429230508662785" target="_blank"> It
was the low to the day in gold, and the GDX low was 33.22 only 3 days earlier</a>.</span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="color: black;"><span style="font-size: large;"><a href="https://twitter.com/Jmergz1985/status/1366771525765001216" target="_blank">Then again March 2nd.</a> The outperformance of GDX to gold was a major clue
there. The next day was the low in the GDX, by 8c lower than the previous day.
Gold dropped another 1.7% over the next few days to 1680, then double bottomed
at the end of March, <b>but GDX made a higher low and rallied 33% over the next
3 months from my bottom call.<o:p></o:p></b></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="color: black;"><span style="font-size: large;">And it works the other way too. In June, when
metals and miners plunged after the FOMC announcement, I had written an article
outlining some parallels to Gold and the GDX today versus in 2013, giving some
warning that things may play out the same. A week or 2 later <a href="https://www.youtube.com/watch?v=tF8w0V3e-2Y" target="_blank">I did an interview expanding on this with Palisades Gold Radio</a>, in which <a href="https://twitter.com/Jmergz1985/status/1416078950741184517" target="_blank">this chart</a> was a big point on my warning. <o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="font-size: large;"><b><span style="color: black;">Miners were significantly
underperforming the metals, just as they did in the 2012-2013
consolidation which was a major reason for my caution. </span></b><span style="color: black;">Adding in the Fed making comments of tapering QE, the
similarities to 2013 "taper tantrum" were too much to ignore.<o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="color: black;"><span style="font-size: large;">Many argued with me that my miners leading
metals theory was wrong, because they were able to find 4 examples in 15 years
where it wasn’t a perfect correlation. They were screaming to keep buying, as permabulls
always do. Most of those people will never say sell, or take profits or even
advise slight caution, because they have an interest in promoting PMs, (like a
paid newsletter they will sell you for $100 a month.)</span></span><span style="font-size: large;"><span style="mso-spacerun: yes;"> </span><b>I have an interest in profit and not
losing my hard-earned capital. Period.</b></span></p>
<p><span style="color: black;"><span style="font-size: large;">I have been pretty successful my career in the markets. <b>Most of that success has not been due to accurately predicting
what the market will do next, but quickly reacting and adapting to what price
action shows me.<span style="mso-spacerun: yes;"> </span></b>I’m a HUGE gold bug.
I believe this system, these monetary experiments we are embarking on, are all destined
for epic failure, EVENTUALLY. <b>But the moment price action disputes my fundamental
thesis, I must stop and see why.</b> The example in June was the taper fears
prevailing over the bull narrative.<o:p></o:p></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">From June to a few weeks ago, miners continued
underperforming, and the "bull market formula" <b>JR
Silver>Major Silver ≥JR Gold>Major Gold ≥Silver>Gold, </b>was
exactly backwards. Gold outperformed silver, silver outperformed major gold
miners, major gold miners outperformed jr gold and major silver miners, and Jr
silver miners got slaughtered, many 50% from their highs a few months ago.<o:p></o:p></span></span></p>
<p><span style="font-size: large;"><b><span style="color: black;">Beginning of Oct things turned for the
first time since June. </span></b><span style="color: black;"> It is
finally looking like a medium-term low may be here in the PM sector.<o:p></o:p></span></span></p>
<p style="-webkit-text-stroke-width: 0px; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; widows: 2; word-spacing: 0px;"><span style="font-size: large;"><b><span style="color: black;">Note, I'm not saying it's THE low.</span></b><span style="color: black;"> History is rhyming a lot right now. In 2013, gold and miners
tanked on fears of the Fed tapering. We broke the consolidation low at 1550 and
moved down to 1175 by Dec, when the Fed announced they would begin tapering
their asset purchases. Once the “fear” of the “rumor” became fact, gold ran up
17% over the next 3 months.<span style="mso-spacerun: yes;"> </span>The GDX
gained 40% in the same time. (And by the way, Gold didn’t bottom in 2013 until
the last week in December. The GDX however bottomed the week before).<o:p></o:p></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">After a 3 month rally that sent the GDX to 28 from
20, (60% below the 2011 high) It then lost almost another 60% over the next 21
months to 12.50 in Dec 2015. The final bottom came when the Fed finally raised
interest rates. <b>But there was some good money to be made in the 2013 low as
well, for those who were nimble enough to identify and catch it.</b> (Watching
the miners outperformance helped with that. The GDX/GLD ratio stopped declining
in early Dec 2013, and was rallying decently by the time gold had bottomed)<o:p></o:p></span></span></p><p><span style="color: black;"></span></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitqNtFQoHVWWAqUqu65MwVZ1b_YDibHYCbw1LocWoQ9lQQ-Cz-ycvq0iOg13WXQqxq2VK3gl2BUjnZomgQSBFphaMxl47ZYyMXXjeoeFiKDVvwIxa3L3I0efk8vNq6JBo0T-6gDMLj0A/s1614/gdx+gld+gld.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="847" data-original-width="1614" height="501" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitqNtFQoHVWWAqUqu65MwVZ1b_YDibHYCbw1LocWoQ9lQQ-Cz-ycvq0iOg13WXQqxq2VK3gl2BUjnZomgQSBFphaMxl47ZYyMXXjeoeFiKDVvwIxa3L3I0efk8vNq6JBo0T-6gDMLj0A/w953-h501/gdx+gld+gld.png" width="953" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">GLD (White line) Didn't hit a low until the end of Dec 2013, while the GDX/GLD ratio bottomed early Dec and was breaking higher by Jan while gold still solidified its low.</td></tr></tbody></table><span style="color: black;"><br /><span style="font-size: large;"><br /></span></span><p></p>
<p><span style="color: black;"><span style="font-size: large;">Now that in 2 weeks time, the market seems
confident the Fed will announce a taper to its asset purchase program, the “fear”
seems out for gold now that the “rumor” is fact, and we look in a solid position
for a good rally, similar to Dec 2013. <b>But the risk of a future breakdown, that this is simply a rally within a larger bear market for gold still
exists and should not be dismissed. </b>With history playing out so similarly,
I would expect a final low to occur when the Fed raises rates, which as of now, the market
expects around Sept 2022.<o:p></o:p></span></span></p>
<p><span style="font-size: large;"><b><span style="color: black;">A lot of things have occurred in the last couple
of weeks that we haven’t seen in months,</span></b><span style="color: black;">
the first being a resumption of the Bull market formula, and the second being
miners outperforming metals significantly. GDX not only broke above the
downtrend line its held below since the May highs, but we also saw key moving
averages begin to turn higher and crossover, which we haven’t seen since late
March.<span style="mso-spacerun: yes;"> </span>Additionally, since June, RSI has
been capped on rallies at 60, and MACD was never able to push above the 0 line,
both typical in bear markets and prolonged down trends. RSI now recently broke
higher, hitting 70 and MACD is comfortably above the 0 line.<o:p></o:p></span></span></p><p><span style="font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOTePUDHrLGcAa7JYZc6N5gpg8cX3hSJG-8m8vpgFrTL7dcUgljhwT18Y8ioIfzlL09avrneWf7GZTLqN8MmYbkKgeIbl03Eve08emH8k_k5OSKh-a-3QBNTPAgRH_mzkiGIv5bwvr-A/s1182/gdx_20211021133130408.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="962" data-original-width="1182" height="774" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOTePUDHrLGcAa7JYZc6N5gpg8cX3hSJG-8m8vpgFrTL7dcUgljhwT18Y8ioIfzlL09avrneWf7GZTLqN8MmYbkKgeIbl03Eve08emH8k_k5OSKh-a-3QBNTPAgRH_mzkiGIv5bwvr-A/w950-h774/gdx_20211021133130408.png" width="950" /></a></span></div><span style="font-size: large;"><br /><span style="color: black;"><br /></span></span><p></p>
<p><span style="color: black;"><span style="font-size: large;">On a pullback here, I want to see RSI hold above
40 while MACD does not cross far back below 0. Below is an example I’ve used in a
previous post showing this regarding RSI. Ford stock from 2014 to 2020. While
trending lower for 6 years, RSI almost never made it above 60, and when it did,
it was quickly pushed back.<o:p></o:p></span></span></p>
<p><span style="color: black;"><o:p><span style="font-size: large;"> </span></o:p></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQnzLB2M3dBdXbnPLvJjfz_43Yn8WfXCCQ9PYsWqgmcqtubtva2C0jTEvgY3QbkS2h_ERJJMUtU0gDukIuMo2XExqPJ4Oc2pEut4I3Hhw_NfrK0BwHz2Y_oIq_5H_WjhSpenZbrFUaCQ/s1204/f.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="955" data-original-width="1204" height="771" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQnzLB2M3dBdXbnPLvJjfz_43Yn8WfXCCQ9PYsWqgmcqtubtva2C0jTEvgY3QbkS2h_ERJJMUtU0gDukIuMo2XExqPJ4Oc2pEut4I3Hhw_NfrK0BwHz2Y_oIq_5H_WjhSpenZbrFUaCQ/w972-h771/f.png" width="972" /></a></span></div><span style="font-size: large;"><br /></span><p></p>
<p><span style="color: black;"><span style="font-size: large;">Inversely, here is Macys. For a 6 yr rally, RSI held
40 on every dip. This is what we want to see with gold and miners. In 2009,
before Macy’s hit a higher high and began its official “uptrend”, we saw dips
in RSI hold 40, and moving averages cross higher. We already have 1 of those 2
in GDX.<o:p></o:p></span></span></p><p><span style="color: black;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjV3mLsKRG1MjRyQ33O0ZyOJu7yclCvSEKPtnpZsNZ9ifNblGOFdAaHk7RFDaU-fJT5BbEpIQFf10R0TOX-Euv3dWd1o7M0a2jY06LSYQUm0ZGRkXx97hmd1MvP95hX-guNqqkb4zX0Ew/s1200/m.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="948" data-original-width="1200" height="785" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjV3mLsKRG1MjRyQ33O0ZyOJu7yclCvSEKPtnpZsNZ9ifNblGOFdAaHk7RFDaU-fJT5BbEpIQFf10R0TOX-Euv3dWd1o7M0a2jY06LSYQUm0ZGRkXx97hmd1MvP95hX-guNqqkb4zX0Ew/w994-h785/m.png" width="994" /></a></div><br /><span style="font-size: large;"><br /></span><p></p>
<p><span style="color: black;"><span style="font-size: large;">Silver has followed suit as well. RSI rarely got
above 50 the last 4 months, indicating even more weakness in silver than GDX or
gold. That should be the case in a bear market downtrend, as we would expect
GOLD to be the best performing asset and it was. <b>We have now broken the
downtrend, seen RSI push above 60, had MACD move above the 0 line, and have the
same key moving averages turning higher and crossing over.</b> We should see a
pullback hold around the 23 level (or a bit lower) as well as RSI hold 40
before price eventually pushes to a higher high.<span style="mso-spacerun: yes;"> </span>That would give pretty good evidence that our
thesis that this is a tradeable low for the next few months is true. (Similar
to the Macy’s chart in 2009).<o:p></o:p></span></span></p><p><span style="color: black;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsR2DAPoL7HQCnp1VLxSYxbKIvuGs77AD-xT5iMDlDbN69WtgHKdv0k5Fp3nVCfnhcsMKWdaOPe854iMzMuTsejp9gXERXZq59uFgq9NpP9lFXuyUEp6_ICeNb_V1MbSiteYuXRl_G7Q/s1181/si.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="960" data-original-width="1181" height="811" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsR2DAPoL7HQCnp1VLxSYxbKIvuGs77AD-xT5iMDlDbN69WtgHKdv0k5Fp3nVCfnhcsMKWdaOPe854iMzMuTsejp9gXERXZq59uFgq9NpP9lFXuyUEp6_ICeNb_V1MbSiteYuXRl_G7Q/w997-h811/si.png" width="997" /></a></div><br /><span style="font-size: large;"><br /></span><p></p>
<p><span style="font-size: large;"><b><span style="color: black;">The holdout here is Gold</span></b><span style="color: black;">. We have not broken the downtrend line yet, we have not
seen RSI push above 60, in fact it stopped right at it when it hit 1800 and
fell lower. MACD is still below the 0 line and while the Moving averages are beginning
to cross over, they have not done so decisively. <b>If I was looking at this as
a lone asset, it would give me pause on my theory that we have made a low here.</b><span style="mso-spacerun: yes;"> </span><b>But I am not, I am putting a higher weight
in miners, Jr miners and silver, all of which are performing well and doing what
they should</b>. However, in the PM world, gold is still captain of the ship,
and these points should not be ignored.<o:p></o:p></span></span></p><p><span style="font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqOVfBBonn01p0S5MdiXVzO-gJjAHo7hHa2CBRK1wRc4USN2WSkGBQJuEaonw3MXzQzS-UVKT4o1GrlOQ-66bUb6q40-fZHj2CdutfX94SGo4DqIdEO25M77C1Th1CawLt9M8mexQPFA/s1187/gc.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="963" data-original-width="1187" height="797" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqOVfBBonn01p0S5MdiXVzO-gJjAHo7hHa2CBRK1wRc4USN2WSkGBQJuEaonw3MXzQzS-UVKT4o1GrlOQ-66bUb6q40-fZHj2CdutfX94SGo4DqIdEO25M77C1Th1CawLt9M8mexQPFA/w983-h797/gc.png" width="983" /></a></span></div><span style="font-size: large;"><br /><span style="color: black;"><br /></span></span><p></p>
<p><span style="color: black;"><span style="font-size: large;">On that note, <b>there is absolutely the chance
this is wrong</b>. We are not making a low, this is simply an oversold bounce
after 4 months of weakness. Gold will not break higher and miners and silver
will turn lower and make new lows. <b>If that is the case, I will be ready to
exit newly entered positions I am buying to leverage to the upside here in the
event the key conditions I am looking for are violated.</b> If we are right, I
am not trying to make any predictions on how high “up” is, <b>I will simply
hold my longs for as long as the trend keeps going</b>, as long as RSI holds 40
on dips, as long as moving averages continue higher without a cross lower, etc.
<o:p></o:p></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">There is also the chance that the theory of this
being a good rally in an overall bear market is also wrong. Perhaps the Fed
reverses its actions, perhaps gold keeps rallying to new highs. <b>Again, as
long as conditions remain good for the long side trade</b>, (bull formula,
miners outperforming, RSI>40 moving averages continuing higher etc) <b>we
will hold and ride that train until it decides to stop. </b>The next major
pullback, which may be starting now, should give us a better indication. We are
looking for higher lows to hold and buyers to come in strongly.</span></span></p>
<p><span style="color: black;"><span style="font-size: large;">I wanted to make a note about the bitcoin “flash
crash” that’s been in the news today. People got stopped out of their positions
on a certain exchange when bitcoin flash crashed to 8,000 from 65,000.<span style="mso-spacerun: yes;"> </span>That is a devastating loss on your
investment.<span style="mso-spacerun: yes;"> </span>I have never used a stop
loss in my life, either static or trailing. This is exactly the reason why.
Stop losses are mostly for trading positions, you should never use them on investment
positions. In the 2010 flash crash, many had stops on one of the most widely held stocks in the world, Apple, that got triggered due to a “fat finger”.<span style="mso-spacerun: yes;"> </span>In the morning, they saw their Apple stock
down. By the afternoon, it was significantly higher, but they didn’t own it
anymore.<o:p></o:p></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">Even for trading I find them unnecessary. If I am
entering a position for a shorter-term duration, I make sure I am there to
monitor it and exit if I need to. If I can’t do that, I don’t enter the trade. In
June I went to Lake George, NY and knew I’d be driving for a while through the
FOMC statement, and have bad Wifi and phone signal while I was there, so I
exited positions ahead of time. In this volatile, algo driven market, I am not leaving
my exits in the hands of a binary computer command. As I've mentioned before, price is important, but so is time. A 30% loss doesn't mean much if it bounces back in 2 days. Any loss, no matter how big, is completely meaningless over a few seconds or minutes. It's a terrible thing to not take both time and price into consideration and lose a position at a significant loss over a minor, short term blip.</span></span></p><p><span style="color: black;"><span style="font-size: large;"><b>The market today is
very volatile and PM and crypto is the most volatile of the bunch.</b> <b>Keeping
stop losses on investment positions is a sure-fire way to lose your position in
a volatile move.</b><span style="font-weight: bold;"> </span>If you’re worried about
losses, take profits when you have them and don’t risk more than you can afford
to lose.<b><o:p></o:p></b></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">I mentioned on twitter a thread or article on
bitcoin miners soon, and I hope to get to that within a couple of weeks, but
also want to make a point about this in regard to the flash crash.<span style="mso-spacerun: yes;"> </span>Many of these exchanges are completely
unregulated and they’ve blown up before, or taken off with people’s money and
bitcoin (anyone remember Mt Gox?) Part of the reason I am looking at bitcoin
mining companies (Besides the leverage to bitcoin prices) is because they trade
on NYSE, NASDAQ and OTC markets, markets I am both familiar with and that are regulated by the SEC. <o:p></o:p></span></span></p>
<p><span style="color: black;"><span style="font-size: large;">That is all for now. Patience, as always, while we
wait to see how things hold up. It's been a good week for metals and miners. I have a very unscientific theory that states, when something is strong Mon- Thurs, traders will sell Fri to exit positions ahead of the weekend (and reverse can be true as well) so with any luck, we get a decent pullback to end the week. I will make notes on twitter of any buying (or
selling, if things turn ugly.) </span></span></p><p><span style="color: black;"><span style="font-size: large;">*This is for educational purposes only of
course, this is not investment advice. As always, do your own research and assume your own risks.<o:p></o:p></span></span></p><p><span style="color: black;"><span style="font-size: large;">Keep watching the miners.</span></span></p><p><span style="color: black;"><span style="font-size: large;">-Jonathan Mergott</span></span></p><br /><p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com4tag:blogger.com,1999:blog-1868364813347908197.post-75952858870574037932021-08-16T17:54:00.001-04:002021-08-16T17:54:28.097-04:00Gold Tailwinds: Don't buy a Bear Market and Don't sell a Bull<p></p><p class="MsoNormal"></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Quick update on metals here, because there are a few
things worth discussing. First of all,
it’s worth noting the impressive weekly candle on gold here. From the amount of
the drop Sun night to a reversal closing at highs for the week, its very hard
to find a comparison of anything like this gold has done in the past (In a
similar magnitude that is.) One of the closest, (on a weekly scale) I could find
was Nov 2014, when gold reversed from a low of 1130 to close the week at the
highs at 1179. The next 2.5 months gold
gained an additional $120 from there. <b>From
a technical standpoint, this is definitely bullish.<o:p></o:p></b></span></span></p><p class="MsoNormal"><b><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></b></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDib22qIVJqhAr8A2JfhE-B8l0bYwe7KV3uRpLtOGkPtxDqU46OrIOUNeWIFWe2jR_olX7ZQiBMOCFdzp8PTUeu6e-F4zkf7JE_9hxjhPblLeb5Rxa5ojXFFxlhbFIYXN9plzF7xQrLw/s1220/gold+reversal.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="956" data-original-width="1220" height="688" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDib22qIVJqhAr8A2JfhE-B8l0bYwe7KV3uRpLtOGkPtxDqU46OrIOUNeWIFWe2jR_olX7ZQiBMOCFdzp8PTUeu6e-F4zkf7JE_9hxjhPblLeb5Rxa5ojXFFxlhbFIYXN9plzF7xQrLw/w877-h688/gold+reversal.PNG" width="877" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>Additionally, it proves the point I made in my last
article that I published Sunday morning, Aug 8<sup>th</sup>, BEFORE the plunge occurred
later that night when futures opened.</b> I wrote, regarding those who always use
the manipulation argument to explain away their bad calls, trades and
investments:<o:p></o:p></span></span></p><p class="MsoNormal" style="margin-left: 1.0in;"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">“<span style="background: white;">Yes, all markets are (manipulated), in the short term. But if
there was overwhelming demand to buy gold at 1850, investors wouldn’t pass up
the opportunity. We wouldn’t be sitting here $100 lower. There are people whose
sole job is arbitrage. They will buy 50m in Euros from a seller knowing they
can offload it to a willing buyer 10 seconds later for 1/1000 of a penny higher
and keep the difference. If gold was mispriced, they’d be buying it.</span>”<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-size: large;"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;">When futures opened, gold
dropped $80 from 1760 to 1680. <b>Within 5 days investors saw the value in gold
being “mispriced” and bid it back up to 1780, $20 higher than we started.</b> Regardless
of the reason why behind the drop, <b>it was a complete BS move, plain and simple, and the market
recognized that.</b> In this instance, the crowd screaming manipulation was right,
and it was proven by the reaction in gold in the days that followed. <b>But
beware, because they will scream manipulation on every drop and that won’t always be the
case. </b>This is what they did all the way down into a bear market from 2012-2015
that saw the GDXJ lose 90% of its value from the 2011 highs.</span><span style="font-family: "Times New Roman", serif; line-height: 107%;"><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">There are 2 other major tailwinds for gold right now,
the first being COT positions, and the 2<sup>nd</sup> being sentiment. Regarding
the last COT report, we can see that large spec positions in gold are at their
lowest in a year. These are about the same levels as the March lows as well,
which is a good sign. A quick note on COT reports for those who may not be
familiar:<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Large specs are hedgefunds, essentially. Small specs
are you and me, (retail investors), and commercials are the producers and
hedgers who act like merchants to the large and small spec groups. If you look
at COT reports, what you will find is, (Not always perfectly, but within reason)
<b>the large specs are essentially trend trading, momentum chasers.</b> They buy what
is going up. <b>They typically, as a group, have their position sizes increasing
as an asset moves higher, meaning they are most long at market tops, and least
long or sometimes even net short at market bottoms.</b> They’re positions move mostly
in line with the underlying asset. Small specs often mimic this as well. Commercials on the other hand are the ones
selling to the large specs and small specs who want to buy. As a result, <b>their positioning
is typically INVERSE to the underlying asset. So, they are most SHORT at market
highs and least short, and sometimes net long at market lows</b>. This is why they
are looked at as the “smart money”.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Below is an example of what I mean with current OJ futures.
Notice how at the decline in price in Oct last year, Large specs (green line)
went net short, right at the lows, while commercials (red line) were net long. OJ rallied
and large specs chased price back up, then sold as it declined again. Now with OJ at
52 week highs, it should be no surprise that large specs have their largest
long positions in it during the same time frame. Retail is also the most long
in one year.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9-WZSynVgdi8EGX6uezp_cgdLVwxnEgID1Dob9Y99eKw0fsZNyEAMu4nRLVunr_ReANm0hMSg5h_5WwGv94vbVXHykVsYiU-0riHTLDff5N9omirmArBWLAUwUs_qnpzCM7fgnWVHvw/s864/cotbase-orange-juice-futures-cot-net-positions.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="693" data-original-width="864" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9-WZSynVgdi8EGX6uezp_cgdLVwxnEgID1Dob9Y99eKw0fsZNyEAMu4nRLVunr_ReANm0hMSg5h_5WwGv94vbVXHykVsYiU-0riHTLDff5N9omirmArBWLAUwUs_qnpzCM7fgnWVHvw/s16000/cotbase-orange-juice-futures-cot-net-positions.jpg" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">An important note though. Although they are typically
wrong at major turning points, large specs are the group that drives markets
higher. If you want to see a strong uptrend in an asset, you want to see large
specs continuing to increase their positions as that asset moves higher. Without
them, you rarely get good trending moves. So, in the situation with gold, we want
to see them selling and have their positions dropping going into a low, and then
increasing steadily as we begin moving higher, ideally continuing to increase
to new highs on their positioning. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">The tailwind for gold here is that large spec long
positions are the lowest in 1 yr, and about equal in size to their long
positions during the March low. This is a good first step to marking a low.
From here we want to see their position sizes continue to increase as the
market moves higher, indicating that they are buying strongly.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2bhnuqJr2zZf8oJketsU9VNJerm2VD-oss16c94FvWlQ3PQu7W48wMGK66mdctXNYJekGrb-kMbOyoM2e3aqsSjlqZmEBQ7ypqf7L_VUzpl_T51risNvIfqgj79kelHV_nSmukN4WOg/s864/cotbase-gold-futures-cot-net-positions.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="693" data-original-width="864" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2bhnuqJr2zZf8oJketsU9VNJerm2VD-oss16c94FvWlQ3PQu7W48wMGK66mdctXNYJekGrb-kMbOyoM2e3aqsSjlqZmEBQ7ypqf7L_VUzpl_T51risNvIfqgj79kelHV_nSmukN4WOg/s16000/cotbase-gold-futures-cot-net-positions.jpg" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Here’s where it is problematic. While on surface
value, “lowest large spec long positions in 1 yr” is bullish, <b>digging a bit
deeper as to the “why” behind that raises some concerns.</b> For instance, looking at large spec positions
in gold over the last year we can see their positions near highs have been
steadily decreasing, meaning they have been overall, less long than they have
been previously, which indicates they are losing interest in buying this market.
We can see the same looking at the small specs as well. The problem here is this,
as a basic general rule of investing and trading,<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>Don’t buy bear markets and don’t sell bull markets.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">And the reason behind that is simple. If you buy into
a down trending bear market, expecting to nail the low because a rally should
be coming soon, you will often find the asset continuing to head lower and by
the time the rally comes, you are lucky if you are break even. Same with
selling bulls, don’t sell expecting a top and a correction, because by the time
it comes, you very well could be higher than you were when you sold. In short,
don’t make things harder for yourself by trying to swim upstream. <b>Stick with
the trend, buy dips in bulls, sell rallies in bears.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">This is why “lowest long positions for large specs in
1 yr” isn’t necessarily wildly bullish in the medium & longer term. Here is a picture of gold and the COT positions
from 2007-2016. The first thing of note here is that large spec long positions
(green line) near the end of 2011, began declining to the lowest levels since
2009. There was a bit of a lack of interest by the large specs while gold was
consolidating here. The final rally to
test that 1800 level saw a bunch of large specs “suckered in” right before the
bear market decline started. You can clearly begin to see a “downtrend” in
their long positions and thus, their interest in gold, prior to the downtrend
and bear market in gold itself. <b>During the 2013-2016 timeframe, large spec
longs were SIGNIFICANTLY lower than during the bull market timeframe from 2009-2011.</b>
Even after big rallies higher, large spec longs peaked at less than half the number
of contracts they had held at previous highs during the bull market.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFCGK7TS5YiyoANZkHF1Mp_TazqvpS0ldMXksUj1UxZsQeR5EIHf2c6eAezzkOZGY_qgGGg7AaDyNNP2nn14HvqtQsju5Vt-DjktVctr9WGfHjnjZ3tl0AMsBpxul1X8rzagFX0ueRIQ/s768/bear+market+cot.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="616" data-original-width="768" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFCGK7TS5YiyoANZkHF1Mp_TazqvpS0ldMXksUj1UxZsQeR5EIHf2c6eAezzkOZGY_qgGGg7AaDyNNP2nn14HvqtQsju5Vt-DjktVctr9WGfHjnjZ3tl0AMsBpxul1X8rzagFX0ueRIQ/s16000/bear+market+cot.png" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">So, the worry here is that “lowest long positions in 1
yr” may not just be a mark of a low in gold, but instead a complete lack of
interest in the asset by the group that is very important for driving prices
higher. The warnings to look for here would be if a significant rally were to
happen in gold, and in turn we see much lower long positions for the large
specs, indicating their continued lack of interest. They follow that simple
ideology of “don’t buy a bear market and don’t sell a bull market” which is why long position sizes dropped significantly as gold moved lower. So, this is not what
we want to see repeat itself if our bias on gold remains that it is in a bull
market. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">The other tailwind here is sentiment. Aside from the die-hard
gold bugs, very few people are enthused about gold right now, and again, its
large institutions buying that drive prices higher, so their interest is needed
for a trending bull move. Our opinion as
retail investors, is of little significance if we are standing in front of
billions in institutional money that is looking to sell. <b>The daily sentiment
index for gold (DSI) hit 8 this past week. That is incredibly low, possibly the
lowest I can recall seeing, even in the 2 major lows in the bear market, 2016
and 2018. </b>From a contrarian standpoint (and we all SHOULD be contrarians in the
market if we expect to survive) this is INSANELY bullish. I believe the DSI for
gold hit around 15 at the lows in March, so this would indicate nearly no one is
left long in this market.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Now sentiment is not the most accurate indicator for
price or timing. Incredibly low bullish sentiment like this can continue for a
while and price can continue dropping for a while, but within reason,
accumulating quality positions for the medium term when you see sentiment like
this, is almost guaranteed to be rewarded. <b>But the problem here that arises is basically
the same issue we have with the COT reports.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Months ago when I was very bullish of gold and silver
I was expecting a consolidation-breakout-consolidation type move. In moves like
this, we see sentiment reach extremes during peaks, then slide downward as
bulls get frustrated with the consolidation. So, for example, a fast rally in
gold could see 90+% bulls at the peak, then slide for a while till bulls are
more like 30-40% at worst, then repeat. You don’t want to see extreme low
levels like this because it indicates everyone has left, and in a situation like
that, you don’t see a resurgence of bullish momentum return at the drop of a
hat. Usually, it is a long grind higher and consolidation that exhausts the
bears and makes people begin to take notice again. That’s what occurs in a BULL
case of seeing incredibly low sentiment.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">In the BEAR case, we could easily see extreme lows in bullish
sentiment on gold provide a fast rally that sends shorts scrambling. Bulls jump in, getting excited and we could
be much higher in a few weeks. After say, a $200 rally from lows, DSI could return to a
level near 60…<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>And then see the selling resume.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Just as the long positions in large specs do not
return to levels they were at in the bull market, because of lack of interest,
we can easily see bullish sentiment peak at much lower levels as well, and stay
declining at extreme lows that in a bull market, would be considered screaming
buy indicators. DSI at 15-25 might be a great buy point in a bull market, like
it was in March where we rallied $250 from the lows in 2 months. <b>But in a bear
market, a DSI at 15 could just be on its way to 8 again, and there could be a huge
loss between those 2 points.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">RSI is the relative strength index. It is not a
sentiment indicator, so this might not be the best analogy, but on one hand,
sentiment is a strength indicator in a way. RSI provides a reading of “Strength”
on a scale of 0 to 100 which in that sense, is similar to bullish % sentiment indicators, so I
believe it works for this illustration. Obviously, levels at 0 or 100 are
rarely if ever seen, but in general, readings below 30 mean oversold, and
readings above 70 mean overbought. <b>But it is not as simple as saying “its
oversold therefore we should rally soon.” In bear markets, oversold conditions
STAY oversold for long periods.</b> Bad can get worse, and buying a bear market
because its oversold is usually a losing trade. The same is true in bull markets.
Selling a bull market because its overbought will more often than not, see the
asset keep going higher and remain overbought before a meaningful
correction. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">This can be especially true on longer term charts. The
SPX monthly chart became “overbought” with RSI above 70 in Spring of 1995. RSI
stayed above 70 for 3 yrs until a correction in Summer 1998, took it back below
that level. <b>At the bottom of that correction,
the SPX was still 100% higher than when it first became “overbought.”<o:p></o:p></b></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUp6gMPY80XaPO-ylBE6_RjGVyaqGjuVnfNczV8lNfWXgehZ1ka6NTwuS0cZqzjza3WgOO0UfRKkk4FVcAFDU6BQJL5Na551DSRHgz13e_yquH9jAqszDCRLrPVKNflLlHbta8rdc0oA/s1211/spx+month.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="944" data-original-width="1211" height="612" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUp6gMPY80XaPO-ylBE6_RjGVyaqGjuVnfNczV8lNfWXgehZ1ka6NTwuS0cZqzjza3WgOO0UfRKkk4FVcAFDU6BQJL5Na551DSRHgz13e_yquH9jAqszDCRLrPVKNflLlHbta8rdc0oA/w786-h612/spx+month.PNG" width="786" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Here are 2 examples of RSI that I had posted before in
an article a few months ago but I am going to use again to illustrate my point
on sentiment as well as COT long positions of large specs. One of a bull market
and one of a bear market. <o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Below is Macy’s chart from 2009-2016. Notice how as it
rose from a low of $5 to a high of $75 in 2015, that in addition to maintaining the
uptrend line, <b>dips in RSI did not go below 40, and “overbought” conditions above
70 stayed there for a few weeks at times.</b> In 2015, the uptrend was broken and
RSI went “oversold” around sept at a price of 50/share. It stayed “oversold”
for weeks while price dropped 30% down to 35, a more than 50% loss from the
high. Rallies afterwards saw RSI top out near 60 then continue lower.
Ultimately, by the low in March 2020, Macy’s was right back to 2009 lows at $5/share.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB0LXSqXr3hSjTlRNCDSEJMvVrTgf47r8wHEXNev-ovG8IMHpMtu56pNK1xOu4Qn32kauPIHWJcLlb8Biy91Wm7w6yFQw4fLvlNZtOzgIFjNwY0QERiE2fr_OuvNi2JJPQoj3MPKJl8w/s1200/m.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="948" data-original-width="1200" height="627" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB0LXSqXr3hSjTlRNCDSEJMvVrTgf47r8wHEXNev-ovG8IMHpMtu56pNK1xOu4Qn32kauPIHWJcLlb8Biy91Wm7w6yFQw4fLvlNZtOzgIFjNwY0QERiE2fr_OuvNi2JJPQoj3MPKJl8w/w793-h627/m.PNG" width="793" /></a></span></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Next is Ford from 2013 to 2021. It peaked at 18/share in
2014 and began trending lower. <b>RSI topped out at ~60 as it trended down and
peaks in price were pushed back by the downtrend line. </b>In early 2020, it was “oversold”
at $8 a share and stayed there for over a month while it lost an additional 50%
to $4/share. As it has rallied since then, pullbacks in price have been accompanied
by much higher RSI levels which have not fallen below 50.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"> </span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjG62rM4SWm-8KBodgI9RyB5jG7bk2Nt9I3UGxVcvbjvWFRtgjJLTK5zaLTf2xydDvsHUl-mCpoymb7eiC97QfytpZvMADvvILIgxKXQFh8QocPqjgxSju4l_tDv9HiNJHRkuegWJ0yCQ/s1204/f.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="955" data-original-width="1204" height="638" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjG62rM4SWm-8KBodgI9RyB5jG7bk2Nt9I3UGxVcvbjvWFRtgjJLTK5zaLTf2xydDvsHUl-mCpoymb7eiC97QfytpZvMADvvILIgxKXQFh8QocPqjgxSju4l_tDv9HiNJHRkuegWJ0yCQ/w804-h638/f.PNG" width="804" /></a></span></div><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Focusing on the F chart, we can see a few occasions
where oversold RSI saw a bit of a bounce, and if you timed it perfectly, you
could catch 10% upside before it began rolling over again, but overall, this
chart was better suited to be selling rallies where RSI pushed up to ~60. We
can see the opposite with M. Buying dips near 40 was very profitable and trying
to sell when “overbought” was far less profitable. <b>It simply depends on correctly
identifying if you are in a bull market or a bear market and not fighting the
trend.</b></span></span></p><p class="MsoNormal"><span style="line-height: 107%;"><span style="font-size: large;"><span style="font-family: Times New Roman, serif;">I saw somebody had posted the Gold miners bullish percent chart recently on twitter. (Didn't see who and can't find it now. Not trying to call anyone out, just using this to prove a point.) While this is actually a breadth chart, it is often cited to give an idea of sentiment. It also works on a scale of 0-100, like DSI and RSI. It is currently at 33, which for reference, is higher than at the March lows when it bottomed at 24. <b>So I did a little digging into this chart in the past and what it looked like in the bear market, and lo and behold, it EXACTLY proves my point regarding sentiment that I was attempting to illustrating with the Macy's and Ford RSI charts.</b></span></span></span></p><p class="MsoNormal"><span style="font-size: large;"><b><span style="line-height: 107%;"><span style="font-family: Times New Roman, serif;">When miners began dropping in 2013 the </span></span><span style="font-family: "Times New Roman", serif;">Gold miners bullish </span></b><span style="font-family: "Times New Roman", serif;"><b>percent started at about 33. Same as it is right now.</b> It then hit lows at <b>EXTREME levels near 0-5 as the HUI fell from 450 to 200, a 55% loss.</b> On every rally afterwards, <b>it never got past 60, and mostly topped out at 50 while the HUI spent 2.5 more years dropping ANOTHER 60% down to 100.</b> A total of a nearly 80% loss from the time when the </span><span style="font-family: "Times New Roman", serif;">Gold miners bullish </span><span style="font-family: "Times New Roman", serif;">percent started at 33 and <b>LOOKED</b> like miners were a good buy due to "Bad sentiment" given the fact that we were in a bull market. (Which we weren't).</span></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGNlnF-wDBan3boEI23lzMoFkJodJb0clyrx3dgloAloFBxPpwwzJQVqfZYThjQeBCisdhu7vhzguLR1R-Y12Qrtk33P7jc13m-oooXmYH0f-EVl1WpecXqsEYWHbV-JM58buu6b5Arg/s900/ExC_sd3W8AglFsT.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="534" data-original-width="900" height="468" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGNlnF-wDBan3boEI23lzMoFkJodJb0clyrx3dgloAloFBxPpwwzJQVqfZYThjQeBCisdhu7vhzguLR1R-Y12Qrtk33P7jc13m-oooXmYH0f-EVl1WpecXqsEYWHbV-JM58buu6b5Arg/w789-h468/ExC_sd3W8AglFsT.png" width="789" /></a></div><br /><span style="font-family: "Times New Roman", serif; font-size: x-large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>Don’t buy bear markets and don’t sell bull markets.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">In essence, this is my fear with Gold, silver and miners
here, and longer term I am not seeing any indication that this is changing. I
think it is a very real possibility that we rally strongly, see sentiment
improve, see large specs begin to increase their long positions a bit, then top
out at lower levels on all of these things and head right back down again. As I write this at 1pm NY time on Monday,
Gold is up $10 at 1788, trying to push back above 1800. Silver is flat at 23.78
The GDX is down 1%. The GDXJ is down 1.3%, and the SILJ is down 2.3%. Remember the formula we want to see in bull
markets I wrote about last week.<o:p></o:p></span></span></p><p class="MsoNormal"><b><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">JR Silver
> Major Silver ≥ JR Gold > Major Gold ≥ Silver > Gold<o:p></o:p></span></span></b></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">It is still exactly backwards,
with gold outperforming all right now. Early last week I had mentioned on
twitter that I was beginning to buy in small amounts as the risk reward here
looked good. <b>I bought a few Jr silver miners, closed my GDX puts, and bought
the following calls:</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">GLD 160s Oct expiration<o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">SLV 21s Oct expiration<o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">GDX 33s Oct expirations
and<o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">SILJ 13s, Nov expiration.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">The results so far after
almost 1 week are interesting and disappointing, but understandable given my longer-term
expectation that we are likely in or entering a bear market in metals and
caution should be taken here. <b>My GLD
calls are up over 65%. My SLV calls are up 9%. GDX calls are up 4% and my SILJ
calls are up 3.5%</b>. My Jr miners are a mixed bag, some up a little, some down a
little. Overall, pretty much a wash. Silver
and miners are not performing even in line with gold, let alone outperforming,
and Jr miners are lagging majors. <b>Gold is up over $30 from Wednesday’s highs
and the GDX is down 50c from there.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>On Nov 30<sup>th</sup> a
made a point of saying on Twitter that I think we were at a bottom in gold. We
were, to the day,</b> and we rallied $200 over the next 6 weeks from there. <b>On
March 2<sup>nd</sup>, I said the same,</b> that we likely hit a major low. We
headed about $20 lower from that point over the next 6 days and bottomed at
1680, but it was the low to the day on the GDX. <b>2 months later we were up $250.</b>
On Tuesday, after being <b>VERY cautious about metals and miners for 2 months and voicing
my concerns of a possible bear market coming in multiple articles I’ve written
and an interview I gave as well,</b> I QUIETLY mentioned I was buying here simply
because of the risk/reward being beneficial. <b>I didn’t “call” a low this time
and make a point of voicing that opinion loudly like I have in the past and
there is a very good reason why.</b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>Because I didn't want people to hear that and think "buy."</b></span></span></p><p class="MsoNormal"><span style="background: white; line-height: 107%;"><span style="font-size: large;"><b style="font-family: "Times New Roman", serif;">I don’t want people
to read my “calls”, remember I was right calling the major lows in gold twice
before and buy now thinking we're in the same situation, </b><span style="font-family: Times New Roman, serif;"><b>because</b></span><b style="font-family: "Times New Roman", serif;"> I don't think we are.</b><span style="font-family: Times New Roman, serif;"> Don’t buy
bear markets and don’t sell bull markets, and I’m increasingly believing this
is a bear market. (I know, I just broke that rule on Tues, but 1) I bought very
small amounts, and 2) I am well equipped to handle the risk, and bail if I need
to whereas a less experienced investor might screw this up and have big
losses.)<o:p></o:p></span></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">If you are looking at the
markets here and you’re beating your head against a wall, frustrated at the
fact that silver is still underperforming and miners are not following the
metals higher, you need to revisit the points I have made in previous articles.
<b>Wall street is the most competitive industry in the world.</b> <b>There are more
rocket scientists working for Goldman than there are at NASA.</b> People who manage
billions of dollars are selling. Do you really think they’re all wrong? Do you
honestly believe you’re the smartest person in the room? You think they can’t
do the same basic Cash Flow analysis you are, the same that every college
student majoring in finance learns their freshman year?<b> Perhaps the answer is that
you need to stay humble, and not stubbornly dig your heels in on your thesis,
but instead HONESTLY and without bias, examine where you could be wrong. </b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Past examples can offer
some clues here. As the saying goes, buy the rumor, sell the news. If the news is
bearish reverse that, sell on the rumor, buy on the news. <b>Gold declined
SIGNIFACANTLY on the RUMOR of a taper coming. </b>By the time it was announced in
Dec 2013, gold finally saw some relief and bounced 17% over the next 3 months,
only to continue heading lower on the expectation of a rate rise. By the time we got a rate rise, of a whopping
0.25% in Dec 2015, that was the bear market low. <b>The rumors of a taper are here
again, and gold has been getting whacked significantly. </b>The Fed has talked
about raising rates in 2023, about 2 yrs from now. <b>The similarities in the
precious metals markets to 2013 are too significant to ignore. </b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">As I’ve said before, I
think this rally we’re getting here will offer us a lot more clarity on the
overall direction of precious metals. If we begin to see <b>buyers coming in
strongly on dips,</b> that will be a good first sign. <b>If silver begins catching up
and outperforming</b>, that will be another plus in the bull’s box. And as always,
we want to see <b>miners outperform relative to the metals</b>, so we want to watch
out for that.<o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">Inversely, if silver
continues to lag, if miners continue to underperform metals and not “believe”
this rally, that would be a very bad sign. One that we have seen in the past
from 2012-2013. <b>Miners underperformed and trended lower while gold consolidated.
The miners broke down first, </b>and anyone thinking they were <b>smarter than the market</b>
and bought into that believing they were undervalued, and the market was missing
something very basic and fundamental here, <b>saw a 70% decline from those levels
in the GDX. </b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7pawspq6S9bKLRy43fKDoC-QDHfW3jBwZV3XfIJIG2H6oGdZK0HwUtCrmiUPkJnnWMNQt1IE6fJlZbF6W__r1PynPamC3f5Sz38WYCa2DdLebIN4kxdAuzqUpiGa93WiNQqv0DDf7GA/s1617/gdxgld+2011+%25281%2529.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="824" data-original-width="1617" height="428" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7pawspq6S9bKLRy43fKDoC-QDHfW3jBwZV3XfIJIG2H6oGdZK0HwUtCrmiUPkJnnWMNQt1IE6fJlZbF6W__r1PynPamC3f5Sz38WYCa2DdLebIN4kxdAuzqUpiGa93WiNQqv0DDf7GA/w841-h428/gdxgld+2011+%25281%2529.PNG" width="841" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;"><b>Listen to what the market
is telling you.</b> My view here could be wrong, and I continue to hold out hope
that this is a consolidation in a longer bull market that has just gotten
started, but I would rather wait to see some confirmation from <b>these indicators before I buy, then to try and catch a falling knife. I will happily pay more for
assets I want to own if we get this confirmation. It’s like paying for insurance,
and it will help me sleep at night.</b> I will be paying attention to sentiment,
watching the miners, waiting to see if we get a resumption of our bull market
formula, looking for a good increase in large spec COT positions on this rally
and waiting to see if buyers come in on dips, or if sellers begin overwhelming
us again. <b>But for now, patience. </b><o:p></o:p></span></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><o:p><span style="font-size: large;"> </span></o:p></span></p><p class="MsoNormal"><span style="background: white; font-family: "Times New Roman", serif; line-height: 107%;"><span style="font-size: large;">-Jonathan Mergott</span></span></p><p></p><p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com2tag:blogger.com,1999:blog-1868364813347908197.post-81091581410893110702021-08-08T09:03:00.006-04:002021-08-08T09:16:45.318-04:00How to make friends and influence people <p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><br /></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I haven’t been making
many friends the last few months with my views on gold and silver. I know this because besides the blasting
comments I get from people, I continue to get more twitter followers and yet my
total follower amount has gone down. It seems gold bugs don’t like it when
other gold bugs say, “Hey, gold doesn’t look so hot right now.” Don’t kill the messenger, I’m simply
reiterating the market’s price action. If
you don’t believe what I’m saying, why don’t you ask your own portfolios? <b>You don’t need to be a technical analysis
guru to understand that when a market has 4 red days a week and 1 mild green
day, and that action has been continuing for months, you are likely not in a
market that’s trending higher. </b>Sometimes interpreting the market direction can
be as simple as that.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Gold reversed the
entirety of its strong move higher on Wednesday and got murdered once again
after the jobs report Friday. Silver has been acting weaker than gold for
months and that is not what we want to see in a bull market. Usually, silver should lead. Silver also broke an important uptrend line
last week but recovered quickly giving us a little hope. On Friday, it broke
that uptrend again while gold tested its long uptrend line since the 2019
lows. <b>Perhaps silver is continuing to lead, just
not in the direction bulls want.</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsCgNTB4cdhdF7iu-tRejbFGXs074XoxBVjWC5qETQ-2R9Q1IgEUbQ3Yv9CcAzu7l1m8Yaa9InSeUlFsLLbOxV-JhMAVBLbKt5t-MX5i86vLffmmEonXr6YSOqjk8H5ePgwPhpVbRYMQ/s1262/gc+close.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="955" data-original-width="1262" height="710" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsCgNTB4cdhdF7iu-tRejbFGXs074XoxBVjWC5qETQ-2R9Q1IgEUbQ3Yv9CcAzu7l1m8Yaa9InSeUlFsLLbOxV-JhMAVBLbKt5t-MX5i86vLffmmEonXr6YSOqjk8H5ePgwPhpVbRYMQ/w938-h710/gc+close.png" width="938" /></a></span></div><span style="font-size: large;"><b><br /></b></span><p></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwQQwAseCT2ceht8k_W_6Bi-fRtrthhQd4Ci1W08Gi4l1REXTm_2DfC22zTSt7UvNlzBFqlg3QOssMRw9WKSX0onpoZwIfQTQgHpFbYVMzKvAXUlBcKwD8WxaICyeT2ef-5KPyziB3qw/s1264/siclose.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="947" data-original-width="1264" height="710" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwQQwAseCT2ceht8k_W_6Bi-fRtrthhQd4Ci1W08Gi4l1REXTm_2DfC22zTSt7UvNlzBFqlg3QOssMRw9WKSX0onpoZwIfQTQgHpFbYVMzKvAXUlBcKwD8WxaICyeT2ef-5KPyziB3qw/w948-h710/siclose.PNG" width="948" /></a></span></div><span style="font-size: large;"><b><br /></b></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">As I’ve said before, in
bull markets in precious metals, we want to see silver outperform gold. We also want to see miners outperform the
metals and additionally, juniors outperform the majors. The formula should work like this:<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>JR Silver > Major
Silver ≥ JR Gold > Major Gold ≥ Silver > Gold</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">If you’ve been paying
attention recently, it has been almost exactly reversed. Junior silver
companies have gotten beaten with nearly 50% losses on many. Major silver
producers have been terrible performers as well, but mildly better. AG has lost 30% since late May while CDE has
lost 40%. Junior golds have performed similarly to major silver producers. GSS lost 40% since late May and intermediate
gold producers like IAG lost 35%. Bigger gold producers like NEM, (the only one
I think is worth owning), after being the only major to break to a new high,
corrected only 20% from that level. Royalty companies, which performed
extremely better than miners in the bear market have also held in very well and
FNV is currently just 5% from its all-time high. Silver is down 15% from May
when it was 28.60 and gold is down half of that, only 7.5% in the same time
frame.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifk16VuSJEflBzCaziina7tpy_YsE56X1af1LL-L3R_OPHZHR_t4iuYGfqkqSsvUnkg_I4d9-rJnSbuCwSY09nmqJa0myDaQKeaMLkBzZ-ajwOnjL8_UmKt10LMNHdxr_7nQ2_FEUDFg/s1269/abbrf.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="951" data-original-width="1269" height="723" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifk16VuSJEflBzCaziina7tpy_YsE56X1af1LL-L3R_OPHZHR_t4iuYGfqkqSsvUnkg_I4d9-rJnSbuCwSY09nmqJa0myDaQKeaMLkBzZ-ajwOnjL8_UmKt10LMNHdxr_7nQ2_FEUDFg/w966-h723/abbrf.PNG" width="966" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">For those that read my
last article published on June 29<sup>th</sup> or watched the Palisades Gold
Interview about it 1 week later, I talked about the major silver producers (and
the major and intermediate gold producers fall in the same category as this),
being in essence, “directional trades on the metal.” Sure, they have individual stories, and some
have done better than others, but mostly they are a leveraged bet on the
direction of the metals. <b>Juniors are building value through expanding their
assets.</b> Additionally, very large majors who have significant cash flow and
dividends can offer some “protection” to the downside and <b>royalty has the added
benefit of reduced exposure to the numerous issues that can arise for mining.</b></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">This was my thought
process when raising cash and majority of the things I sold were major silver
producers and intermediate and major gold producers. I took some money off the table in some junior
silvers and royalty, but for the most part, I kept the largest chunk in stocks
like FNV, RGLD, NEM, WPM, SAND as well as small sitfolio stocks that despite
short term extreme volatility, will continue to build and add value. I sold heavily in the major silver producers
and sold the entirety of certain positions that have continuously
underperformed. Additionally, I added puts on the GDX to
mitigate losses on my core holdings and add to my cash. This is seeming now like it was the exact
right method to go about this.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I recently had a person
criticize my incorrect previous bullish “calls” from before while another
person commended my “calls” for caution from more recently and wanted to say
something regarding that too. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I am not a psychic. No one is. <b>I don’t have a crystal
ball on the desk in my office that I consult for market directions.</b> To quote
the name of a book by Bob Moriarty (that I highly recommend) “Nobody KNOWS
Anything.” I don’t know what will happen tomorrow any more than Buffett or
anyone else. <b>Gurus’ “calls” are guesses, plain and simple.</b> Granted, they may be
very experienced in that industry, but they are guessing, that is it and anyone
can do it with enough experience and have a similar accuracy track record in
their “guess” work. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>The only thing I am doing
is watching the market action. Tape reading as the old timers would call it.
</b>From there, I am using my 13 yrs of experience in watching the “tape” every
single day for 8 hours a day to interpret when things are generally acting
bullish or generally acting bearish, and if a shift is taking place from one
side to the other. Past that, the rest is just gut feeling, and other clues I’ve
picked up over the years that I have previously shared with twitter followers
and anyone who reads my articles or has seen my interviews. But like I said at
the beginning of this article, sometimes it’s as easy as looking at a continued
pattern of many weaker red days and a few mildly strong green days to notice
something is wrong. I believe that is what we began to see going into the month
of June. We witnessed massive selling that continued unabated. Buyers were
nowhere to be found. That’s not a good sign after believing we had capitulated
only a few months earlier.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>By far my biggest concern
though, </b>the biggest “gut feeling” that has me worried right now is <b>listening to
gold bugs talk</b>. I wish you guys
understood how much <b>it is EXACTLY the same arguments, explanations, excuses and
conspiracies I heard from 2012-2015.</b> In the end it was only themselves who
suffered.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“The market is
manipulated.” </b>Yes, all markets are, in the short term. But if there was
overwhelming demand to buy gold at 1850, investors wouldn’t pass up the
opportunity. We wouldn’t be sitting here $100 lower. There are people whose
sole job is arbitrage. They will buy 50m in Euros from a seller knowing they
can offload it to a willing buyer 10 seconds later for 1/1000 of a penny higher
and keep the difference. If gold was mispriced, they’d be buying it. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Even if it was a
successful scheme of suppressing prices for a long period of time, what difference does it make why? The
only thing that matters is if your making money or not. If you’re not, you
don’t need to know every detail of why, you just need to recognize that, and
adapt. Maybe it is the market, maybe it is manipulation. But most likely, it’s
just you who is wrong. Would you rather feel better justifying losses to yourself,
or would you rather make money? <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“We’ve never seen this
much debt or spending.” </b>Every single year our deficits and debt increase
without fail, so you can say that everyday and it would be true. Our debt just
hit a new high since I finished writing that sentence. I have a book on my bookshelf called “The
Hyperinflation Survival Guide” by Gerald Swanson, written in 1989. On the cover
there is a red line shooting higher.
It’s a prediction on the national debt, which he expected to be 10 trillion
by year 2000. A number that at the time seemed unbelievable and would surely collapse
the dollar. He was off by about 8 yrs, we hit 10 trillion in 2008. Here we are
in 2021 closing in on 30 trillion and the US dollar index is rallying to 93 and
is very much still the reserve currency of the world. These things are not perfectly linear with gold, clearly.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh24xStfkYxRJmjVLy1q15hPqKPpJg7LRkUzHlK-SeZc71KWKcukEcAq0xk58YNtGy5VQJ0lubltsnZ0YfqwARq9qzOS3ySZDle2HLP88XirzDKm0HK4sSxJQox2XV1kR4G2ubyQdZCkw/s500/416FQPKXVAL.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="500" data-original-width="333" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh24xStfkYxRJmjVLy1q15hPqKPpJg7LRkUzHlK-SeZc71KWKcukEcAq0xk58YNtGy5VQJ0lubltsnZ0YfqwARq9qzOS3ySZDle2HLP88XirzDKm0HK4sSxJQox2XV1kR4G2ubyQdZCkw/s16000/416FQPKXVAL.jpg" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“The Fed is trapped; they
can’t raise, or taper and inflation is too hot.”</b> They are not trapped, nor were
they 10 years ago when Yellen warned the market repeatedly, she was going to
raise rates, and kept raising them while everyone screamed how it “couldn’t
happen.” (Ironically, that was gold’s low. Buy the rumor, sell the news. When
the news is bearish, sell the rumor, buy the news). The Fed is SUPPOSED to be
independent, and while we all know that’s not really true (Especially after
watching Powell fold like Origami on rates after being berated by Trump), the
national debt is not their problem, and they don’t care if increased rates
cause it to rise more significantly. That’s an issue that congress got
themselves into, and its congress’s problem to fix it. (Good luck.)<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Additionally, inflation
is here, its not coming. Sell the news! Especially when looking at inflation
data and seeing that one of the biggest causes has been the supply chain issues
due to the pandemic. Those ARE transitory, and likely to ease, as input costs
already have. Are we going to see 10%
inflation in the future? We very well
could, but I’m willing to bet, based on what the market is saying that we will
see DISINFLATION first, dropping to closer to 3% year over year before we do.
(Which by the way, is exactly what happened in the early 1970s. From 6%
inflation to 3%. It doesn’t necessarily
derail a long-term multiyear gold bull thesis, but in today’s volatile
environment, it very well could make you suffer devastating losses in the
meantime. Like the 90% loss in the GDXJ
from 2011-2015, that will never return to its highs due to dilution of shares
by Jrs just to stay afloat. And many didn’t anyway.)<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“The Dollar is going to
collapse.” </b>Maybe, but if you think America’s situation is bad, have you even
looked at Japan and Europe? If the dollar is going to collapse, I believe the Euro and
Yen will collapse before it. And being that the dollar is free floating against
those other currencies, that means it will go much higher first.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“The stock market is a Ponzi
scheme, and when it collapses, we’re going into a depression like no one has
ever seen.” </b> Everyone knows this probably
won’t last forever, but I’ve watched 12 years of everyone disbelieving every
tick higher the market has made, and yet here we are at 4400 from a low of 666.
That’s a 560% gain in 12 years that most of the doomsday, Zerohedge readers
missed out on entirely, and still refuse to believe they were wrong about. The
more people disbelieve the rallies and wait for crashes, the more it rises on a
wall of worry. It truly is the most hated bull market in history.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">As for the “depression
like no one has ever seen”, it’s highly unlikely. Why? <b>Because the biggest
issue in the depression that made it so bad, as opposed to a just really bad
recession that bounced back, was an utter collapse of money spending.</b> People
lost their jobs, and their spending went to zero. Then they lost their homes,
they went hungry, etc. This is the very purpose of social programs like housing
assistance and food stamps, unemployment etc. I am not trying to get into a
political debate about right or wrong here, it really has nothing to do with
that. Whether you agree with these programs or not, the BIG PICTURE purpose of
them is to prevent spending from going to zero and a depression on that level
from ever happening again, and it has worked. (And when all
else fails, mail out some checks). <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">We just watched an
economic collapse where some data points came in WORSE than the depression and
some worse than we’ve ever recorded. I’m not saying the economy is good right
now, but clearly, we are not in the same place we were in 1933. (And a large factor in that is because when unemployment hit 15% last April from 4.4% 1 month earlier, people's spending didn't drop to zero) Can things get
worse? Absolutely. Could we see years of devastating inflation or deflation? Of
course. But so far everyone who has bet on the end of the world has been wrong.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“Who is left to sell
here? How much lower can these stocks really go?” </b>To address the first part, YOU... You are left
to sell. And many who think similarly. As for the 2<sup>nd</sup> part, another
story: One time I thought my analysis was smarter than the market and
confidently said to my dad the same thing, “How low can it really go”. He
shared with me what my grandfather told him when he made the same mistake of
saying the same thing early in his career.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;"><b>“ZERO. AND DON’T YOU EVER
F***ING FORGET THAT!”</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">He didn’t, I haven’t. You
shouldn’t either.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><span style="font-family: Times New Roman, serif;">Add to all this, the <b>countless pie-in-the-sky, utterly ridiculous "technical analysis"</b> I keep seeing as if it is some guaranteed prediction of 10,000% gains, from people who clearly have no idea what they're talking about. Technical analysis is about <b>analyzing the probabilities</b> of what a market is LIKELY to do, ideally using multiple factors to support one's point. <b>Drawing some lines with massive percentage projections higher to support your own bias is NOT technical analysis, or any form of honest analysis.</b></span></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><span style="font-family: Times New Roman, serif;">Around 2012, everyone was looking at this chart below for silver. <b>A 30 year long cup formation, from the 1980 high at 50 to the recent high of 50 in 2011, and a sharp correction of nearly a perfect 50% consolidating to form the handle.</b> <b> A move to 100 was imminent.</b> What actually happened was a loss of another 50% from the handle's low of ~25, to 14, and then 12 in 2020. We then rallied back to 30 and have continued to consolidate since then. <b>It has been a DECADE now since the "imminent" breakout of this cup and handle.</b> Could it happen? Absolutely, eventually. But we only have so much time to save and invest for our future. So far waiting on silver has burned 10 of those years. It could burn another 10 as well. <b>I'm not trying to knock or downplay the massive potential silver has in the future. </b>I'm trying to play devil's advocate and point out the other side of this. I'm simply saying, I've seen some of the most perfect patterns and technical situations fail before. Beautiful cup and handles just completely drop, rather than break higher like you would expect.<b> </b>I've also seen ones like this, that continue on for 10 yrs without a breakout. <b> I'm just pointing out the opportunity cost that waiting for silver has already taken from people, and could easily continue to while they think that a breakout is imminent. </b> I thought a breakout was imminent as well a while ago, but back then, we were on fire, consolidating with good momentum and generally bullish sentiment. That is not the case any longer. We are now likely in store for some slow building from here rather than a rip roaring rally. That momentum and underlying bullish sentiment is unfortunately gone from the metals.</span></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><span style="font-family: Times New Roman, serif;"><br /></span></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY7pBr0Uy4RwHpPysJSbFdHmryX8qus2Qr9yQDhF3nA6olYcdTFstGCvpoKVdpkF-_T9YoWjt6F5d0wyWJDz_tMS52zJ7YPdQSANbOxHtgx4YQD75TSYQ6EtSBvwmwANdp26e6KMuE3A/s1273/silvercup.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="951" data-original-width="1273" height="742" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiY7pBr0Uy4RwHpPysJSbFdHmryX8qus2Qr9yQDhF3nA6olYcdTFstGCvpoKVdpkF-_T9YoWjt6F5d0wyWJDz_tMS52zJ7YPdQSANbOxHtgx4YQD75TSYQ6EtSBvwmwANdp26e6KMuE3A/w992-h742/silvercup.PNG" width="992" /></a></span></div><span style="font-size: large;"><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSx535hUeRGiVFOSqgDHxHW-1rvxhr8-0TPMVqPegNMVpoYGXWsdVjJzM27p4xIvq331xkqb-tHSQ7SHVuQKO4-Abe5wAtmjVqzxPZURC9csOUkvntAw-tHTVyvyRmk6_g2ZIi0mIi5Q/s1261/silverreality.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="948" data-original-width="1261" height="752" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSx535hUeRGiVFOSqgDHxHW-1rvxhr8-0TPMVqPegNMVpoYGXWsdVjJzM27p4xIvq331xkqb-tHSQ7SHVuQKO4-Abe5wAtmjVqzxPZURC9csOUkvntAw-tHTVyvyRmk6_g2ZIi0mIi5Q/w999-h752/silverreality.PNG" width="999" /></a></div><br /><span style="font-family: Times New Roman, serif;"><br /></span></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Jesse Livermore was a
better investor and trader than me and he famously said, <b>“Markets are never
wrong, but opinions often are.”</b> If it seems like you are butting heads with
your own analysis and the market’s action for an extended period of time, guess
what? It’s not the market who is wrong. You are. Be humble, admit it and move
on. The BEST in this business are lucky if they’re right 50% of the time. It’s
a matter of managing your investments more so than calling tops and bottoms. There’s
only 4 ways an investment or trade can go, big winner, small winner, small
loser, or big loser. If you cut the bad investments that don’t act right BEFORE
they become big losers, your small winners and small losers even out in the
wash and all your left with is the big winners you let ride. Another great quote, from Bernard Baruch
(which I particularly like because I majored in finance at Baruch College) is
<b>“Don’t try and buy the bottom and sell the top, it can’t be done, except by
liars.” </b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><span style="font-family: Times New Roman, serif;">You can stick to your
guns and hope your view is right, </span><b style="font-family: "Times New Roman", serif;">but hope should never be part of an
investment thesis.</b><span style="font-family: Times New Roman, serif;"> I’ve watched a lot of people go broke that way. You didn’t
need to buy stocks at 666 or sell at 4400, or buy gold at 250 or sell at 2100,
</span><b style="font-family: "Times New Roman", serif;">but taking a large chunk in the middle by identifying the trend and not fighting
the market worked out very well. </b><span style="font-family: Times New Roman, serif;">I would rather wait, and risk paying more for the things I want to buy to get some confirmation the market is moving with the bulls, then to try and catch a falling knife HOPING it was the bottom. Consider the extra cost insurance, like paying for an extended warrantee on your long positions. <o:p></o:p></span></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">On a more positive note, <b>there
are beginning to be a FEW signs of hope though.</b> Miners to metals ratios are
improving, however it is mostly on the back of “less bad” performance and not
outperformance in a higher trending market. But this less bad action could be
signaling a low is near. SILJ was down
less than 2% on a day when Silver was down twice that. It put in a low nearly 3
weeks ago and is sitting 5% above that level currently. That’s definitely a
good sign. However, many individual silver miners look significantly worse. AG
is 10% below it’s March low and CDE is nearly 20% below while silver is 1%
above its March low. This is not good price action for 2 stocks that led the
charge higher earlier this year. EXK is at its March low and only HL is sitting
higher.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiABSYP-ti-eP0hbYqSCLwMxV_S2ZPIO2k6kyPujucBtpf9efYTtcU-Q0yCcT-V9l7RsuiaJiTVNZyte8DJEVale5QBpstGat8h069NW9omNBTGHrRR32LXGuyrOXIpje3fWDNE2xg5jw/s1259/silj+bottom.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="951" data-original-width="1259" height="734" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiABSYP-ti-eP0hbYqSCLwMxV_S2ZPIO2k6kyPujucBtpf9efYTtcU-Q0yCcT-V9l7RsuiaJiTVNZyte8DJEVale5QBpstGat8h069NW9omNBTGHrRR32LXGuyrOXIpje3fWDNE2xg5jw/w970-h734/silj+bottom.PNG" width="970" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">In the Gold arena, we are
still about 5% above March lows. (That’s that safe haven status for you showing
through). That is actually exactly the same as the GDX currently, up 5% from the
March low of 31.64. But a further drop in the metal though of 5% to retest that
1680 area and I’d be willing to bet the GDX drops 10% or more. The GDXJ is at
March lows right now. Looking at the GDX/GLD ratio, we are getting some
consolidation that is showing at least a slowdown in the underperformance of
miners, which is a plus, but we can also see a massive underperformance in the
Jrs to majors ratio which is not very encouraging. Individual gold miners are a
very mixed bag, and hard to get any other clues from. <b>The major plus was that gold closed on
trendline support and Fibonacci retracement near 1760 and silver also closed at
an important Fibonacci level at 24.28.</b> At the end of the week, that could spell
a bounce next week, but I wouldn’t take that to the bank. We could easily
hesitate for a day or 2 and continue to plunge.<o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizROwb18Sa9_vA0zErHO_ClfUj9BbSuaBncCYCuoBSLGc-6mpVqzOQ1j0K4u8MzrvaOqaAHkXjIaadszthOby6V05NdKaqNhYnENzW2AhyUso-nFhihtQxVxVf5reJ2TKJu7Ls8wDWew/s1272/gdx+close.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="953" data-original-width="1272" height="739" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizROwb18Sa9_vA0zErHO_ClfUj9BbSuaBncCYCuoBSLGc-6mpVqzOQ1j0K4u8MzrvaOqaAHkXjIaadszthOby6V05NdKaqNhYnENzW2AhyUso-nFhihtQxVxVf5reJ2TKJu7Ls8wDWew/w987-h739/gdx+close.PNG" width="987" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><b style="font-family: "Times New Roman", serif;">At the end of the day, it
comes down to trend, and the trend is clearly lower.</b><span style="font-family: Times New Roman, serif;"> Where the low is, no one knows for sure, but
I’d rather pay a little more to buy with some confirmation that things are
acting stronger, than to try and “catch a falling knife” because things SEEM
cheap. They may only seem cheap relative to what they once were. I watched a lot of people buy things they perceived as cheap in the bear market because they were comparing "cheap" to where they were in 2011, not where they were then or more importantly, where they were going. They can
always get cheaper. (Like zero). Remember, a nice juicy chunk out of the middle
is a great place to be.<o:p></o:p></span></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">I wanted to end on a more
personal note. Around 2014 I started a Twitter account to watch real time news
events and hear people’s ideas and thoughts from around the world. I never posted or commented on anything until
about a year and a half ago. I now have<b> almost 6,000 followers. </b> It blows me
away when I think about that.<b> My website here has had 64,000 views, </b>mostly all
in that same year and a half.<b> I’ve given
a few interviews now that collectively, have been viewed over 22,000 times. </b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Guys, <b>I am absolutely
FLOORED by this</b>, and it means a lot to me that so many people find value in the
things that I say. As I’ve said before, I’m not selling anything. No one has
paid me a dime for any of this. I can speak my thoughts with no conflict of
interest. I have tried throughout, not to tell people what they should do or
buy or sell, but how to think. How to approach analyzing the market, how to
manage and balance their portfolios and their risk. To look at themselves and their own
risk profile honestly. To understand
that the risks with “all in” can be devastating and the reward may not be much
better than a more conservative balance. How to deal with winners and losers
mentally and financially. Not to focus so much on why the market is doing something, but instead the “what
next?” And of course, to <b>“Watch the
miners” and to “Listen to what the market is telling you.”</b><o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">Maybe it’s because I’ve
spent the majority of my 13-year career working for a non-profit fund that is
dedicated to helping others, and not trying to be the most cutthroat trader on
Wall Street, but I genuinely enjoy helping people. I’m glad that so many have found
value in these things I’ve said, and hopefully can avoid some common pitfalls
and mistakes myself and many others have made in the past. As they say, <b>“You
pay for your education on Wall Street.”</b> The goal though, is to pay as little as
possible. I hope I have helped with that. <o:p></o:p></span></span></p><p class="MsoNormal" style="line-height: 200%; text-align: justify;"><span style="line-height: 200%;"><span style="font-size: large;"><b style="font-family: "Times New Roman", serif;">So, for now remain calm
and patient.</b><span style="font-family: Times New Roman, serif;"> We wait to see some confirmation of strength. We watch to see the if
the miners are outperforming, preferably to the upside next. We'll look to the formula to try to see if silver begins outperforming gold, if miners begin outperforming metals, and if Jrs begin outperforming the majors. We’ll watch to see
if sellers continue to sell strongly into any push higher, or if buyers are
coming in on the dips. If we get an indication of that, don’t get married to
the position. </span><b style="font-family: "Times New Roman", serif;">It shouldn’t be “till death do us part, through good
times and bad.” No, through good times, and then “you’re out of here,” kick them to the curb and find something else when they stop </b><span style="font-family: Times New Roman, serif;"><b>performing</b></span><b style="font-family: "Times New Roman", serif;"> for you.</b><span style="font-family: Times New Roman, serif;"> We could see a major bottom soon that we want to hold long term, or we could see a quick opportunity to make a good 30% that we will want to sell if recent bearish price action of heavy selling into rallies begins to continue shortly after. I am not ruling out a very long, terrible correction
here in a major, multiyear bull market, but for RIGHT NOW it looks bad, and it’s not
worth trying to predict what tomorrow brings. If things turn for the better,
great. </span><b style="font-family: "Times New Roman", serif;">Let’s take that big chunk out of the middle. </b><span style="font-family: Times New Roman, serif;">It’s not about buying the
low or selling the high. SPX at 1200 to 4400 did very well. So did Gold at 600
to 1800. Listen to what the market is telling you. </span><b style="font-family: "Times New Roman", serif;">Humble yourself, you’re
operating in the most competitive industry in the world. </b><span style="font-family: Times New Roman, serif;">You are NOT the
smartest guy in the room. Don’t marry your thesis. </span><b style="font-family: "Times New Roman", serif;">Be adaptable.</b> <b style="font-family: "Times New Roman", serif;">If you can’t
bend, you WILL break. </b><span style="font-family: Times New Roman, serif;">And as always,</span></span></span></p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">“Watch the Miners.”</span></span></p><p>
</p><p class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman", serif; line-height: 200%;"><span style="font-size: large;">-Jonathan Mergott</span><span style="font-size: 12pt;"><o:p></o:p></span></span></p>
Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com7tag:blogger.com,1999:blog-1868364813347908197.post-51690240946846243722021-06-29T10:25:00.000-04:002021-06-29T10:25:37.132-04:00Gold and Silver: What the hell happened after the FOMC?<p> </p><p class="MsoNormal"><span style="font-size: large;">I’ve been insanely busy last couple weeks. I got back from Lake George and we have some
friends staying with us for the next few weeks that have been traveling. We’re
having a bunch of furniture moved and delivered, and then I get to top it off
with a pretty severe cold of some sort in June.
(Go figure). I feel pretty crappy but trying to get my thoughts down on
the metals here. I’ll apologize ahead of
the time for the sporadic jumpiness of moving from 1 thought to another, but
I’m focusing on getting those thoughts down, not on writing a perfect master’s
thesis. Inevitably I’m gonna miss some
points, we can hopefully fill in some blanks with a Youtube Q&A in a few
days when I’m feeling better, but let’s get down to the meat and potatoes of
it.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Gold and Silver got murdered after the Fed meeting.<span style="mso-spacerun: yes;"> </span>It wasn’t pretty. <b>Moves like this, when were
at this stage of the game I believe require us to sit down and calmly, rationally,
and OBJECTIVELY analyze our thesis</b>.<span style="mso-spacerun: yes;"> </span>All
signs seemed to point that we were ready to break strongly higher and we
didn’t.<span style="mso-spacerun: yes;"> </span>Quite the opposite. So, the
question is why, what to expect now, and where do we go from here.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">There are two things I’ve learned over the years in metals
and mining and markets in general.<span style="mso-spacerun: yes;"> </span>The
first, as I’ve said many times before, is <b>“Watch the miners”.</b><span style="mso-spacerun: yes;"> </span>Gold rallied nicely to 1920 after my call for
a bottom on March 2<sup>nd</sup> at 1705.<span style="mso-spacerun: yes;">
</span>The actual low was 6 days later and a whopping 1.7% lower, but March 2<sup>nd</sup>
was the low to the day on the GDX.<span style="mso-spacerun: yes;"> </span>We
rallied $250 from there, or about 15%.<span style="mso-spacerun: yes;">
</span>The GDX rallied double that, about 30% to a high of 40 then stopped.<span style="mso-spacerun: yes;"> </span>A 100% outperformance by miners may seem
great, but I would have expected more, and the rallies to be broader based
among the miners.<span style="mso-spacerun: yes;"> </span>NEM did tremendously,
breaking to a new high. SAND and FNV did great and made up a lot of lost ground
in the correction. Miners like ABX and AU were more disappointing, as were the
Jrs and the GDXJ, which we would have expected to outperform the majors.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">This first clue of underperformance by miners, and jrs to
majors made me a bit uneasy for a little while, but in the past that can be the
case for a few weeks.<span style="mso-spacerun: yes;"> </span><b>What you DON’T
want to see is a constant impending breakout being pushed down or have no
buyers wanting to follow through and buy at higher prices for much longer than
that though. </b>Everyday we didn’t breakout was a ticking clock making the odds
that we will breakout that much less.<span style="mso-spacerun: yes;"> </span>We
had a lot of hurdles, so it seemed like there was just a few obstacles to
overcome, be it options expiration, jobs reports or FOMC meetings.<span style="mso-spacerun: yes;"> </span>In hindsight, I believe I should have placed
a higher emphasis on this then I did.<span style="mso-spacerun: yes;"> </span>It
would have led me to de-risk a bit and saved me some money from this last
crash, and hopefully would have done the same for anyone who followed that
advice as well.<span style="mso-spacerun: yes;"> </span>The lesson I have
learned in the past remains true over a decade later.<span style="mso-spacerun: yes;"> </span>When miners start turning higher while metals
are dropping, a low is likely near as was the case in March. This was a major
factor I used to call that low in March as well as the low on Nov 30<sup>th</sup>
at 1760 which I nailed to the day.<span style="mso-spacerun: yes;">
</span>(Ironically, here we are right back where we were 7 months ago.)<span style="mso-spacerun: yes;"> </span>But when metals are rallying strongly and
miners SHOULD be breaking out and aren’t, watch out below.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Regarding this drop, I want to make some notes on some things
that other people are saying about it.<span style="mso-spacerun: yes;">
</span>I’m not trying to call anyone out directly, but I see things floating
around and the same narratives from different people being said.<span style="mso-spacerun: yes;"> </span>First is the “This was clearly manipulation”
argument.<span style="mso-spacerun: yes;"> </span>Let’s just start by saying no
one of us lowly peasants has the ability to see enough information from our
computers to KNOW what is manipulation and what isn’t.<span style="mso-spacerun: yes;"> </span><b>All markets are manipulated.<span style="mso-spacerun: yes;"> </span>Gold and Silver especially.</b><span style="mso-spacerun: yes;"> </span>I don’t KNOW that the 500 million ozs sold in
60 seconds at 7:34 EST on a Sunday evening was manipulation.<span style="mso-spacerun: yes;"> </span>Sure, it could be a panicked whale who didn’t
care about execution, or a fat finger, etc.<span style="mso-spacerun: yes;">
</span>But as they say, the simplest explanation is often the correct one, and
the simple answer is that it’s more likely some banker is trying to create a
momentum waterfall effect that trigger the algos to jump in and keep selling to
benefit their own positions, rather than someone willing to lose millions in
their execution by dumping rapidly at an illiquid time.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Now on the flip side, you can do that tick by tick, hour by hour,
day by day, and see the effects last for a relatively short period of
time.<span style="mso-spacerun: yes;"> </span>What you CAN’T do is CAUSE or
CHANGE a trend.<span style="mso-spacerun: yes;"> </span><b>If manipulators had the
power to cause a bear market or prevent a bull market, gold would have never
broken above $50/oz after Nixon ended Bretton Woods.<span style="mso-spacerun: yes;"> </span>It never would have rallied nearly 8 fold in
10 yrs from 250 in 2001 to 1920 in 2011.</b><span style="mso-spacerun: yes;">
</span>They simply would have prevented it.<span style="mso-spacerun: yes;">
</span>Sometimes it’s just investors wanting to sell.<span style="mso-spacerun: yes;"> </span>I watched people stamp their feet and scream
manipulation as gold plummeted in 2012, citing that QE is still continuing and the
Fed saying they are looking to raise rates in a few years means nothing today. Also,
that the Fed CAN’T raise rates, no matter what they say because it would cause
our debt to go insane.<span style="mso-spacerun: yes;"> </span>That wasn’t the
case, and those people rode their positions down 80% in some cases in that time
frame. <span style="mso-spacerun: yes;"> </span>So the point here is this: Could it
have been manipulation?<span style="mso-spacerun: yes;"> </span>Absolutely. But be
careful blindingly applying the manipulation argument to every down move.
Sometimes investors sell.<span style="mso-spacerun: yes;"> </span><b>Calling every time
the market moves against you “manipulation” makes people lazy and complacent and
does nothing to help your analysis or portfolio. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Markets are FORWARD looking.<span style="mso-spacerun: yes;">
</span>If you are investing based on what’s happening right now you are behind
the 8-ball.<span style="mso-spacerun: yes;"> </span>In 2015, The Fed DID raise
rates a few years after they originally began talking about it and a few years
after gold began crashing lower. (Although not much by historical standards.<span style="mso-spacerun: yes;"> </span>And the debt skyrocketed and continues to.
People thought 10 trillion was inconceivable. We’re approaching 30 trillion
now. Don’t think we can’t make it to 50 trillion.) If you look at the Fed’s
balance sheet over the last few decades, the fastest increase occurred around
2012, right as gold was breaking support at 1500, and on its way to a low of
1050 three years later. <b>So, this is not causation, as I’ve seen many point out.
As I have said before, the correlation with QE and gold comes from the loss of
confidence in the Fed and the system.<span style="mso-spacerun: yes;">
</span>The increase in their balance sheet and the rise in gold is a symptom of
the same disease.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">The next point is BASEL III, which everyone in the gold camp
is talking about.<span style="mso-spacerun: yes;"> </span>“This drop was a
manipulated, planned attack before it’s implementation.”<span style="mso-spacerun: yes;"> </span>First, I hate to say this, and maybe I have
been beaten down in the gold markets too much after 13 years doing this to see
any “light at the end of the tunnel” in terms of a change in how things are
done, but <b>it makes no sense to me why a group of financial elite would impose a
system that would cease the very profitable games played in the metals markets
that have benefited their buddies for so long.</b><span style="mso-spacerun: yes;">
</span>I don’t think this is a paradigm shift or frankly, anything that will make
1 iota of difference in our regular 8 am attacks or Sunday night manipulation
events.<span style="mso-spacerun: yes;"> </span>In fact, I’d take the opposite
side of that.<span style="mso-spacerun: yes;"> </span>The Hopium being built
into this by gold bulls I think leaves us vulnerable to a further sell
off.<span style="mso-spacerun: yes;"> </span>Basel is a nonevent, and again,
markets are forward looking.<span style="mso-spacerun: yes;"> </span>This was
introduced back in 2009.<span style="mso-spacerun: yes;"> </span>If you are
expecting a magic change overnight, you’re going to be disappointed because
there is nothing “new” here.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Now, I want to highlight 2 gold charts that I think bear a
resemblance from a technical analysis standpoint to where we are now.<span style="mso-spacerun: yes;"> </span>The first is 2008-2009, the second is
2011-2012.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">In 2008-09, we had started with a similar downwards channel correction
after 1<sup>st</sup> hitting new highs at 1000/oz on the heels of the financial
crisis.<span style="mso-spacerun: yes;"> </span>Gold topped in March and
bottomed <b>8 months later</b> in Oct.<span style="mso-spacerun: yes;"> </span><b>It was
the only correction in the 10 yr bull market where the moving averages crossed
lower</b>, until the top in 2011. It rallied strongly and fell back after retesting
1000 down 15% to 850.<span style="mso-spacerun: yes;"> </span>We then began to
coil tighter. <b>The channel breakout morphed into a longer-term inverse head and
shoulders consolidation</b> and finally broke out to new highs about 6 months
later.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Today, in 2021 we saw gold hit a new high at 2100 in Aug on
the heels of the global pandemic.<span style="mso-spacerun: yes;"> </span>It
corrected in a channel downwards for <b>exactly 8 months</b>, bottoming in March.<span style="mso-spacerun: yes;"> </span><b>It has been the first time since we began
rallying in late 2018 that those moving averages have crossed lower. </b>We broke
strongly higher and have now fallen back hard to retest that breakout area of
the channel.<span style="mso-spacerun: yes;"> </span><b>Looking at this drop now,
we can see how this could also be forming a big inverse head and shoulders
consolidation.</b> The similarities are very striking.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><br /></span></div><span style="font-size: large;"><br /><span style="mso-spacerun: yes;"><br /></span></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-Z7cvQWyfLGWdoKp6twS5XORoQV8JC-v6dijTZJznrl4Y7feUpwSHqeipWUTwddGMqX1io-AKIX-sSC79G6bQVhcHC4JRRluHMYDuTkBvooqc_8pHxsQ5AWsBLFEytZqJYbYLJCKclQ/s1210/gold2008.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" data-original-height="952" data-original-width="1210" height="731" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-Z7cvQWyfLGWdoKp6twS5XORoQV8JC-v6dijTZJznrl4Y7feUpwSHqeipWUTwddGMqX1io-AKIX-sSC79G6bQVhcHC4JRRluHMYDuTkBvooqc_8pHxsQ5AWsBLFEytZqJYbYLJCKclQ/w929-h731/gold2008.PNG" width="929" /></span></a></div><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMm44ZJirYOyXTJT2Pa3VpLuye3qpXBQ38TuNbDhgrTxC5-bPPJ_RfR1WXG03Y-_bfNPN373SYbveNaCAg6mQ-4dYetx-oMUtsYJuUOGvgnGTUBfX3wyAyl96WZb0_1vPL2U77Aqm-ag/s1220/goldtodayv2008.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="947" data-original-width="1220" height="729" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMm44ZJirYOyXTJT2Pa3VpLuye3qpXBQ38TuNbDhgrTxC5-bPPJ_RfR1WXG03Y-_bfNPN373SYbveNaCAg6mQ-4dYetx-oMUtsYJuUOGvgnGTUBfX3wyAyl96WZb0_1vPL2U77Aqm-ag/w940-h729/goldtodayv2008.PNG" width="940" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><p></p><p class="MsoNormal"><span style="font-size: large;">Back in March, we were looking at bullish sentiment at
extreme lows, the kind you typically see at bear market bottoms, not during
bull market corrections.<span style="mso-spacerun: yes;"> </span>Articles were
floating around saying “Gold has failed” as Bitcoin hit 50k+.<span style="mso-spacerun: yes;"> </span>We are right back at dismal sentiment that
reminds me a lot of the lows we made in 2018.<span style="mso-spacerun: yes;">
</span>From that standpoint, this is a big positive.<span style="mso-spacerun: yes;"> </span><b>As an investor, it is a great time to begin
buying positions or adding to them for the long term, but don’t expect instant
gratification.</b><span style="mso-spacerun: yes;"> </span>To make exploding moves
higher, we need the momentum driven by large specs and retail investors and you
can’t expect the “gold has failed” crowd to turn around and buy a few months
later after a move of couple hundred dollars higher.<span style="mso-spacerun: yes;">
</span><b>We need explosive breakouts to new highs that create FOMO for them to
jump in, and we need time to grind down their thesis and prove it wrong.</b> From
this standpoint, there are a lot of similarities with 2009, but it could spell
out a lot more grinding back and forth before we breakout, wearing out all the
weak hands.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">In the 2<sup>nd</sup> scenario, 2011-2012 we can also see a
lot of similarities. <b>Gold moved
parabolically higher to 1920 then suffered a big slam down to 1550.</b><b> </b> We consolidated, rallying twice to 1800,
<b>making a double top</b> then falling back down to 1550. <b>Moving averages crossed lower in 2012</b> and after
a long consolidation at the lows, <b>we made one more stab at 1800, moving very
fast to get there</b>. During this time,
<b>miners frustratingly underperformed</b>. Not reaching levels they were previously
hitting the last time gold was 1800.
This was gold’s last hurrah and the miner’s underperformance while the
metal consolidated at these high levels (which should have been great cashflow for
producers) was a clue it may have been over. 1 year later gold was down 30% and
still dropping.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><br /></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhj9lqAfuN92K5kZXy3po17BMFXTw3EmZs46Ld4jZSHYhrJWG6yYI7LXttJnx6CXLH_tcWnXTJ75pHRVGnjZEvbL0Zr5wUGPebmwPK6KWtTRsKTqvX6ztcGGvkZhpR-lyyVc6kO1N7dgQ/s1217/2011.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" data-original-height="950" data-original-width="1217" height="755" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhj9lqAfuN92K5kZXy3po17BMFXTw3EmZs46Ld4jZSHYhrJWG6yYI7LXttJnx6CXLH_tcWnXTJ75pHRVGnjZEvbL0Zr5wUGPebmwPK6KWtTRsKTqvX6ztcGGvkZhpR-lyyVc6kO1N7dgQ/w967-h755/2011.PNG" width="967" /></span></a></div><span style="font-size: large;"><br /><br /></span><p></p>
<p class="MsoNormal"><span style="font-size: large;">Today, <b>Gold moved parabolically higher to 2100 then suffered
a huge $250 slam down back to 1850</b>. We rallied up to 1960 and came down hard
again, hitting new lows.<span style="mso-spacerun: yes;"> </span>We shot up to
1960 again and <b>made a double top</b> in Dec and reversed down hard once more.<span style="mso-spacerun: yes;"> </span>After some consolidation at the lows in March,
<b>we ran up close to that double top once again moving very fast to get there.</b><span style="mso-spacerun: yes;"> </span><b>Miners had been underperforming</b> while
consolidating at record highs (which again, should have been great cash flow
for producers).<span style="mso-spacerun: yes;"> </span>This also was a clue as
the metal has now dropped down hard since then.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><br /></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgV4R6ZU3Wp5-UqOfx-Zh22v-gm09mA51EMyN_TPRg3LkkKMQ757bzbqm_PMhoKhiiexjNV2BACvCWFbGH0RtkUJDF-PMP2JoVWPIAyxztYOvsYtzmWg0K8O4t6etHBO9OhXODjrkcqVg/s1213/nowv2011.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="943" data-original-width="1213" height="778" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgV4R6ZU3Wp5-UqOfx-Zh22v-gm09mA51EMyN_TPRg3LkkKMQ757bzbqm_PMhoKhiiexjNV2BACvCWFbGH0RtkUJDF-PMP2JoVWPIAyxztYOvsYtzmWg0K8O4t6etHBO9OhXODjrkcqVg/w1002-h778/nowv2011.PNG" width="1002" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><p></p>
<p class="MsoNormal"><span style="font-size: large;">From a fundamental standpoint, in 2012, QE was alive and
well.<span style="mso-spacerun: yes;"> </span>The Fed’s balance sheet was
expanding, and rates would not rise for another 3 years.<span style="mso-spacerun: yes;"> </span>Deficits were still enormous, and nothing was
stopping the expanding debt, and nothing has since.<span style="mso-spacerun: yes;"> </span>Very similar to where we are now.<span style="mso-spacerun: yes;"> </span>The fears of hyperinflation never occurred,
the stock market kept chugging higher and the loss of confidence from the
financial crisis subsided.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Today, we are seeing inflation, much higher in CPI and PPI
then we did then, even though we all saw prices rise and products shrink in
that time frame.<span style="mso-spacerun: yes;"> </span>The question now is, do
we see inflation continue to increase?<span style="mso-spacerun: yes;">
</span>Will the fed lose control?<span style="mso-spacerun: yes;"> </span>Or is
it more logical that the next step is a paring off of inflation along with
commodities that have pulled back substantially.<span style="mso-spacerun: yes;"> When the inflation we've predicted is here now, and everyone is talking about it, what next? As someone said, maybe it's time to "zig while everyone else zags." </span><b>Do the deflationary forces in our economy overwhelm
inflation, as they did in 2012? </b>We can see no rise in the velocity of money despite
fed printing post financial crisis.<span style="mso-spacerun: yes;"> </span>The
money simply was not going out into the economy enough to cause runaway
inflation.<span style="mso-spacerun: yes;"> </span>We can see the same thing in
the velocity of money today.<span style="mso-spacerun: yes;"> </span><b>There is
one key difference, however.</b><span style="mso-spacerun: yes;"> </span>Every fed
chairman from Bernanke to Yellen and now Powell has said in almost every
congressional hearing, “We will continue to keep monetary policy accommodative
to reach our desired targets on our dual mandate of monitoring inflation and
unemployment…blah blah blah… <b>BUT WE WOULD LIKE TO SEE MORE FISCAL STIMULOUS
FROM CONGRESS</b>.”<span style="mso-spacerun: yes;"> </span>(Because pushing on a
string of bond buying and 0% rates won’t save the world on its own.)<span style="mso-spacerun: yes;"> </span><b>Today, we are getting a big amount of that
fiscal stimulus, and that is very different from before.</b><span style="mso-spacerun: yes;"> </span>$800b stimulus package and $3b in cash for clunkers is
NOTHING compared to the money we’re throwing around today, and that is VERY
significant. <span style="mso-spacerun: yes;"> </span>Additionally, with
economies “opening back up” and vaccinations happening, there is an argument
that can be made that the “loss of confidence” is subsiding. This loss of
confidence has been a never-ending underlying theme since 2008 from what I
believe, and is not “over”, but is not in “fever pitch” as much anymore and
that I think is something to note.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><br /></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbP4Y43xwDqPWwuxedH4we5meQKo-GMQgWfKt83SH9HFnYLZvt0OVD2zR-039EyHkeuVoEp1Xlsi_Bv1B9T39Y4bqHNlOEjeIWCsLnko3zqGx2JuPGtZd8sCDRjLQ1qa2eUBc-F4uNWw/s2412/velocity.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" data-original-height="942" data-original-width="2412" height="398" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbP4Y43xwDqPWwuxedH4we5meQKo-GMQgWfKt83SH9HFnYLZvt0OVD2zR-039EyHkeuVoEp1Xlsi_Bv1B9T39Y4bqHNlOEjeIWCsLnko3zqGx2JuPGtZd8sCDRjLQ1qa2eUBc-F4uNWw/w1019-h398/velocity.png" width="1019" /></span></a></div><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal"><span style="font-size: large;">There is another point I want to hit. Paul Tudor Jones was
on CNBC a few weeks ago proclaiming he was buying “Everything inflation”.<span style="mso-spacerun: yes;"> </span>Gold, commodities, and bitcoin.<span style="mso-spacerun: yes;"> </span>He really sold that narrative.<span style="mso-spacerun: yes;"> </span>This worries me because guys like him aren’t
freely giving retail investors their advice, <b>their talking their book</b>.<span style="mso-spacerun: yes;"> </span>In 2009, when gold was around 1000, Maria Bartiromo
was interviewing George Soros in Davos.<span style="mso-spacerun: yes;">
</span>It was after market hours, but he had said “I think gold is the biggest
bubble in history.”<span style="mso-spacerun: yes;"> </span>Gold slammed down
about $40 instantly.<span style="mso-spacerun: yes;"> </span>Fast forward 3
months later, <b>Soro’s fund filed their holdings and it showed a massive increase
in GLD and GDX holdings.</b><span style="mso-spacerun: yes;"> </span><b>He was creating
a selling event so he could buy into it.</b> He probably had traders working at
that moment, snatching up gold being sold in a panic.<span style="mso-spacerun: yes;"> </span><b>Similarly, if Paul Tudor Jones is telling you
to buy “everything inflation” what it means is he already did 6 months ago.<span style="mso-spacerun: yes;"> </span>Now he’s trying to sell and wants to drum up
some demand, so he doesn’t overwhelm the market while he dumps it all.</b><span style="mso-spacerun: yes;"> </span>Make note of these things and pay attention
when big names do this in the future. When you keep seeing fund managers in the
news and on CNBC talking about buying, it’s a bearish sign.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I said at the beginning of this article that there are 2
major things I’ve learned over the years. The first, in terms of gold is “watch
the miners.”<span style="mso-spacerun: yes;"> </span>Here’s the 2<sup>nd</sup>,
paraphrased from a line in the movie “The Departed”:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>“You don’t have to understand why, just listen to what the
market is telling you.”<span style="mso-spacerun: yes;"> </span></b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Some of the worst mistakes I’ve made I didn’t listen to what
the market was telling me and blindly followed my own analysis which ended up
being wrong.<span style="mso-spacerun: yes;"> Ignored the obvious, and was pompous enough to think I was smarter than the rest of the market, and the other fund managers making 10s of millions a year. </span>I’m reminded of a mining
stock I had bought 10 years ago.<span style="mso-spacerun: yes;"> </span>My
analysis said it was worth 3x what it was.<span style="mso-spacerun: yes;">
</span>As gold and silver rallied, it underperformed when my analysis said it
should be outperforming.<span style="mso-spacerun: yes;"> </span>About a year or
so later, and probably around a 30% loss, I finally threw in the towel.<span style="mso-spacerun: yes;"> </span>It wasn’t a huge investment so it didn’t devastate
me but had I have listened to what the market was telling me as it continuously
underperformed, I could have gotten out earlier with a smaller loss and been able to do something
more productive with that money.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>Wall Street is the most competitive industry on earth.<span style="mso-spacerun: yes;"> </span>You should assume you’re probably not the
smartest person in the room.</b><span style="mso-spacerun: yes;"> </span>I’ve made
this point regarding Barrick vs NEM.<span style="mso-spacerun: yes;">
</span>Sure, basic cash flow and earnings analysis might tell you at 2000 gold,
Barrick is a better buy.<span style="mso-spacerun: yes;"> </span>But guess what?
Everyone who took Finance 101 can do that same basic math, so it’s safe to say
that if the guys out there making 50 million a year are buying NEM instead,
while Barrick continues to languish, there is a reason why.<span style="mso-spacerun: yes;"> </span>You don’t have to fully understand why, you just
need to listen to what the market is saying. <span style="mso-spacerun: yes;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: large;">I’m still trying to understand what the market is “telling”
us here, and I don’t necessarily know for sure.<span style="mso-spacerun: yes;">
</span>What I do know is this was a BAD slam down, and we have not recovered
from it.<span style="mso-spacerun: yes;"> </span>Metals have been flat lined
ever since.<span style="mso-spacerun: yes;"> </span>I expect a bounce here, but
we haven’t gotten one yet, and it’s certainly not improbable for ugly to get
uglier and oversold to get more oversold.<span style="mso-spacerun: yes;">
</span><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">In short, I’m neutral on the metals right now.<span style="mso-spacerun: yes;"> </span>My targets for 50 silver, 2300 gold by
Aug/Sept will likely not occur in that time horizon.<span style="mso-spacerun: yes;"> </span><b>I am NOT Bearish, simply neutral in the shorter term.</b><span style="mso-spacerun: yes;"> </span>I do believe my targets will occur and the rises from miners that come with it, because I remain long term bullish for now, but based on price action and sentiment,
it is unlikely we turn on a dime and break higher, there will have to be some
grinding out and slow building first I believe. There remains the chance however, that the bull market in gold is done, and I think we need more time to look at this to determine if that is the case. We should be able to tell more based on the next rally higher. How high does it go, and how the miners act should give us some clues as to if this was just a sharp correction in a longer than expected consolidation, or if this might be the end of the road and worth derisking significantly more.</span></p>
<p class="MsoNormal"><span style="font-size: large;">Funny thing is, so many people gave me a lot of crap for
expecting ONLY 100-150% returns on silver miners if silver doubled.<span style="mso-spacerun: yes;"> </span>I cited their unexciting performance so far as the
reason, and that would need to change first before raising targets.<span style="mso-spacerun: yes;"> </span>In hindsight, I’m glad I was the guy calling
for 50 silver at 26, and watching it go to 29 and back again to 26 than the guy
calling for $1000/oz Silver any day now, and giving people massive false hope.<span style="mso-spacerun: yes;"> </span>I have said many times, <b>I’m not here to get
clicks and make money off subscriptions saying $20,000 gold and $1000 silver,
“Subscribe to find out why!” Nobody pays me anything for this, my views are my
own. I'm not paid to promote any individual stocks, I have no sponsors for my website. I share this to all of you for free and ask nothing.<span style="mso-spacerun: yes;"> </span>I make money by being right, plain and
simple.</b><span style="mso-spacerun: yes;"> </span>Those people are mostly scam
artists.<span style="mso-spacerun: yes;"> </span>My targets I believe to be
realistic, and I’d rather undershoot than say ridiculous numbers only to be
made a fool of.<span style="mso-spacerun: yes;"> </span>I come from 4
generations of gold bugs and investors in gold bull markets from the 70s to
today.<span style="mso-spacerun: yes;"> </span>It’s what I know, it’s in my
blood.<span style="mso-spacerun: yes;"> But I am NOT a PermaBull or Bear on anything. Those people typically don't survive long term. I</span>f the situation changes,
you must change or you drown, plain and simple.<span style="mso-spacerun: yes;">
</span><b>Rule number 1 of making money in the market is “don’t lose money.”<span style="mso-spacerun: yes;"> </span>Sometimes its fine to not MAKE money, but if
you lose it, you’re out of the game.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I can’t tell anyone what they should do, (legally, but also
everyone has individual unique situations and risk profiles.<span style="mso-spacerun: yes;"> </span>There is no 1 size, fits all.)<span style="mso-spacerun: yes;"> </span>But I can say this.<span style="mso-spacerun: yes;"> </span>I see 3 types of investors that are my peers
and friends when I talk to them and it usually goes something like this:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Type 1: “I’m 35 years old, I’ve worked hard all my life,
I’ve managed to save $50,000 and I don’t want to lose it.<span style="mso-spacerun: yes;"> </span>I know it’s not much, but I don’t want to
take too much risk.<span style="mso-spacerun: yes;"> </span>If there is a chance
of a downturn, I want to pull out and save my capital.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Type 2: “I’m 35 years old, I’ve worked hard all my life,
I’ve managed to save $50,000 and I don’t want to lose it.<span style="mso-spacerun: yes;"> </span>I know markets fluctuate, I’m not afraid of short-term
slam downs, but I don’t want to be in a position where I have no cash to take
advantage of it. So, if there is a chance of a downturn I'd like to raise a
small cash position so that I have the opportunity to buy.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Type 3: “I'm 35 years old I've worked hard all my life, I've
managed to save $50,000. I've done the math and I figured out that if I
continue to save money at the rate that I've been doing and I invested in the
S&P 500 at an average return of 8% a year, by the time I retire I will not
have enough money to live off of or provide for my family.<span style="mso-spacerun: yes;"> </span>If I need $1,000,000 to retire, and investing
conservatively will get me $600,000, then I won't have enough money.<span style="mso-spacerun: yes;"> </span>So, it doesn't make a difference weather I
have 600,000 or 300,000 it still won't be enough money. So my only option is to
take on a much more risk now, buy buying calls or meme stocks to try and make a
huge return now so that I could compound that in the future and be able to have
the retirement that I want and provide for my family. If I lose it all, it won't make much of a difference in the longer term, I still will fall short of where I need to be for a decent retirement, but it's my only shot of building something and getting ahead.”<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Many people want to be type 3.<span style="mso-spacerun: yes;"> The renegade who does the impossible and triples their money in a few months. </span>But the reality of the situation is most
people aren't cut out for it.<span style="mso-spacerun: yes;"> </span>A few
months ago, GV told his “origin” story on twitter.<span style="mso-spacerun: yes;"> </span>It went something like this… he started out
with $50,000 and bought call options on SLV and AGQ in 2010.<span style="mso-spacerun: yes;"> </span>He managed to turn it into around $20 million.<span style="mso-spacerun: yes;"> </span>He is a true hero. </span></p><p class="MsoNormal"><span style="font-size: large;">But that is not most
people. Let’s be clear about this, this is a story of point A and point Z, and
the entire alphabet in-between was left out.<span style="mso-spacerun: yes;">
</span><span style="mso-spacerun: yes;"> </span>At some point in time, that
$50,000 doubled.<span style="mso-spacerun: yes;"> </span>At that point most
people would probably cash out thinking they've doubled their money and would
walk away happy. At the very least, they take out their buy costs, and run the
rest on the house’s money.<span style="mso-spacerun: yes;"> </span>Somewhere in
the middle, his 50k, turned into 2 million.<span style="mso-spacerun: yes;">
</span>And I’m sure he’d be the first to tell you, that shortly after, within a
few days or weeks, he watched it get cut in half.<span style="mso-spacerun: yes;"> </span>Imagine taking 50k, holding on until 2
million, then losing a million dollars in a few days.<span style="mso-spacerun: yes;"> </span>Any logical human would likely think, “This
is more money than I’ve ever seen.<span style="mso-spacerun: yes;"> </span>Sure,
I just lost 1 million, but I can still walk away with 1 million now if I sell everything,
and that is life changing.”<span style="mso-spacerun: yes;"> </span>Somewhere
between 50k and that point, 99.9% of people would have walked away, and been
happy about it.<span style="mso-spacerun: yes;"> </span>This is why he’s an
absolute hero, because he held on and did the impossible.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">But that is not most people, and it is likely not you or me.<span style="mso-spacerun: yes;"> </span>The fact of the matter is most people who “bet
the farm and leverage to the hilt” will blow up entirely.<span style="mso-spacerun: yes;"> </span>The few that make money will take a decent
return and walk away.<span style="mso-spacerun: yes;"> </span>The average person
will try something like that, quickly lose half of their portfolio, panic, then
sell everything and walk away.<span style="mso-spacerun: yes;"> </span>This is
why I’ve said, you need to look at yourself honestly, and see who you are and
what your risk tolerance is.<span style="mso-spacerun: yes;"> </span>If you’re the type
that buys the extra car insurance when you rent a car on vacation, you probably
shouldn’t be “all in” on illiquid JR miners and call options.<span style="mso-spacerun: yes;"> </span>I<b> don’t know what it takes for you, you’ll
need to figure that out yourself, but if these sell offs are making you lose
sleep, if they're making you panic on how you're going to pay for things in the
future, then you need to take money out of the market.</b> Maybe you need to
diversify and have 40% SPY, with some royalty companies and some junior minors
while holding a 10% cash position at all times. Maybe a balance between
producers, junior miners and royalty with a 20% cash position is what makes
you comfortable.<span style="mso-spacerun: yes;"> </span>I can't tell you what
the answer is, you need to figure that out for yourself.<span style="mso-spacerun: yes;"> </span>I’ve said this before, I’d rather see you
make 500% on half your money in the long term, and be able to stick with it,
then go all in, panic and sell at a 30% loss.<span style="mso-spacerun: yes;">
</span>Find the balance that works for you. <b>The goal is to make it to payday. Sure, the payday would be better with leverage, but if you can't hold on, it's pointless. </b> <b>Theoretically, you can drive to your destination in half the time going 150 in a Ferrari as well, but if you can't handle that speed, and it will cause you to crash, then who cares?</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I will tell you what I am doing. The day before the FOMC meeting
I got an uneasy feeling. Being that I was going to be leaving for vacation the
next day during the announcement, I didn’t want to worry about it too much, so I
sold 85% of my leveraged portfolio of call options I had been buying from
March-April.<span style="mso-spacerun: yes;"> </span>Cashed out with a small
profit, about 15% or so.<span style="mso-spacerun: yes;"> </span>The remaining
15% of that portfolio has gotten decimated since then, and the losses on that
have probably entirely wiped out the 15% gains on the 85% that I booked.<span style="mso-spacerun: yes;"> </span>Total wash for 4 months of planning and
effort.<span style="mso-spacerun: yes;"> </span>Lesson learned.<span style="mso-spacerun: yes;"> </span>I bought them at lows expecting a breakout
was imminent and it did not occur.<span style="mso-spacerun: yes;"> </span>I
probably gave up half of my profits by not cashing out about 3 weeks earlier. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I’m expecting a bounce soon, but so far, we’ve been
flatlined on metals with zero buying interest.<span style="mso-spacerun: yes;">
</span>A logical target would be around 1800 at first, then possibly up to 1840-1850 area, and around 27ish on
Silver. From there I would be looking to lighten my positions in major
producers slightly, which I view as “directional trades”.<span style="mso-spacerun: yes;"> </span>(Around a 10% cash position) Some stocks have
individual good stories.<span style="mso-spacerun: yes;"> </span>EXK and HL have
done great, but FSM and PAAS have been terrible.<span style="mso-spacerun: yes;"> </span>As a whole, the SILJ has been flat.<span style="mso-spacerun: yes;"> </span>In essence, buying these producers is a bet
on the direction of silver and gold, so as metals have failed to breakout over
the last 10 months or so, they have not really gone anywhere. </span></p><p class="MsoNormal"><span style="font-size: large;">Conventional
wisdom would say, in a correction in the metals you would want to hold onto
multi-billion-dollar companies with cash flow and dividends.<span style="mso-spacerun: yes;"> </span>But the fact is, GVs sitfolio stocks and Gold
Fever Jrs have killed it versus majors during this correction.<span style="mso-spacerun: yes;"> </span>The SILJ has been flat for the last 10 months.<span style="mso-spacerun: yes;"> </span>The GDX is down 25% since Aug.<span style="mso-spacerun: yes;"> </span>An equal weight in the top 10 Sitfolio stocks
has netted you 100% gain in the same time frame.<span style="mso-spacerun: yes;"> </span>These companies are in a position to produce
value through drilling and development of their properties, and I believe they
will continue to do well, so long as metals prices remain “economical.”<span style="mso-spacerun: yes;"> </span>By that I mean, when most silver majors are
producing for a cost of 14-15/oz, anything over 20 in silver is very economical
and attractive as takeovers for the majors. I will be looking to use my cash to
add to these if given the opportunity, as well as using it for other opportunities
I may see that are outside of the metals and miners.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">At the end of the day, metals need more time, so I am going
to position myself in a way where I can be occupied by doing something else in
order to give them the time they need and alleviate the boredom.<span style="mso-spacerun: yes;"> </span>Figure out what type of investor you are and
what you need to make you sleep at night and weather the storms in metals and
miners.<span style="mso-spacerun: yes;"> The goal is to make it to payday. Do whatever you need to do to ensure you can hold on long term. </span>It seems the market for now is
determined to grind us down with time more so than price, and that can be more
difficult sometimes to deal with mentally.<span style="mso-spacerun: yes;">
</span>Don’t use margin, don’t invest money you will need to spend anytime
soon.<span style="mso-spacerun: yes;"> </span>Stick with the leaders, you don’t
need to understand fully why they are outperforming, just listen to what the
market is telling you, and humble yourself.<span style="mso-spacerun: yes;"> You are not the smartest person in the room. The market will show you if your analysis is correct or if you're missing something. </span>Watch the miners,
and they’ll clue us in to the next moves in metals.<o:p></o:p></span></p>
<p class="MsoNormal"><o:p><span style="font-size: large;"> -Jonathan Mergott</span></o:p></p>
<p class="MsoNormal"><o:p><span style="font-size: large;"> </span></o:p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com4tag:blogger.com,1999:blog-1868364813347908197.post-63142382229505483492021-05-18T12:35:00.000-04:002021-05-18T12:35:07.397-04:00Don't panic to book profits just because you have some.<p>It’s been two and a half months since I called for a low in gold
on March 3<sup>rd</sup> at about 1705. We dropped about 1.8% lower to 1673, but
<b>that day was the exact low in the GDX</b>. Now,
gold and silver are finally breaking higher. Gold is up $200 from that low, miners are screaming, with the GDX up 30% from that bottom call, and gold bugs
are happy for the first time in months. Are we a bit over extended? Is enthusiasm
too high? Could we pull back a bit? Absolutely! A few thoughts though before you
rush to take profits now that you have some…</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Jesse Livermore is widely regarded as the best trader and investor
of all time.<span style="mso-spacerun: yes;"> </span>He was also a business partner
with Bert Seligman, Jim Sinclair’s father.<span style="mso-spacerun: yes;">
</span>(I’ve mentioned this before, so as many of you may know I worked for Jim
Sinclair for half a decade starting in 2011 as an investor relations consultant,
advising him and management of what shareholders want to see, so I’ve been privy
to some stories about Livermore’s life and their experience with him, as well as
some of Jim’s own, often wild tales, straight from the horse’s mouth.) <o:p></o:p></p>
<p class="MsoNormal">Livermore famously said, “Be right and sit tight”. But to expand
on that, he also said “<b>Do more of what’s working, less of what isn’t”</b> sounds kind
of obvious, right? But you’d be surprised how many people do the opposite, so let’s
break that down. It goes hand in hand with an old trading adage, “kill your losers
fast and let your winners run”.<span style="mso-spacerun: yes;"> </span>There’s only
4 possible outcomes of a trade or investment: you make a small profit, you make
a small loss, you make a big profit, you make a big loss. <span style="mso-spacerun: yes;"> </span>Theoretically, if you dump your underperformers
before they get a chance to be big losers, then the only outcomes you're left
with are a small profit, a small loss and a big profit.<span style="mso-spacerun: yes;"> </span>From an accounting perspective, the small
profits and the small losses all even out in the wash and at the end of the day
all you’re left booking is the big profits. <o:p></o:p></p>
<p class="MsoNormal">“Do more of what’s working, and less of what isn’t.” <span style="mso-spacerun: yes;"> </span><b>In other words, if your positions are making you
money, your analysis was correct.<span style="mso-spacerun: yes;"> </span>It makes
no sense to exit positions that are confirming your thesis.</b><o:p></o:p></p>
<p class="MsoNormal">Another word of caution.<span style="mso-spacerun: yes;">
</span><b>Do not put too much faith in correlations.</b><span style="mso-spacerun: yes;"> </span>If you’re worried about a dollar rally, don’t
be. <span style="mso-spacerun: yes;"> </span>It usually means nothing when gold is
in bull mode like it is now. <span style="mso-spacerun: yes;"> </span>If the dollar
is going higher, <b>it’s just a loss of confidence in another fiat currency in the
race to 0 for all of them</b>. Two months ago there was an article that perfectly marked
the gold bottom, called “Gold has failed.” In reality, bonds have failed. There
are 2 safe havens left, and that is cash and gold. I absolutely can see a situation
where both rally strongly together.<span style="mso-spacerun: yes;"> </span>As I’ve
pointed out before, in 2010 the dollar rallied 20% from around 73 to 89. Gold dipped
initially, but by the time DXY was 89, 9 months later, gold was actually UP, from
1220 to 1250.<o:p></o:p></p>
<p class="MsoNormal">The caution carries over to underlying assets.<span style="mso-spacerun: yes;"> </span>If you think a $50 pullback in gold is possible,
amounting to around a 3% correction, TYPICALLY, you would expect about a 6% correction
in the GDX. <b>There is no guarantee that will be the case however.</b><span style="mso-spacerun: yes;"> </span>Miners are waking up and dips are being bought.
A short-term pullback in the metal means nothing in the grand scheme of their quarterly
profits when the trend is clearly higher. <b>A 3% pullback in gold could be a 1.5%
pullback in the positions you sold.<span style="mso-spacerun: yes;"> </span>While
you’re waiting for the next 5% down on the miners you sold, they go 5% up and you
panic and buy them back for more.</b><span style="mso-spacerun: yes;"> </span>Now you
have less shares than before and you’re eroding your wealth.<o:p></o:p></p>
<p class="MsoNormal">Another point, and a lesson from my own mistakes with silver
during the 2011 moonshot.<span style="mso-spacerun: yes;"> </span>Somewhere around
25-30/oz, we were quite overbought and extended, more than we have been in a very
long time.<span style="mso-spacerun: yes;"> </span>I expected a pullback, likely
to retest the 21 area high from before the 2008 liquidity panic/margin call crash
that sent everything down.<o:p></o:p></p>
<p class="MsoNormal"><b>It never happened.</b><o:p></o:p></p>
<p class="MsoNormal">I took some profits on some silver miners that went up significantly,
very quickly, expecting to buy them back during a good pullback that never came.<span style="mso-spacerun: yes;"> </span>I had cash on the table that I wanted in silver
miners, but I was short sighted and tried to micromanage a massive parabolic move
higher. I can be a bit of a perfectionist at times and I had screwed up my plan,
and it infuriated me that I was so stupid and short sighted.<o:p></o:p></p>
<p class="MsoNormal">Don’t cry for me, I did just fine.<span style="mso-spacerun: yes;"> </span>But I could have done much better. <b>Silver’s nature
is to scream when it starts moving.<span style="mso-spacerun: yes;"> </span>It won’t
make sense, the typical expected pullbacks never come.</b><span style="mso-spacerun: yes;"> </span>It’s a momentum chaser’s dream.<span style="mso-spacerun: yes;"> </span>Consider the advancement of algo trading systems
today vs 10 yrs ago and how quickly they operate, as well as the percentage of the
market they make up. It could be much more violent and much faster. I’ve said repeatedly
to expect volatility to increase as time goes on and that’s exactly what’s happened
and it will continue.<o:p></o:p></p>
<p class="MsoNormal">One final point.<span style="mso-spacerun: yes;"> </span>Gold
Ventures, or GV as we all know him, nailed this perfectly in his thesis when he
developed his positions a long time ago.<span style="mso-spacerun: yes;">
</span><b>It’s the SIT-folio</b>.<o:p></o:p></p>
<p class="MsoNormal"><b>So SIT</b>.<o:p></o:p></p>
<p class="MsoNormal">You MIGHT get a chance to make some adjustments on a pullback
if you’re lucky, but don’t count on it.<o:p></o:p></p>
<p class="MsoNormal">Don’t make the mistake of trying to micromanage this.<span style="mso-spacerun: yes;"> </span>If you’re exclusively a trader, it’s fine take
logical profits. If things move higher, it doesn’t matter you’re on to the next
thing.<span style="mso-spacerun: yes;"> </span>Your goal is income. </p><p class="MsoNormal"><b>That’s not what
I’m doing</b>, and it’s not what I think anyone should do in this PM bull market. This
isn’t a trade. I’m buying incredibly undervalued assets with extreme leverage to
a massive bull market in precious metals. <b>I expect to make multiple times my money
when this is all said and done</b>, and set my foundation up in a place where it can
sustainably continue to donate to charities worldwide for centuries to come. <b>In terms of that great big picture of hundreds of percent returns, a 3% pullback in
gold is absolutely meaningless.</b><o:p></o:p></p>
<p class="MsoNormal">The safety bar has come down and is locked in place and the
roller coaster is moving.<span style="mso-spacerun: yes;"> </span>You’re in it
now, so get ready for some lightning. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">-Jonathan Mergott<o:p></o:p></p>
<!--EndFragment-->Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-90937485097722505082021-04-18T11:29:00.002-04:002021-04-18T12:01:29.897-04:00Regarding my Gold & Silver Price Targets<p><br /></p><p class="MsoNormal"><span style="font-size: large;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I’ve been getting a lot of flack the last few days regarding
my gold and silver price targets, but especially my targets on the miners, so I
wanted to take a min and explain why. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>Sentiment in Gold and Silver is terrible right now.</b> Price action in gold reminds me of lows we
saw in 2016 and 2018. Sentiment and
bearish talk like “Gold has failed” articles that have floated around recently remind
me of 2006 and 2008, where we saw similar articles talking about "gold is on its way out as an investment asset". Gold had broken
higher in 2006, highest level in decades.
There was no financial crisis… yet.
Nobody knew why it was going higher.
<b>Bob Pisani, in all his wisdom and certainty, proudly proclaimed, “Believe
me folks, gold is going nowhere” </b>(after almost tripling from its low a few years
earlier and would go on to nearly triple again a few years after. So far, we have doubled from the 2015 lows amist similar sentiment). <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">No one saw the housing market bubble around the corner, the
same as they never saw the tech bubble a decade earlier. By 2008, it became apparent there was a
problem, and gold broke to new highs at 1000/oz. The market crashed, and margin calls took
everything down with it, including gold which dropped 30% from 1000 back to 700,
near the highs in 2006. <b>As the world as
we knew it was literally melting down, Maria Bartiromo said on CNBC, “Why is
gold going higher, jewelry sales are plummeting?” </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>80 years after the Great Depression and 30 years after the Great
Inflation and gold buying frenzy of the 1970s, we had a generation of people
who had no idea what gold’s purpose was.</b>
Interestingly, investors still did, which is why it rose rapidly as panic
ensued. We find ourselves in a similar
situation today. The world began to melt
down due to Covid and gold broke to new highs in Aug 2020 on the back of stimulus,
0% interest rates, fed balance sheet expansion, and general fear. It has since had a long correction, which has
frustrated gold bulls as bullish news throughout this correction about
inflation expectations, deficits, stimulus, and continued Fed balance sheet
expansion have had zero effect on price.
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">This is again, similar to 2008-2009. Bailout packages, TARP, Cash for clunkers, trillion-dollar
deficits, and Fed balance sheet expansion all had zero effect on gold as it
struggled to climb back to 1000/oz.
Since March of 2020, the market has rebounded from a 30% loss in 4
weeks, to incredible new all-time highs.
This has only solidified the idea that all you need to do is buy the
dips in stocks and you will be fine.
Gold serves no purpose. In the early
2000s, my father was a broker advising his clients to begin buying gold miners,
much to his boss’s dismay, who said to him, “Who needs gold when you can just
buy puts on the S&P?” <b>The simple fact of the matter is, Gold moves when it wants to. </b>All the news you are seeing now that is frustrating people expecting gold to move higher on it, was already factored in. If you are an investor in gold, are you surprised by inflation expectations? Are you surprised that Powell is going to leave rates at 0 for the rest of the year no matter what? Are you shocked at deficit levels or additional stimulus from the government? <b> Was ANYONE actually surprised that the Fed said they will likely never sell off their nearly $8 trillion balance sheet? Neither was the gold market. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I realize I am deviating from the point of my targets on
gold and miners, but I’m trying to set the background for what we are dealing
with: A world where nobody cares about gold or mining companies despite making
greater profits now at today’s prices than ever before in history. We have seen this before prior to, and even
during the financial crisis, and we are seeing it again today. The PE ratio for NEM and ABX are 19 right
now. The PE on KGC, AU, and GFI are 9. <b>If I said there is an S&P 500 company in
an industry that’s currently in a bull market, selling for a 19 PE ratio, with
a 3.5% dividend, you would expect some interest from investors. Tell them that company is Newmont mining, and
they go back to looking at TSLA and Bitcoin.</b>
Value investors do not care about gold miners, and momentum investors do
not care that, or believe that we are in a bull market. You would expect in a bull market a typical
expansion of multiples, as investors begin a buying frenzy and get more and
more greedy. We are not seeing that. While I believe it will occur in the future,
we have to analyze things as they are today with those future expectations in
mind.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">Many have questioned, if I expect gold to increase to highs
roughly 10% higher than Aug, and silver to double from here, why my targets on
many gold miners are only back to Aug highs or slightly higher, and my targets
on silver miners are up 100-150% from here.
It is simply that <b>we do not see the bull market greed and enthusiasm to
buy that many are expecting... YET.</b> If this
begins to change, so will my expectations and my targets will be adjusted
accordingly. I expect it to change at some point, and I believe there is a good chance this next bull run will be
that very catalyst. If so, we will begin to see miner’s prices begin to run
ahead of their fundamental metrics as metals prices move higher. In that situation, we can begin to look at my
higher price targets for some miners which could be much higher, but this
analysis will have to be done “on the fly” as and if we see it occur.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>I believe my targets are conservative and realistic given
this environment. </b>I am confident most
will be achieved, even if my timing expectations are a little bit off. It is easy to call for higher prices and even
give a target of a specific price. Adding in a timing target for these prices compounds
the difficulty of your analysis exponentially.
Give a price target, and on a long enough timeline, you may be right,
but that doesn’t make it a great investment opportunity. In 1999, when the Dow was 10,000 there was a
book written calling for the Dow to go to 36,000, right before it fell to 7,200. In a few more months, the writer of the book will
be able to proudly proclaim, “See, I was right!”, 22 years later. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">I just want to make a note here. I have no subscribers on my website, all my
content is free to all. I write what I believe,
and I write when I feel it is relevant to do so. I am not beholden to newsletter subscribers
to post content weekly simply because they have paid me to do so, even if I don’t
believe there is anything for me to say to give value to them. There are no advertisers sponsoring my
website. I am not being paid by any
company to sponsor content and promote their stock. I am not out here saying “Gold
is going to 50k/oz tomorrow!” for clicks or to excite people so you will
subscribe to something and pay me to tell you why. I spent my 12 year career as a gold and
silver equity analyst and portfolio manager for a private equity firm. I also spent about 5 years during that time as
an investor relations consultant for gold and silver companies, where I worked
closely with Jim Sinclair for years.
Today, I manage a half a century old 501c3 nonprofit investment fund
that donates its proceeds after expenses to various charities, mostly focused
on helping sick children. Additionally,
I manage my own investments and advise and manage the investment accounts for
some friends and family. <b> I make money one
way, by being right on my analysis and investment choices. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;">So, this is the reason for my targets, because they are realistic
and attainable. <b>I am not trying to sell
the illusion of grand riches to people claiming 10 bagger returns in 6 months. I want people to be able to make some money.</b> On a portfolio of gold and silver miners, I
fully believe you can double your money.
I think by most metrics, that’s a fantastic expectation and an amazing
return in the time period I expect. There
are 10 baggers out there, and I believe we can see that when sentiment changes. Investors will enter a buying frenzy and major
producers will frantically begin buying junior companies to replace quickly
diminishing reserves. As I mentioned, I
fully expect and believe these targets can be reached and ideally begin to be raised
on this next move higher, but for now here is where we start because everybody HATES
gold.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><b>This is the BEGINNING of the bull market. </b> We haven’t even begun to see what’s coming,
in terms of inflation, government spending, deficits and debt, and gold and
silver prices. Nobody knows why anyone would want gold and silver, after all,
the stock market is soaring and so is Bitcoin.<b>
They will find out, the same as they did from 2009-2011, and from
1978-1980. Old money will panic into gold, as they always do. Momentum chasers will buy <span style="font-family: inherit;">into the frenzy at the exact top. We will be there to sell it to them. Hold on and be patient.</span></b><span style="font-family: inherit;"><o:p></o:p></span></span></p>
<span style="line-height: 107%;"><span style="font-family: inherit; font-size: large;">-Jonathan Mergott</span></span>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-68263045377000500742021-03-04T14:13:00.004-05:002021-03-04T14:13:59.859-05:00Analyze your personal risk and act accordingly<p><span style="font-size: large;">I wanted to quickly write something for anyone concerned with recent market action. I have been saying for a couple of months that I was concerned with incredibly high sentiment in the stock market as well as the ridiculous volatility and YOLO trading in things like GME, TSLA and Bitcoin. <b>The world is leveraged to the hilt</b>, which is why we have seen correlations of market dumps that have coincided with a ridiculous rise in one little stock, GME. You would think the idea of 1 company taking the market down is ridiculous, but we've seen it happen, that is how leveraged it is out there.</span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1Jow7DVJqJbwis-kosycu_sT9TaJ_XQB12yORJefruezhSRywATD5Npxx9OfrJReFM5lRWl8mvXBSE6tACh2jbRvg3Cu9M3WWSJv1TSe3baqOSsC2F_aaIvwoFyZx-gotKn2Bw7Tp1Q/s1198/comp.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: large;"><img border="0" data-original-height="949" data-original-width="1198" height="760" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1Jow7DVJqJbwis-kosycu_sT9TaJ_XQB12yORJefruezhSRywATD5Npxx9OfrJReFM5lRWl8mvXBSE6tACh2jbRvg3Cu9M3WWSJv1TSe3baqOSsC2F_aaIvwoFyZx-gotKn2Bw7Tp1Q/w960-h760/comp.PNG" width="960" /></span></a></div><p><span style="font-size: large;">Many have stated that if there is crash in stocks, that PM will likely NOT be affected, and instead see money flow into gold, silver and miners. <b>For the record, I do NOT agree with this in the short term.</b> When investment funds get squeezed, <b>they'll dump anything to get liquidity.</b> Consider how concentrated the money on Wall Street is these days. This is not like the 1980s where there were actual "retail traders". <b>Most money on Wall Street are in funds of some kind managed by a few hundred institutions that comprise 90% of all the money traded in any given market.</b> In the longer term, I agree that as people continue to lose confidence in "the system" and markets, money flows will increase into Gold, Silver and miners.</span></p><p></p><p><span style="font-size: large;">Consider your own emotions and risk tolerance. In the shorter term, if there is no risk to Gold in a market drop, you are fine. <b>But if I am right, a March 2020 like plunge could send your portfolio down significantly. </b> If you can stomach this, fine. <b>If it will make you lose sleep at night and run the risk of panicking and selling at lows when you look at your loses, you should keep some cash on the side. </b> Think of the cash like an anxiety pill incase of an extreme panic attack. Just having a small cash position will do wonders for your mental health and give you the opportunity to buy at very low levels if we see them.</span></p><p><span style="font-size: large;"><b>Please understand, I am not saying to dump gold and silver or miners. I am also not saying you should cash out your 401k's or sell index fund and stock positions you are holding for the long term for your retirement.</b> I am simply saying to analyze your own mentality and emotions. I used this analogy before, but if you are the type that usually buys the extra insurance on a rental car, maybe your risk tolerance is not suited for "All in" on a portfolio of call options.</span></p><p><span style="font-size: large;"><b>The goal here is simple: Make it to pay day. </b>Do what you need to do for your mental health to get there. I'd rather see people hold 10% cash (or more if that's how you feel) and make 5x your money on 90% of your gold and silver portfolio, then panic at the lows and dump everything and miss out altogether.</span></p><p><span style="font-size: large;">Here is what you should <b>NOT </b>do:</span></p><p><span style="font-size: large;">1. <b>Do not own leveraged ETFs</b>. The perceived leverage is not worth it. I've seen them blow up and go to 0. I've also seen them stop functioning properly, so a massive loss on a panic will never return to where it was no matter how much things go back up.</span></p><p><span style="font-size: large;">2. <b>Do not use margin.</b> Sure you can use it responsibly and professionally, but most do not. A March like panic, where gold miners dropped 50% in a few weeks could see you have to force sell positions at lows. Also the leverage there in a crash is not doing your emotions any favors. It is not worth it. (Very small amounts can be beneficial to use DURING a crash, but you can't do that if you're already leveraged.)</span></p><p><span style="font-size: large;">3. <b>Don't buy out of the money short term calls.</b> If you prefer to have a portfolio of leaps because you can save capital and get better leverage to the stocks, that is your prerogative, just prepare for a hell of a draw down if things tank. Again, your own emotions are your worst enemy so I don't think it's worth it, with the exception of using a small amount for extra leverage to your existing portfolio of stocks.</span></p><p><span style="font-size: large;">The bond market is in serious trouble here, and whether the FED steps in or not, in the long run I see a loss of confidence here and I see <b>only one other asset that is a safe haven</b>, that typically has a <b>negative beta to stocks</b>, and that gives you a <b>better yield than negative yielding bonds</b> for investors to go into with their money as they sell treasuries and that is <b>GOLD.</b></span></p><p><span style="font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhy_iPMcH9q1d0yOY8Z-YoDvX33Fa1dxXhsyZG-FOdFW0Nh8rtLFOEB-qpsGXw8WGuEAFf2vwEpHWt-r50-BP9MYwU4YM6TttXP0l0tQDftzdQBnp7UwACVbJjuxh27YmmWWxL_ay4RXw/s1171/zb+weekly.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="943" data-original-width="1171" height="793" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhy_iPMcH9q1d0yOY8Z-YoDvX33Fa1dxXhsyZG-FOdFW0Nh8rtLFOEB-qpsGXw8WGuEAFf2vwEpHWt-r50-BP9MYwU4YM6TttXP0l0tQDftzdQBnp7UwACVbJjuxh27YmmWWxL_ay4RXw/w985-h793/zb+weekly.PNG" width="985" /></a></div><br /><div style="text-align: center;"><br /></div><span style="font-size: large;">In the short term, markets are freaking out right now over rates and it could get ugly. It is better to have a life jacket and not need it, then to just HOPE your boat won't sink.</span><p></p><p><span style="font-size: large;">On Tuesday, I said "I think were at a low in gold" We've lost only $10 from that point so far, but all bets are off if margin calls start and there is a race to raise liquidity. Keep in mind,<b> gold went from 1700, to 1450, back to 1700 in only 12 days.</b> All you had to do was not watch for 2 weeks and you were right back like nothing ever happened. But <b>in that 12 days you could have blown up your portfolio if you were over margined or using leveraged ETFs</b>. Both DUST and NUGT and the GDXJ counterparts JNUG and JDST stopped functioning correctly and got "reformulated" to 2x ETFs after the crash. <b>JNUG went from an adjusted high before the crash of 1000 then dropped to 33</b>. At the Aug highs, the GDXJ was 50% higher than before the March crash, JNUG climbed back to 200. <b>Still an 80% loss from before the crash. </b>It is now 78, a 92% loss in 1 year, during a bull market in Gold.</span></p><p><span style="font-size: large;"><b>I can't say this enough, THE GOAL IS MAKE IT TO PAY DAY! </b>Do whatever you have to do for your own emotions to get there.</span></p><p><span style="font-size: large;"><br /></span></p><p><span style="font-size: large;">-Jonathan Mergott</span></p><p><span style="font-size: large;"><br /></span></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com2tag:blogger.com,1999:blog-1868364813347908197.post-85589389765396675802021-02-04T18:27:00.012-05:002021-02-04T18:46:13.595-05:00Gold And Silver Update<p style="text-align: justify;"><span style="font-size: large;">I'm gonna try to do this quickly and just make notes on a bunch of charts regarding where things stand.</span></p><p style="text-align: justify;"><span style="font-size: large;">First, silver. I posted this on Twitter earlier and said, all the smash after #silversqueeze has done is make a bigger cup and handle. As GV pointed out, its a cup and handle in another cup and handle. Price is currently just above 26, which is half way between the low at 22 and the highs at 30. Nothing to see here. Still looks great. In the event of a selloff from here, I would say the most we will likely see down is to around 24. </span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZLhJk0lJae0X5Y6bGTXLQDTqZToM_HYhze2OHDjwuN8GQDN9hk9ddF3RBx94N-8ammHa0Xa1qphGIuvITciozmZ0TWGmNVWsKMinFvns3qgV8BIAHps6uO2xDjNO5ca9xO_B2hDPesg/s1183/si.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="965" data-original-width="1183" height="820" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZLhJk0lJae0X5Y6bGTXLQDTqZToM_HYhze2OHDjwuN8GQDN9hk9ddF3RBx94N-8ammHa0Xa1qphGIuvITciozmZ0TWGmNVWsKMinFvns3qgV8BIAHps6uO2xDjNO5ca9xO_B2hDPesg/w1007-h820/si.png" width="1007" /></a></div><p style="text-align: justify;"><span style="font-size: large;">If silver was a standalone asset, that'd be it. But we have to look at Gold as well. As I had mentioned in my article last week, I wanted to see gold start moving with silver, pushing above the 1900 level. Additionally I was concerned about the fact that the GDX has barely budged while we were seeing strong moves in silver, and absolutely insane moves in silver miners. GDX was just dragging along very close to it's lows. That kind of divergence between gold and silver miners I have never seen before on this kind of scale, but in the past, on less extreme scales, it has usually meant a fake out.</span></p><p style="text-align: justify;"><span style="font-size: large;">Sure enough, we came right back down. And as silver started lower, gold joined in. This is why I put a little more weight into Gold when analyzing both of their moves. Gold has a tendency to be more precise in timing and price than silver. For instance we can see, silver bottomed in Sept. Gold bottomed Nov 30 and Silver double bottomed, but actually hit 15c lower in Sept than in Nov. Silver also has a tendency to push above or below support, resistance and Fib retracements, making the chart a little more messy than gold, which usually respects those levels a bit more.</span></p><p style="text-align: justify;"><span style="font-size: large;">Looking to the gold chart, we are now inches from a double bottom at that 1760 area. This was a downside level I had warned was a risk <a href="https://www.youtube.com/watch?v=f630drb7d5U&t=236s" target="_blank">in an interview I did with Palisades Gold Radio 2 weeks ago</a>. (For anyone panicking about their portfolios right now, I suggest listening to it as there is some helpful stuff on how to make it through these corrections until pay day.) For now it looks like a double bottom, but keep a few things in mind. I have seen COUNTLESS plunge/reversals. Stop hunts. Gold gets down to 1760, pushes just below to 1757. A wave of stop loss orders are triggered sending it down another 2-3%. Then, by the end of the day, or within 2 to 3 days, it reverses and comes right back. If a quick 2-3% below 1760 were to occur, we would be sitting around 1710, within inches of the next major support level at and 61% Fib at 1700. This level was also the "Covid Plunge Resistance" point. We hit 1700 before the March crash, struggled, crashed to 1450, then came back and struggled again at 1700. Resistance becomes support. </span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjaBc8c7mw0X6hjvpPP2HSacyf2Q2VGHTR7DXs9EIvEKP31OkJpdWd8JLWBJepltXPsaCWTtgruRpI09sqyTzOAC_FPg32dTpZSkRAb6huL5ix4n2oOgjNzgoIXa2JSE29Exq9oEvUBVw/s1191/gc.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="963" data-original-width="1191" height="809" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjaBc8c7mw0X6hjvpPP2HSacyf2Q2VGHTR7DXs9EIvEKP31OkJpdWd8JLWBJepltXPsaCWTtgruRpI09sqyTzOAC_FPg32dTpZSkRAb6huL5ix4n2oOgjNzgoIXa2JSE29Exq9oEvUBVw/w1001-h809/gc.png" width="1001" /></a></div><br /><p style="text-align: justify;"><span style="font-size: large;">The point is, this is almost over. Even in the worst case of the double bottom breaking and a plunge lower, we are likely within a few days of the cheapest you will see gold all year, so don't panic.</span></p><p style="text-align: justify;"><span style="font-size: large;">Looking to the GDX now, we can also see a double bottom, so far. And we also have perfect evidence of what I keep saying about "watch the miners". The GDX didn't budge at all over the last few weeks despite the massive moves in silver and silver miners. This was a clue that they were "calling bullshit" for lack of a better term.</span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4hfN7VHY7zGzZrxN0PLlLUgk3UlTTOhyhbjK9_5hEGOUfv6rqVuNxcRScahWXmgGAbZKdD_DVgJZpr7wp0Vre2FLRgFuXkvNMOBWB6Rzq549u_-oNdZ3OWz8NFnIdbz25BXmPaM8-iw/s1186/gdx.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="964" data-original-width="1186" height="825" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4hfN7VHY7zGzZrxN0PLlLUgk3UlTTOhyhbjK9_5hEGOUfv6rqVuNxcRScahWXmgGAbZKdD_DVgJZpr7wp0Vre2FLRgFuXkvNMOBWB6Rzq549u_-oNdZ3OWz8NFnIdbz25BXmPaM8-iw/w1016-h825/gdx.PNG" width="1016" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p style="text-align: justify;"><span style="font-size: large;">We are sitting right at the 38% Fib retracement for the entire all time low and high of the GDX. (I'll show the weekly zoomed out version next to get the big picture here) The downtrend line has been holding us back now in this incredibly long consolidation that has now gone on for 5 months. We need to get above that line and above the previous highs near 39 and Fib retracement near 40. We can see the June lows just below us at around 31.50, which is about 7% down from here. Again, I would not be surprised if we see a "stop hunt" plunge and reversal here in a short time that targets just below this Fib line to the June lows. If we have a similar move in gold that breaks below 1760, I would imagine the GDX stops dropping and turns higher BEFORE the metals. That is what to look for to give us an indication the lows are in.</span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiz8t3DQnATyNQMOnvA4me1x9pH_cHykpDQ7NRZwm3-LEoQJBKz8jt0QD0AagMpP38A9w2d2j-Pr9Zy6UwKap0FoIDQCOOqKYINMnq7kzh68ZQc_MDqGkDpY6Aw8gl0iN1KGPuq7eZkAw/s1186/gdx+week.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="962" data-original-width="1186" height="840" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiz8t3DQnATyNQMOnvA4me1x9pH_cHykpDQ7NRZwm3-LEoQJBKz8jt0QD0AagMpP38A9w2d2j-Pr9Zy6UwKap0FoIDQCOOqKYINMnq7kzh68ZQc_MDqGkDpY6Aw8gl0iN1KGPuq7eZkAw/w1036-h840/gdx+week.PNG" width="1036" /></a></div><span style="font-size: large;"><br />Another point I wanna add on the GDX chart. It looks like crap. Yeah I know, many have been saying it. It almost looks obviously bearish. The thing with sentiment is, its not a precise indicator for timing. In the very short term, the crowd is usually right. In the medium to long term, the contrarian is right. Real money isn't made in the short term though, which is why I am a contrarian investor. If this GDX chart looks like it is "obviously" gonna drop, guess what? Everyone else in the world is looking at the same thing you are and coming to the same conclusion. Which is why I said, we could get a quick drop, some obvious stop hunting by the vultures looking to push us around a bit. But past more than a few days I don't see much further weakness here. Why? Because were in a bull market. Because the miners are incredibly undervalued compared to the metals and any other fundamental earnings or cash flow metric. Because we have been consolidating for nearly 6 months. Because despite that undervaluation, we've already declined 25% in that 6 months. If you are looking at this chart and thinking bearish thoughts about gold miners, like buying puts or shorting for a quick buck, the risk/reward is absolutely not in your favor.<br /></span><p></p><p style="text-align: justify;"><span style="font-size: large;">Quickly I want to add 2 more charts for correlations with Gold. They are not perfect, but are often looked at as headwinds for gold rallies. First up, I'm putting the Euro, which I am using as an inverse proxy to the dollar index. (For the same reason with gold vs silver, I like to look at the Euro vs the actual USDX). The Euro broke above a 12 yr downtrend in July, retested the trend line twice then headed to major resistance at the 38% retracement of the highs and lows of the last 20 yrs in the Euro near 1.25. We have now pulled back to test the 23% retracement of the move higher from the march lows, which is also right at the summer-fall consolidation highs. While we can see, this correlation is not perfect, Gold and Silver topped out when the Euro broke above the 12 yr downtrend in Aug then continued for 4 months. But a rising dollar can be a headwind for the PMs, and it looks like the rally (decline in Euro) is nearing an end. Even if we were to test a lower level here, we can see there has been little correlation for almost 6 months, so it may not be meaningful for metals.</span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1Kf3r6NeYI096CFsVbYGbSXMy0JnqL4DIqvm4HN87hsxSUsmoKBusqH_cq5igAAbzMf2zhVDjfmKLx1rF4DLScmNZwiqf0BDL7j8RjSqeYiQm5r6XgRQeGan3yR05sTlQryRv-UvNfQ/s1184/euro.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="961" data-original-width="1184" height="860" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1Kf3r6NeYI096CFsVbYGbSXMy0JnqL4DIqvm4HN87hsxSUsmoKBusqH_cq5igAAbzMf2zhVDjfmKLx1rF4DLScmNZwiqf0BDL7j8RjSqeYiQm5r6XgRQeGan3yR05sTlQryRv-UvNfQ/w1059-h860/euro.PNG" width="1059" /></a></div><span><span style="font-size: large;"><div><span><span style="font-size: large;"><br /></span></span></div>Here is the 20 yr weekly Euro chart for bigger context. After a break above 1.25, I am eyeing 1.40, which coincides with about 80 on the USDX. Keep in mind, in the Fiat game, everyone is going to zero but relative to each other, we have some "perceived value". Low in the USDX last Gold bull market was 70. Don't be surprised to see mostly sideways currency action and to see Gold and Silver do a lot more with a lot less dollar weakness. </span></span><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhs_Fgog_hzgnirw9CpClBAqH7B17uZDpHl1vSB_jQfNNpOGcPB6Ou13GDvcNgAKA35c4PxaHJr7HdO1jPooyUeEFnaoYyTAKXvYmTC2pwby3NF1ZmeY-6up08WjR54mtLtoIxvud2tIQ/s1183/e7week.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="959" data-original-width="1183" height="863" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhs_Fgog_hzgnirw9CpClBAqH7B17uZDpHl1vSB_jQfNNpOGcPB6Ou13GDvcNgAKA35c4PxaHJr7HdO1jPooyUeEFnaoYyTAKXvYmTC2pwby3NF1ZmeY-6up08WjR54mtLtoIxvud2tIQ/w1064-h863/e7week.PNG" width="1064" /></a></div><br /><p style="text-align: justify;"><span style="font-size: large;">Additionally here are 10 yr notes. You can see we have been declining in lockstep with gold since Aug and are now at the lowest "post covid crash" levels, indicating 10 yr interest rates are at their highest levels. Again, testing the 23% retracement of the move from the lows in Oct 2018, to the recent highs. This also looks to be testing a strong support level that is likely done correcting. This has correlated much closer to gold since they both made their lows in 2018, so a bottom here in 10 yr notes is certainly a tail wind for the metals. </span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5YSMOE8NSNvFeebminFypOSfwGVdj4YYj-7TdVB4tHzzHxkVrajFGWEumo1avamotJID4IQl-lWXc7oCc5dzmCgxDOz2FgvpX8EFAVzPCIUWxJbYAoz2YQbHVtNLd1_udmDeqrkUa0Q/s1199/tn.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="969" data-original-width="1199" height="867" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5YSMOE8NSNvFeebminFypOSfwGVdj4YYj-7TdVB4tHzzHxkVrajFGWEumo1avamotJID4IQl-lWXc7oCc5dzmCgxDOz2FgvpX8EFAVzPCIUWxJbYAoz2YQbHVtNLd1_udmDeqrkUa0Q/w1073-h867/tn.PNG" width="1073" /></a></div><br /><span style="font-size: large;"><br /></span><p></p><p style="text-align: justify;"><span style="font-size: large;">Finally, I will share with you my Gold cycle chart, for the purposes of timing. Since 2006, it has nailed every major cycle low in gold within a reasonable time frame. It is certainly not always to the day, but waves higher and lower in markets are like tides in the ocean; They usually follow a similar rhythm and timing. We are right on a major cycle low. The exact bottom date for the cycle is Jan 3. Our Nov 30th low was 1 month early. Our current move is 1 month late. Regardless of what price was, buying dips in this 2 month time frame will reward you. Just like it has in every other cycle low for over 15 years.</span></p><p style="text-align: justify;"><span style="font-size: large;"><br /></span></p><p style="text-align: justify;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCRudCQ58y28yFsLEowgekhmVUZcVk55TZkZbutM_3pfi8vTgVBOV4fYRkc0g2i525vQB0JSCvFW3b_BWLfFf7MnFoF0pDVbgt_vRbQP4xwwhTbX82himfJPqgzWvJpRsWZNqAbyrd0w/s1181/gc+cycle.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="963" data-original-width="1181" height="885" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCRudCQ58y28yFsLEowgekhmVUZcVk55TZkZbutM_3pfi8vTgVBOV4fYRkc0g2i525vQB0JSCvFW3b_BWLfFf7MnFoF0pDVbgt_vRbQP4xwwhTbX82himfJPqgzWvJpRsWZNqAbyrd0w/w1086-h885/gc+cycle.PNG" width="1086" /></a></div><span style="font-size: large;"><p style="text-align: justify;"><span style="text-align: left;">So in conclusion, we are right there. We could see a reversal very soon that sends us much higher. If a further plunge were to occur, it will likely be short lived capitulation. This is not something to worry about nor is it something to trade. It can be very fast and then it's over. If you think you can get clever and sell and jump in at lower prices later, you will lose your positions. Money isn't made buying and selling, money is made waiting, so sit tight.</span></p></span><p></p><p style="text-align: justify;"><span style="font-size: large;">Hold on, don't panic. Turn off the computer if you need to and walk away. We're almost there.</span></p><p style="text-align: justify;"><span style="font-size: large;">-Jonathan Mergott</span></p><div class="separator" style="clear: both; text-align: center;"></div><span style="font-size: large;"><br /></span><p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-18439925522486743722021-01-31T16:08:00.000-05:002021-01-31T16:08:45.579-05:00Withholding Production and PM Dividends Part 2<p><span style="font-size: large;"><span><span> </span>Before getting into part 2, I want to look at where we stand
in the PM markets after a very interesting week. </span><span> </span><span>We had a spectacular move in silver and some
silver miners on Thurs and Fri, specifically First Majestic on the back of the
short squeeze movement in GME and AMC.</span><span>
</span><span>Silver moved up on Fri to nearly touch the 28 level it dumped from
earlier this month.</span><span> </span><span>The silver chart
technically, looks beautiful, and is sharing the “cup and handle” formations I’m
seeing across the entire silver complex.</span></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span></span></p><div style="text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ_1jHYsNilZwCt1vxL4abHGU07s1koiZJvGTAuIf4uoGrBkbE9yDeCuwApbo99usj2G69OANsQFmouWxVOoyHGNpV8Y7cWY01rDKsqX77WcRBCZp4XZ5d4_0OcnHPm27KaTmA5k46rg/s1182/si.png"><img border="0" data-original-height="959" data-original-width="1182" height="702" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJ_1jHYsNilZwCt1vxL4abHGU07s1koiZJvGTAuIf4uoGrBkbE9yDeCuwApbo99usj2G69OANsQFmouWxVOoyHGNpV8Y7cWY01rDKsqX77WcRBCZp4XZ5d4_0OcnHPm27KaTmA5k46rg/w866-h702/si.png" width="866" /></a></span></div><span style="font-size: large;"><br /><span> </span>What I am concerned about right now is how far ahead of gold
silver has run.<span style="mso-spacerun: yes;"> </span>The 28 level on silver
is where we dumped from earlier in Jan.<span style="mso-spacerun: yes;"> </span>On
gold that level is 1960.<span style="mso-spacerun: yes;"> </span>Currently
silver is $1 below that level and gold is $110 below that level.<span style="mso-spacerun: yes;"> </span>That is a pretty big divergence, and we can
see it in the plunge the GSR took below the consolidation it has been holding
since Aug at around the 70 level.<span style="mso-spacerun: yes;"> </span>In the
long run, silver has a lot of catching up to do with gold and a massive outperformance
is what I am expecting, but this kind of divergence in the past has led to fake
outs.<span style="mso-spacerun: yes;"> </span></span><div><span style="font-size: large;"><br /></span><span style="font-size: large;"><span style="mso-spacerun: yes;"></span><o:p></o:p></span><p></p><p class="MsoNormal"><span style="font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqwDHeCI1sR18VfDD8yyhNKb7iQur-Vs2UWmfcTeCoSXkQeLEGHqEIDOq0dwkRVoZctXv1cHPrvQEIGOMdQMvl4SvPVR20kLFbdWEBR2iaKcgphion1gEa9VPP56K4cPWAk-AfqGyJDg/s1188/gc.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="957" data-original-width="1188" height="683" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqwDHeCI1sR18VfDD8yyhNKb7iQur-Vs2UWmfcTeCoSXkQeLEGHqEIDOq0dwkRVoZctXv1cHPrvQEIGOMdQMvl4SvPVR20kLFbdWEBR2iaKcgphion1gEa9VPP56K4cPWAk-AfqGyJDg/w847-h683/gc.png" width="847" /></a></span></div><span style="font-size: large;"><br /></span><p class="MsoNormal"><span style="font-size: large;"><span> </span>In addition to the Gold/Silver divergence we have the GDX
divergence.<span style="mso-spacerun: yes;"> </span>While many silver miners
have been killing it recently, the GDX is dragging across the bottom.<span style="mso-spacerun: yes;"> </span>The “dump” level on silver is $1 away, which
is roughly 4%.<span style="mso-spacerun: yes;"> </span>For gold its $110 away
which is 6%.<span style="mso-spacerun: yes;"> </span>For the GDX, that level is
about 39, which is about 13% higher from here.<span style="mso-spacerun: yes;">
</span>That’s a VERY big underperformance, and that typically isn’t what happens
during strong trending moves higher.<span style="mso-spacerun: yes;">
</span>Looking at the GDX/GLD ratio, we can see miners are continuing to
underperform vs the metal, which has been the case since Aug.<o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><br /></span></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE4PI6Orw3x_DW40gSF-d9mnb_Dgt_J1_huQmtI2_sZhyEasPMy_kT9eSxgPw2wVP6YLW6Nq2G0JWDF7AMdSB1VSLsKkfNVRVxoxwiCstYZe81JDmTGPQ2wDtFseKbeFHmkXFqTXmIBw/s1187/gdx.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="964" data-original-width="1187" height="690" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjE4PI6Orw3x_DW40gSF-d9mnb_Dgt_J1_huQmtI2_sZhyEasPMy_kT9eSxgPw2wVP6YLW6Nq2G0JWDF7AMdSB1VSLsKkfNVRVxoxwiCstYZe81JDmTGPQ2wDtFseKbeFHmkXFqTXmIBw/w849-h690/gdx.PNG" width="849" /></a></div><span style="font-size: large;"><br /></span><p></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>Here is what I want to see.<span style="mso-spacerun: yes;">
</span>As silver is now just under 28, I want gold to start gaining ground
towards the 1960 level.<span style="mso-spacerun: yes;"> </span>At least pushing
above 1900.<span style="mso-spacerun: yes;"> </span>Meanwhile, the GDX needs
some very strong moves to begin the typical outperformance we can expect from
long trending moves higher. I want a push back towards 38-39 and I want to see
the GDX/GLD ratio, currently at 0.20, push above 0.21.<span style="mso-spacerun: yes;"> </span>While this is happening silver consolidating
under 28 would be typical bullish behavior while gold catches up a bit.<span style="mso-spacerun: yes;"> </span>This also gives us the typical back test of
the consolidation break down in the GSR that we would expect.<span style="mso-spacerun: yes;"> </span>If we get something <i>like</i> this in the
coming days and weeks, it will definitely look like we are entering a strong
multi month move higher for PMs and miners. Perhaps it is the chronic
contrarian in me, but for now my outlook regarding the last 2 days of moves in
silver and silver miners is still “cautiously optimistic”. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>In addition to the chance that silver maybe faking us out
for now, I have been saying for weeks that insane movements in all assets,
bullish sentiment and complacency in the market have been worrying me a lot.<span style="mso-spacerun: yes;"> </span>This short squeeze stuff with GME taking down
funds that now must sell many other assets, bonds, other stocks, PMs, etc,
could spiral into a fast move down in all assets and into the dollar as people
raise liquidity.<span style="mso-spacerun: yes;"> </span><b>Don’t take this the wrong
way, I am not predicting a crash, I am not advising selling anything and trying
to buy it back cheaper or shorting stocks, gold etc.<span style="mso-spacerun: yes;"> </span>I am simply saying the environment right now
is very risky so plan accordingly.</b> Now is not the time to be holding leveraged
ETFs or a margin balance. Unleveraged portfolios only need to hold, and you
will be fine in the long run. Gold corrected from 1700 to 1450 back to 1700 in
12 days last March. <b><span style="mso-spacerun: yes;"> </span>A liquidity panic is not
something that changes a trend or stops a bull market, its just a panic event.</b><span style="mso-spacerun: yes;"> </span>I am just simply saying, the likelihood of us
experiencing something like this is more elevated, so acknowledge the risk.<o:p></o:p></span></p>
<p class="MsoNormal"><o:p><span style="font-size: large;"> </span></o:p></p><p class="MsoNormal"><o:p><span style="font-size: large;"><br /></span></o:p></p>
<p class="MsoNormal"><span style="font-size: large;"><b>Now on to part 2.<span style="mso-spacerun: yes;">
</span>Precious Metal Dividends.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>I’m going to start with another story that my grandfather and
father originally told me, and also heard Jim Sinclair talk about 10 years ago
when I worked with him doing investor relations.<span style="mso-spacerun: yes;"> </span>During prohibition, National Distillers
Products Corp was no longer able to sell alcohol for public consumption, so they
shifted their attention to producing chemicals and industrial alcohol.<span style="mso-spacerun: yes;"> </span><b>All the whiskey it had in its warehouse was
forced to just sit there and age.</b> (Horrors!)<span style="mso-spacerun: yes;">
</span>When prohibition was repealed in 1933, National Distillers had already
been operating in the chemical and industrial sector and had changed their name
to Quantum Chemical, so they weren’t about to jump back into the whiskey game.<span style="mso-spacerun: yes;"> </span>But here they are, with a warehouse full of
now 14 yr. aged whiskey which is legal to the public again.<span style="mso-spacerun: yes;"> </span><b>So, they decided to pay a dividend in
whiskey.</b><span style="mso-spacerun: yes;"> </span>For every 5 shares of the stock
you had, you got a receipt to pick up a case of whiskey from their warehouse.<span style="mso-spacerun: yes;"> </span>Naturally, the stock skyrocketed because
everyone wanted in on a dividend paid in whiskey.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>Now there’s another aspect of this story I want to
highlight.<span style="mso-spacerun: yes;"> </span>During the time of the great “whiskey
dividend”, whiskey was in very short supply.<span style="mso-spacerun: yes;">
</span>It had been illegal so there was no one producing a large amount of
it.<span style="mso-spacerun: yes;"> </span><b>One reason for the skyrocketing of
the stock was so people could get their hands on good whiskey, because it was impossible
to find.<span style="mso-spacerun: yes;"> </span>Not unlike gold and silver
bullion is today. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>For anyone who doesn’t know the technicalities of it, when
you are selling a stock short you are borrowing it from someone who owns the
stock, selling it today at the market price, and hoping you can buy it back
cheaper later.<span style="mso-spacerun: yes;"> </span>You MUST return the same
amount of shares of stock you borrowed, no matter what the price is.<span style="mso-spacerun: yes;"> </span>Ideally, the stock goes down and you can buy
it back cheaper, return the shares and pocket the difference. <b><span style="mso-spacerun: yes;"> </span>If the company pays a dividend in that time
frame between when you borrowed and sold the shares and when you returned them,
you as the short seller are responsible for paying it to the person who’s
shares you borrowed.</b><span style="mso-spacerun: yes;"> </span>This gives an added
cost to shorting companies that pay good dividends, and paying a dividend in the first place is often enough of a deterrent to make a short seller pick another target
in the sector he is bearish of.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>In the situation with National Distillers, nobody was short
that stock.<span style="mso-spacerun: yes;"> </span>The extra complication by
paying a dividend that was not cash would be incentive enough to make short
sellers stay away, but whiskey was impossible to find.<span style="mso-spacerun: yes;"> </span>They used something that was in very short supply
to pay as a dividend that nobody else was able to get their hands on, effectively
making trying to short the stock absolute suicide. <b>If a precious metals miner were to take up a dividend policy that paid in bullion, ALL short sellers would exit their position. </b>The stock could trade freely based on value, not games played by big guys who pound it down to make a quick buck.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span><b>As PM investors we have a few common beliefs among us.<span style="mso-spacerun: yes;"> </span>One is a generally agreed upon notion that physical
supply of gold and silver is unbelievably small.</b><span style="mso-spacerun: yes;"> </span>Even the smallest rebalancing of portfolios by
SOME wealthy individuals to include physical gold and silver would absorb ALL
existing supply.<span style="mso-spacerun: yes;"> </span>In fact, a friend who exclusively
invests in bullion contacted Kitco in December looking for Gold Pandas.<span style="mso-spacerun: yes;"> </span><b>They had a “whopping” $400k of them</b>.<span style="mso-spacerun: yes;"> </span>A moderately wealthy upper-middle class person
looking to diversify their 4m in retirement savings to a 10% physical gold
position would take all of it, and there’s nothing left for you.<span style="mso-spacerun: yes;"> </span>There has been much debate over the years as
to the methods to invest in Gold and Silver.<span style="mso-spacerun: yes;">
</span>Some prefer bullion only, some prefer shares with more leverage to higher
prices.<span style="mso-spacerun: yes;"> </span>Many want a balance of
both.<span style="mso-spacerun: yes;"> </span>We all also understand that after
physical supply is gone, the only thing left is the miners.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>When you’re holding your bullion in your hands, there is
nothing standing between you and it.<span style="mso-spacerun: yes;"> </span>No
middleman.<span style="mso-spacerun: yes;"> </span>But in the course of acquiring
that bullion you had a miner, a mint, a dealer, a coin store, a pawn shop, etc
between you and your gold and silver.<span style="mso-spacerun: yes;"> </span><b>As
shareholders in mining companies, we are owners of the companies pulling it
directly from the earth.</b> <b>The only middlemen are the company’s management, who
are obligated to act in the best interest of us, the shareholders.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>In Part 1, I talked about mining companies being in a position
now to <b>withhold a percent of production</b> for not only higher profits, but to <b>constrain
the physical supply market and constrain those “players” that like to “play games” with
PMs.</b><span style="mso-spacerun: yes;"> </span>A move like this would take bold management
to pull off, but it is not impossible.<span style="mso-spacerun: yes;">
</span>However, the idea of <b>a PM dividend is much less risky</b> for the average
miner to do. <span style="mso-spacerun: yes;"> </span>Right now,<b> #silversqueeze</b>
is trending worldwide.<span style="mso-spacerun: yes;"> </span>I encourage these
efforts to buy up bullion so there is not enough for these “players”, but I have
bad news.<span style="mso-spacerun: yes;"> </span><b>There is not enough for us either.</b><span style="mso-spacerun: yes;"><b> </b> </span>However much bullion you have now, if I asked
you how much do you want to have, you’re probably going to answer “more”. <span style="mso-spacerun: yes;"> </span>How will we get more physical when the
dealers, pawnshops and coin stores are plumb dry? <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>Easy.<span style="mso-spacerun: yes;"> </span><b>We are the owners
of the companies pulling it out of the earth.</b><span style="mso-spacerun: yes;">
</span><b>We deserve the right of first refusal on their production of gold and
silver BEFORE it is sold to the rest of the market.</b><span style="mso-spacerun: yes;"> </span>If a miner is going to pay a dividend that
costs them say, $10m a quarter, that value worth of the metal should be set aside for
the dividend to shareholders that want to opt into a bullion dividend.<span style="mso-spacerun: yes;"> </span>After that, it can be sold to the market. Remember
the cabbage patch kids and tickle me Elmo crazes? <span style="mso-spacerun: yes;"> </span>Flew off the shelves, no one could get their
hands on them.<span style="mso-spacerun: yes;"> </span>You really think the owners
of the companies manufacturing them had to disappoint their kids Christmas morning
because they couldn’t get one, or do you think special exceptions were made to give
some to the owners before selling to the rest of the market? Now picture that we’re
talking about something actually important, like <b>gold</b>.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>I mentioned in part 1 that a production withhold would likely
be easier right now for a silver miner than for a gold miner, and I believe the
same for a PM dividend.<span style="mso-spacerun: yes;"> </span>Say a gold miner
pays a 2% dividend.<span style="mso-spacerun: yes;"> </span>On a $100k
investment, that is $2,000 a year.<span style="mso-spacerun: yes;"> </span>Which
is enough to get 1 gold coin a year from.<span style="mso-spacerun: yes;"> <b>
</b></span><b>On a silver miner with a 1% dividend yield, a $25k investment would get
you $250 a year, enough for 10 silver coins.</b> <span style="mso-spacerun: yes;"> </span>I personally would much rather earn 10 silver
coins on $25k then 1 gold coin on $100k, but that is also in general why I
favor silver right now and why I expect a much lower Gold to Silver ratio.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>Now I know what everyone is thinking.<span style="mso-spacerun: yes;"> </span>Logistics.<span style="mso-spacerun: yes;">
</span>Are companies really supposed to mail bullion to shareholders?<span style="mso-spacerun: yes;"> </span>The costs, the time to do it, the paperwork, insurance, etc.<span style="mso-spacerun: yes;"> </span>It would be a
nightmare.<span style="mso-spacerun: yes;"> </span>But there is another
way.<span style="mso-spacerun: yes;"> </span><b>Some mining companies have a
bullion store where you can buy coins and bars directly from the miner’s
website.</b><span style="mso-spacerun: yes;"> </span>I’ve bought from both First
Majestic and Great Panther before. Now picture this… As a shareholder, you choose
to opt into a PM dividend.<span style="mso-spacerun: yes;"> </span>You signup
with an account at the miner’s online bullion store.<span style="mso-spacerun: yes;"> </span>You include information to verify the shares
you hold.<span style="mso-spacerun: yes;"> </span>Every dividend cycle, a
virtual gift card is replenished with funds you can use to buy bullion with and
pay for shipping and insurance on bullion that has been <b>withheld from the
market and earmarked specifically for shareholders first.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size: large;"><span> </span>There would have to be some restrictions, of course.<span style="mso-spacerun: yes;"> </span>This is not 1933, 5 shares will not get you a
whole case of whiskey.<span style="mso-spacerun: yes;"> </span>In Sprott’s PSLV
fund, you can redeem the silver you just have to own a significant amount of
the fund to do so.<span style="mso-spacerun: yes;"> </span>Perhaps not that
constraining, just enough to eliminate those that only hold a few hundred
shares for instance.<span style="mso-spacerun: yes;"> </span><b>I know I certainly
would not mind paying the shipping and insurance costs out of pocket to have
bullion sent to me if I was even offered the opportunity to be paid a dividend
in PMs, and I imagine most would agree</b>.<span style="mso-spacerun: yes;">
</span>Additionally, National Distillers stock went significantly higher, from
about 19 to over 100 largely based on people buying it only for the
dividend.<span style="mso-spacerun: yes;"> </span><b>How much money would you pour
into a miner that offered bullion as a dividend?<span style="mso-spacerun: yes;"> </span>Additionally, if your cash right now is
tapped, how many other mining stocks would you sell in favor of buying the only one
that pays a PM dividend?</b><o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><span> <b>There is a significant opportunity here to be a leader in the PM space by paying a dividend in bullion,</b> and it doesn't need to be as complicated as it sounds. I have never met a PM investor who's eyes didn't light up at the idea of a dividend paid in gold and silver. It is something nearly all shareholders of PM miners want. Physical metal is something we all know will be impossible to obtain for most people if there is any significant money moving into PMs and bullion that drys up supply. <b>We are already seeing it. Bullion dealers are increasing premiums since this morning, some are out of stock. Others are refusing to sell until they see where prices open tonight. </b>There is only one place left to acquire physical bullion from when supply runs dry and that is <b>directly from the companies pulling it out of the ground. </b></span></span></p><p class="MsoNormal"><span style="font-size: large;"><span><b><span> </span>Contact the companies you are shareholders in. Push them to withhold production for higher prices. Push them to sell bullion direct to the public and to offer a dividend in bullion. Tell them as a shareholder, you want right of first refusal for their gold and silver, BEFORE it is sold to the market!</b></span></span></p><p class="MsoNormal"><span style="font-size: large;"><span><span> </span>On a final note, I just wanna say <b>I am blown away by the #silversqueeze movement</b> and everyone that has been working so hard to push this thing into the public light. I've been in this industry for a bit and everyone in it knows how incredibly small it is. 1% of the market cap of Microsoft, Amazon and Apple could buy NEM outright. 10% of their combined 5 Trillion market cap could buy nearly every gold and silver miner on the NYSE. Gold and Silver have never been mainstream investments, so when I see <b>#silversqueeze </b>trending on twitter in NYC that is <b>HUGE</b>! I don't know if this is what ends up blowing the lid off or not, but it is very clear, something is brewing. For decades, Gold and silver bugs have been waiting for the day the PMs begin to fairly represent their true values as hard assets against the US dollar and other fiat currencies, and many have not lived to see that day. We are witnessing history. We are part of it. Push forward. #Silversqueeze.</span></span></p>
<p class="MsoNormal"><o:p><span style="font-size: large;"><b> </b></span></o:p></p></div>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-19911740196574674542021-01-24T13:40:00.000-05:002021-01-24T13:40:32.475-05:00Withholding Production and PM Dividends, Part 1. <p><span style="font-family: georgia;"><span style="font-size: x-large;"> </span><span style="font-size: large;">I wanted to take a moment and share my thoughts this weekend
about being shareholders in gold and silver miners and tell a couple stories I
have heard over the years from the old school guys that were before my time in
the industry.</span></span><span style="font-size: large;"><span style="font-family: georgia;"> </span><span style="font-family: georgia;">I think these examples are
extremely relevant today for precious metal miners and for us, as shareholders
in them.</span><span style="font-family: georgia;"> </span><span style="font-family: georgia;">Some of you may know these
stories or have heard arguments for their implementation before in the PM
sector, but for those who haven’t, a little history…</span></span></p><p><span style="font-family: georgia;"><span style="font-size: large;"><span> </span>(I was surprised that after a quick google search there are
still press releases about this over 15 yrs later, so you can look it up and
find some more details.)</span></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>Goldcorp was founded in 1994 by Rob McEwen. By 2000, they had
become one of the biggest gold miners in the world at a time when gold was
about to transition into a bull market.<span style="mso-spacerun: yes;">
</span>McEwen was very bullish on gold and an exceptional CEO who made incredibly
bold choices that set them apart in the industry and grew them into such a big
competitor to the other major miners.<span style="mso-spacerun: yes;"> </span><b>In
2005, while gold was once again butting heads with the $400 level where it consistently
was being pushed back from, McEwen believed it was headed higher, closer to
$800 an oz.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"> Now here is a lesson in good management, bold leadership,
and bad management,<b> where bad decisions typically begat more bad
decisions.</b> For years as gold would tap $400,
Barrick took advantage of this by hedging a portion of their future production
by selling it at that price. For years
this worked, and Barrick made a few billion in extra cash through this method
but became complacent, outstayed their welcome and overleveraged their reserves. I believe <b>by the early 2000s they had hedged around
20% of all of their reserves at ~$400/oz. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>In the meantime, Rob McEwen was a gold bull believing the
end to a 2-decade long bear market was coming.<span style="mso-spacerun: yes;">
</span>His thought process was this: </span><b><span style="font-family: georgia;"><span style="font-size: large;">If I think gold is headed higher than the current price near
$400 an ounce, why should we sell our gold at $400 an ounce?</span></span></b></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"> <b> </b><b>So, he didn’t.</b> By
2005, Goldcorp was <b>withholding</b> their production from the market. <b>About 31% of their Q3 production in 2005</b> - which
is a pretty massive amount - <b>they stockpiled</b>. Rob McEwen even said at the time
that with their cash reserves, <b>they could stop selling ALL the gold they
produced for 2 full years and still be able to cover their dividend
payments.</b> (Goldcorp was one of few
companies that paid a dividend every month.
On dividend reinvest, it compounds faster than quarterly payments). Gold soon broke above 400, and went on to a
high of ~720 the following year. Then,
<b>Goldcorp dumped their horded ozs on the market at a price that was significantly
higher </b>than market price at the time of production and it <b>gave them an
exponential increase in their profit margins.</b> This of course <b>blew away earnings estimates</b>
and sent the stock soaring. Anyone
foolish enough to have been<b> shorting Goldcorp had their heads handed to them
and likely vowed they would never short Goldcorp again.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>Back to Barrick.<span style="mso-spacerun: yes;"> </span>While
this is going on Barrick begins realizing they’ve<b> screwed themselves by selling
so much of their gold at 400 as prices were rising to nearly double that</b>, and
costs were rising quickly as well.<span style="mso-spacerun: yes;"> </span>Obviously,
their profit margins were razor thin and dropping faster as oil - which is typically
a gold miner’s biggest cost - began pushing above $100 a barrel in 2007.<span style="mso-spacerun: yes;"> </span><b>So, in order to not see all profit evaporate for
their incredibly bad hedging decision, they decided to make another one. </b><span style="mso-spacerun: yes;"> </span>This time by hedging a portion of their 2008 oil
cost at ~<b>100 a barrel</b>.<span style="mso-spacerun: yes;"> </span>By 2008, <b>oil had
dropped to $30</b> and<b> Gold had risen to 1000/oz.</b><span style="mso-spacerun: yes;">
</span>Having been <b>dead wrong</b> on both their production hedges and cost hedges, which
destroyed billions in shareholder value over years, <b>Barrick threw in the towel
in 2009 and issued $3 billion in stock to pay off the remaining 9.5 million ozs
it had left hedged.</b><span style="mso-spacerun: yes;"> </span>In return for the
poor performance shareholders suffered during the beginning of the bull market due
to management’s bad decisions, <b>management rewarded them by diluting shareholders
by 12.5%.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>(This, in short, is why I have never in the past, or ever
will in the future, be a Barrick shareholder)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>But back to Goldcorp and the concept of withholding production.<span style="mso-spacerun: yes;"> </span>For the past few years this has been an
impossible concept for any miner, as margins and cashflow were so thin.<span style="mso-spacerun: yes;"> </span>Today, that’s not the case anymore, with <b>gold
miners seeing their largest profits ever at these prices </b>and silver miners
seeing margins increase in some cases by 1000% at prices today near $25/oz.<span style="mso-spacerun: yes;"> </span><b>The idea of withholding a percentage of
production can absolutely be a reality for some mining companies.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>The idea however is not very likely considering management of
some companies.<span style="mso-spacerun: yes;"> </span><b>You would need bold
leaders who believe in a bull market in PMs and are not afraid to lean into the
bull market and think outside of the box</b> for ways to make their companies more
profitable.<span style="mso-spacerun: yes;"> </span>This is not something that
is likely from say, Newmont.<span style="mso-spacerun: yes;"> </span>While
Newmont has believed in higher metals prices, as the only Gold Miner on the
S&P-500, they have typically refrained from making extreme calls on future metal’s
prices or embarked in unconventional business practices as to not alienate
investors.<span style="mso-spacerun: yes;"> </span><b>But I can think of some
silver mining companies that certainly have the ingredients, including bold management
and leaders who believe in higher silver prices, that can pull off an incredible
move like the one Rob McEwen did in 2005. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>A silver miner, mining at a cost of $15 an oz has a $10 profit
margin today with silver at 25.<span style="mso-spacerun: yes;"> </span>If
silver climbed back <b>to $30/oz, </b>it would be <b>20% higher</b> than the silver price
today but the <b>profit margin</b> <b>for the miner would</b> <b>increase by 50% to $15.</b><span style="mso-spacerun: yes;"> </span>And that’s only selling at a price that is
20% higher than right now.<span style="mso-spacerun: yes;"> </span><b>McEwen did
this at prices that were nearly 100% higher. </b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>At $10 profit per oz, a silver miner can <b>increase their annual profit by a full 10% by withholding 20% of
their production</b> and selling it at 30/oz, assuming the other 80% is sold at 25/oz.
<span style="mso-spacerun: yes;"> </span>And again, this is at only 20% higher prices
than where we are now.<span style="mso-spacerun: yes;"> </span><b>I fully expect
that if a silver miner has enough production and cash flow to pull this off, they
can sell at $40/oz,</b> increasing their profit margin 150% from $10 an oz, to $25
an oz. <span style="mso-spacerun: yes;"> </span><b>That would equal a 30% increase in
total annual profit vs selling all ozs at 25.</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>There is a silver lining here too (no pun intended).<span style="mso-spacerun: yes;"> </span>By doing this, <b>short sellers in PM stocks
could be in for a world of hurt</b>, as they were when Goldcorp did this in 2005.<span style="mso-spacerun: yes;"> </span>It will make forecasting their profits far
more difficult and effectively make the Due Diligence the short seller has to
do, far more complicated if not impossible. <span style="mso-spacerun: yes;"> </span>Announcing to the market that management has
decided to withhold 10-20% of their production until they feel prices are
better valued than they are today <b>would be enough to shake a significant number
of short sellers out of their positions</b>.<span style="mso-spacerun: yes;">
</span>This could be very beneficial for any company that is currently <b>struggling
with the problem of a large short position in their shares.<span style="mso-spacerun: yes;"> </span></b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>But here comes <b>my favorite part.</b><span style="mso-spacerun: yes;"> </span>You could just <b>NOT </b>tell them. <span style="mso-spacerun: yes;"> </span>There is no reason you HAVE to inform the
market that this is what you plan to do.<span style="mso-spacerun: yes;">
</span>You could just let them find out on your next earnings release.<span style="mso-spacerun: yes;"> </span>It’s amazing how pain sticks with us as
humans.<span style="mso-spacerun: yes;"> </span><b>Do something that hurt
significantly, and you are unlikely to do it again</b>.<span style="mso-spacerun: yes;"> </span>Get blown away on a short position on a PM
stock, and if you are ever bearish again on PM miners, you’ll absolutely choose
another company in the sector to short next time around, or avoid doing so
altogether. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> </span>As PM mining share investors, we are lucky because there is
a common theme among us.<span style="mso-spacerun: yes;"> </span><b>We typically
all own these shares because we believe metals prices are going higher.</b><span style="mso-spacerun: yes;"> </span>Sure, there are individual growth stories,
but most are not investing based solely on a single company’s story that has no
relation to a rising metal price.<span style="mso-spacerun: yes;"> </span>This
is not necessarily the case for say, Apple shareholders or many other companies
in different industries.<span style="mso-spacerun: yes;"> </span>This is
important, because we are the owners of the company and we have a consensus where
we believe in higher metals prices.<span style="mso-spacerun: yes;"> </span><b>Management’s
job is to do what is in the best interest of the shareholders.</b><span style="mso-spacerun: yes;"> </span>So, if you own shares in mining companies,
take the time to contact them and ask them this:<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><b>-Do you believe the price of gold/silver is going at least moderately
higher from today’s prices?</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;">-(I believe a decent margin of these companies would answer “yes”)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><b>-Then why are you selling all of your gold/silver at today’s
prices?</b><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"> As I mentioned, this is a very out-of-the-box idea. Mining companies are in the business of
pulling metal out of the ground and selling it, not storing it or speculating
on future price movements. There are few
if any companies that would be willing to adopt such an idea. But it has been done in the past and done
very successfully. <b>The result was
developing Goldcorp into a leader in the gold sector, rivaling major producers like
Newmont just 15 years after its start.</b><b> </b>
(Worth noting, Newmont who ultimately bought Goldcorp, is 100 years old
this year, founded in 1921.)<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;"><span> W</span>hat we need today is a leader in the PM space.<span style="mso-spacerun: yes;"> </span><b>A production withholding policy would be a
game changer that will be the envy of every PM mining investor.</b><span style="mso-spacerun: yes;"> </span>I believe shareholders have a consensus with
their beliefs about metals prices and would support such a bold move.<span style="mso-spacerun: yes;"> </span>Management works for us shareholders.<span style="mso-spacerun: yes;"> </span>If you believe a policy like this will
benefit the company and shareholders, let the concept of withholding part of their
production from the market become our battle cry.<span style="mso-spacerun: yes;"> </span>Ask the companies you’re invested in why they
are not doing this.<span style="mso-spacerun: yes;"> </span><b>There is an
incredible opportunity here and I believe someone will take up this flag and
run with it and be rewarded with increased profits, an army of loyal and very happy
shareholders, as well as a mass exodus of short sellers in their shares.</b>
History doesn’t always repeat, but it can rhyme. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: georgia; font-size: large;">-Jonathan Mergott</span><o:p></o:p></p>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com0tag:blogger.com,1999:blog-1868364813347908197.post-59130735682279652792021-01-09T14:58:00.016-05:002021-01-09T15:32:08.686-05:00Riding the Gold Bull in an Algo-driven Market Tsunami<p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">Yesterday was bloody in precious
metals. Silver tanked 10% at the worst
point of the day and many miners were down 10% or more. Gold bulls on twitter suddenly got quite as
virtually everyone was analyzing the market, their portfolio, and trying to see
"what went wrong." Looking at
it, and I think it is clear <b>this was a dump</b>. But it shook a lot of people, so I want to
write a bit on what is in store for the future here and what we can expect trying to ride a volatile
gold and silver bull in a market driven by momentum chasing algos and how to
not get bucked off the ride until you’re ready.<o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I responded to a comment on Twitter
yesterday and said this regarding the metals dump and one person’s panic: Step 1: Analyze the fundamentals of the
situation. Is our analysis on a much
higher gold and silver price flawed somehow?
Step 2: Look at the technicals. Do
they confirm the fundamentals? As I like
to say, “watch the miners” for clues as to the next move in the metals. Do the miner charts look bearish? Step 3: Analyze your personal situation. Are you leveraged too much? Did this correction shake or hurt you to the
point where you cannot stand to see another one? Are you risking more money than you can
afford to lose? (I mean this both
literally and psychologically). If the
answer to these questions is all “No”, then proceed to Step 4: Turn off the
screen and go fishing. It’s not time to
buy, it’s not time to sell, there is nothing you can do here sitting by your
computer other than shake your own resolve, so get up and leave. I want to break down these points in more
detail.<o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;"><b>Is the fundamental analysis correct?</b> You should always know what you own and why
you own it. This seems obvious, but you’d
be surprised. Why do we own gold? For wealth protection, historically. That is why people buy gold. <b>But what drives people to seek the protection
they find in gold to begin with?<o:p></o:p></b></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">A little about myself for those who
don’t know me well. I like to say I was
raised by old school gold bugs. My
father, my grandfather, my great-grandfather were all PM investors at different
times in different decades. My father
had been a gold and miners investor from the late 90s through the bull market from
2001-2011. My grandfather and
great-grandfather worked together investing through the 70s bull market. Prior to it, my grandfather was a broker,
back in the days before call waiting, when 2 brokers sat at a table with 6 phones
on it. The other broker at his table was
Jim Sinclair, who for those of you that don’t know, famously called for gold to
go from $50/oz in about 1972 and hit $900 by 1980 and he ended up being off by
a whopping $13 when gold topped at $887.
I worked with Jim Sinclair as an investor relations consultant from
2011-2015. I managed a primarily gold
and silver investment fund from 2008 through the metals peak in 2011. I currently manage a non-profit investment
trust my great grandfather began 65 years ago.
(We are primarily invested in gold and silver miners). <o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I’m mentioning this because I have
had the pleasure and fortune of working with them, their colleagues, and rubbing elbows with well-known
and lesser-known great minds in the gold industry who collectively have
centuries of wisdom and experience. So,
getting back to the question of why people seek the protection of gold to begin
with, you can get a lot of opinions and <b>I’ve heard some of the best analysis
for a bull case in metals that’s out there.</b>
But I think most arguments are missing one important factor.<o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">There are those out there calling
for higher gold because they believe we are headed into a <b>depression</b>. There are those calling for a bull market
because of looming <b>inflation</b>. Then there’s
the <b>stagflation </b>argument, a mixture of the two.
Economic deflation coupled with rising prices,<b> the worst of both worlds for
everyday people.</b> It seems from some
people’s arguments, that you can buy gold for a looming depression/deflation or
for incoming inflation, which seems contradictory. Basically, buy gold because it will always go
up in either situation, which we know is not true. But we can point to the great depression and
claim deflation. We can point to 20%
inflation by the 70s bull market peak in 1980 and claim inflation. We can point to the fed’s balance sheet, and
massive debt from 2008-2011 (and still really) and claim its debt or QE. <b>All these things are not inaccurate, but
they are symptoms</b> or byproducts of the greater reason why people invest in
gold and what drives bull markets. <o:p></o:p></span></p><p class="MsoNormal"><o:p><span style="font-family: georgia; font-size: large;"> </span></o:p></p><p class="MsoNormal"><b><span style="font-family: georgia; font-size: large;">Gold goes up when people lose confidence.<o:p></o:p></span></b></p><p class="MsoNormal" style="text-indent: 0.5in;"><o:p><span style="font-family: georgia; font-size: large;"> </span></o:p></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;"><b>The one common theme in all bull
markets in gold is a loss of confidence</b>. In the depression, a loss of confidence in the
economic system. In the 70s it was a loss
of confidence in currency after ending Bretton Woods and seeing relentless
inflation and dollar devaluation. In 2001-2011
it was a loss of confidence that we will ever pay back our debt. It was also the repeated bubbles and crashes
that made many lose faith in the economy and the markets. <b>A bull market in gold is a sign of a loss
in confidence in the economic system, markets, currency and the ability of
government to fix it.</b> <b>A loss of
confidence in government itself. </b><o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">This is our fundamental case for higher
gold and silver prices. So, in the
course of yesterday’s trading session, <b>was
anything done to garner any confidence in government</b>? What about the Fed’s management of inflation
and the economy? <b>If anything, people’s confidence in EVERYTHING is continuously hitting
all time lows from what I see</b>. Three
days ago, people stormed the capital because they have lost confidence in our
election process. In 2009, people were
shocked at our first trillion-dollar deficit in one year while our debt hit 10
trillion, only to see 10 years later for the deficit to balloon to 3.1 trillion
and the debt to nearly 3x what it was a decade ago. Does anyone think we will
ever pay this back? <b>Does anyone have any confidence in any aspect of our government to set
us back on the right path? To do ANYTHING right?</b> <o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">People are dying, losing jobs, and
homes. <b>No one is coming to their rescue. </b> The government is offering $600 of checks
helicoptered out to the country. <b>They
have no plan.</b> This is the most slip-shot,
thrown-together “stimulus” I’ve ever heard of.
And why? Probably because they’re
too busy intricately planning how they will throw billions to bailout airlines
to even waste any time with a thought-out plan on how to help you. In the meantime, the fed pumps their balance
sheet propping up corporate bonds and forcing down interest rates while the
market soars to new highs after crashing 30% in 6 weeks only 9 months ago. Tesla shares are up 1000% since then, closing
in on joining the world’s biggest companies like Amazon in the 1 Trillion club,
on only 20 billion in revenue…1/10 of Amazon’s revenue. Oh, and grocery costs are going up.<o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I don’t want to digress into politics
because <b>I firmly believe it doesn’t matter.
The die is cast.</b> Whether your
right wing, left wing - no one can fix the problems we’re facing and none of
them care about anything other than themselves.
<b>It’s a big club and we’re not in it.
</b><o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">The world has gone mad. Everyone is losing confidence in everything. I lived through the last bull market. I haven’t had the experience of living
through the depression or the 70s stagflation, but I’ve worked with and heard
stories from people who have. <b>This is the most bullish scenario for gold
I have ever seen or studied</b>. We are
going much higher before this is over.
How high depends a lot on how fast we get there. I’m expecting gold between 3500-8000 before
this is said and done, with the median target at 5000. The point is: <b>Our fundamental case for gold is sound.<o:p></o:p></b></span></p><p class="MsoNormal"><span style="font-size: large;"><b><span style="font-family: georgia;"> </span></b><span style="font-family: georgia;"> </span><span style="font-family: georgia;">Now let’s look at technicals. I posted a lot of charts on twitter yesterday,
so I am not going to repeat them for the sake of time. Take a look at the posts on my profile </span><b style="font-family: georgia;"><a href="https://twitter.com/Jmergz1985" target="_blank">@Jmergz1985</a>
</b><span style="font-family: georgia;">to see them.</span></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I posted a lot of silver miners
yesterday, but left out SILJ, so I’ll do that now. If I removed prices from the chart and you
just looked at the picture the candles were painting, there would be no concern
whatsoever. The previous high, as well
as a long-term downtrend line are right at 17.
It tried breaking above this and couldn’t quite muster the strength and
fell back. Sure, that’s a sharp red candle
there, but I can see about 6 other red candles that look about equal to it on
this chart. <b>This looks like it’s forming a cup and handle consolidation right at its
highs which is very bullish. </b></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: georgia; font-size: large;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwBhN1HYWN74QM-xYCjr0sCUcwaSW4R9tUnbytizLJGi4GCTU3tOXCoRm1AS64e7Jpzck-DfeLrOa-iHVgqQ_H8emccMAbpfcRnIRZJ7idHpynyoWTGK-rB_U6L2m2RjDFOHPzff-FQA/s1185/silj.PNG" style="font-family: georgia; font-size: x-large; margin-left: 1em; margin-right: 1em; text-align: center; text-indent: 0.5in;"><img border="0" data-original-height="954" data-original-width="1185" height="894" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwBhN1HYWN74QM-xYCjr0sCUcwaSW4R9tUnbytizLJGi4GCTU3tOXCoRm1AS64e7Jpzck-DfeLrOa-iHVgqQ_H8emccMAbpfcRnIRZJ7idHpynyoWTGK-rB_U6L2m2RjDFOHPzff-FQA/w1110-h894/silj.PNG" width="1110" /></a></b></span></div><p></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;"><span style="text-indent: 0.5in;">From a textbook chart pattern definition (use with a grain of salt, nothing is textbook) the handle should
bottom about 50% of the depth of the cup.</span><span style="text-indent: 0.5in;">
</span><span style="text-indent: 0.5in;">So being that the high is near 17, the low of the cup is near 12.50, the
depth is roughly 4.50, so the handle shouldn’t drop much below half of that difference
(2.25), which works out to be about 14.75.</span><span style="text-indent: 0.5in;">
</span><span style="text-indent: 0.5in;">Honestly, we could drop back to the 23% retracement at 14.30 and test
that level and I wouldn’t see anything bearish about this. </span><span style="text-indent: 0.5in;"> </span><span style="text-indent: 0.5in;"> </span><span style="text-indent: 0.5in;">I
should also add, silver was 30 when SILJ first hit 17.</span><span style="text-indent: 0.5in;"> </span><b style="text-indent: 0.5in;">Now,
silver is 20% away from its recent highs at 30 and SILJ is 6% away from it’s
highs at 17. </b><span style="text-indent: 0.5in;"> </span><span style="text-indent: 0.5in;">The miners are leading
the metal as they typically do in bull moves. </span><b style="text-indent: 0.5in;">This isn’t just not bearish, it is incredibly bullish.</b></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia;"><span style="font-size: large;">Next up let’s look at NEM. Newmont
ran up about 15% from the Nov 30 low, tested near the 23% Fib extension around
66.46 and dropped. Yesterday we tested the
convergence of the 20 day and 39 day moving averages, bounced decently from the
lows and closed at the 23% Fib retracement from the Aug high and March low. <b>Gold miners have been underperforming silver
miners, but this was expected, the same as we expected juniors to outperform majors. </b> There is certainly a big difference looking at
this, the biggest gold miner versus the SILJ, but it is not at all bearish,
just slow. <o:p></o:p></span></span></p><p class="MsoNormal" style="text-indent: 0.5in;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBsEHCFRxaOL2PC6nfE2Qu0XKhqKh1GHNFOetEvpGtJBCSXZyzEGlA4MqU6khbC6TfnPALS2Zkc2SEO-cZ_X7ineqNBTEgD2GV-c3jGvpD5T88rCyVk3g4MbF_3ovBbEh8I59ug9J1cQ/s1192/nem.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="952" data-original-width="1192" height="896" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBsEHCFRxaOL2PC6nfE2Qu0XKhqKh1GHNFOetEvpGtJBCSXZyzEGlA4MqU6khbC6TfnPALS2Zkc2SEO-cZ_X7ineqNBTEgD2GV-c3jGvpD5T88rCyVk3g4MbF_3ovBbEh8I59ug9J1cQ/w1120-h896/nem.PNG" width="1120" /></a></div><br /><span style="font-family: georgia; font-size: large;"><br /></span><p></p><h1 style="text-align: left; text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;"><span style="font-weight: normal;">Let’s look at Gold and Silver too. Gold got pushed back from the 1960 level a
few days ago. This was the same level we
were at when vaccine news started pounding the metal 2 months ago and we closed
at nearly the same level yesterday too.
It was a nasty drop, but we tested the broken downtrend line and bounced. We were able to close the week above the 1844
level, which is both the 38% retracement of the move higher from March to Aug,
as well as the 23% retracement of the move lower from Aug to Nov 30</span><sup style="font-weight: normal;">th</sup><span style="font-weight: normal;">. Again, this isn’t explosive looking but not
bearish either. </span>What will matter most is
how we bounce from this.</span><span style="font-family: georgia; font-size: large;"><span style="font-weight: normal;"> I think we will
melt higher slowly in a boring way and make our way back to 1960. </span>What we don’t want to see is gold regain about
50% of what it just lost and stop cold and reverse. <span style="font-weight: normal;"> That may mean we are in for a deeper
correction. So, watch the area right
near that fib retracement at 1891, as well as the psychological 1900 level for
a failure. </span></span></h1><p class="MsoNormal"><o:p><span style="font-family: georgia; font-size: large;"> </span></o:p></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: georgia; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKdVFakLFBuuT-e2KE6wEvPdzjVUGbQFDyXk3tWc4NFKbdCivbZ2DX3lk2a2IB1ICWIUws0RTtECm1hcveWRL-09CJqTFMNrbOljsoT_XIHAQhO7Wh0MKrAmEJDMC6aPv087SDOh9r2Q/s1254/gold.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="806" data-original-width="1254" height="737" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKdVFakLFBuuT-e2KE6wEvPdzjVUGbQFDyXk3tWc4NFKbdCivbZ2DX3lk2a2IB1ICWIUws0RTtECm1hcveWRL-09CJqTFMNrbOljsoT_XIHAQhO7Wh0MKrAmEJDMC6aPv087SDOh9r2Q/w1144-h737/gold.PNG" width="1144" /></a></span></div><span style="font-family: georgia; font-size: large;"><br /></span><p></p><p class="MsoNormal"><span style="font-family: georgia; font-size: large;"> Looking
at Silver it’s a much better picture than gold and that is what we
should expect in a bull market. We
dropped from about the 28 level in Sept after an explosive move. We managed to get back to that level and
retest it a few days ago before yesterday’s plummet. Again, if I could take prices off the chart,
you’ll look at the candle and see about 6 more like it - after we plunged from
30, the drop to 22 in Sept, the vaccine news...
<b>In mid-December we fell just short of 28 and reversed on the day then
dropped the following day strongly. We
basically got those 2 days in one yesterday.</b>
We started and ended at about the same levels. We came back off the lows
nicely. We closed above the consolidation
from 22 to 25 we spent the entire fall in.
Again, this looks like a possible bowl-like formation that may mimic
some form of the miner’s many cup and handles I am seeing. (The target here would be 34 roughly). <b>Not a bearish picture, just a sharp pullback.</b><o:p></o:p></span></p><p class="MsoNormal"><o:p><span style="font-family: georgia; font-size: large;"> </span></o:p></p><div class="separator" style="clear: both; text-align: center;"><span style="font-family: georgia; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMhL9168gYJ6kr4BHWbk2Nvj1dVBR8lqI6plhhjzH_9WgSH4fT8ZfeV7fsNYH2S-7Nm64P3O2py3EwAbOVdvdFfK1RC-mleOuOe4Bm1LTpppWrtFlAENzAKFA28CSjzcGMRt56wCXweg/s1105/silver.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="782" data-original-width="1105" height="810" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMhL9168gYJ6kr4BHWbk2Nvj1dVBR8lqI6plhhjzH_9WgSH4fT8ZfeV7fsNYH2S-7Nm64P3O2py3EwAbOVdvdFfK1RC-mleOuOe4Bm1LTpppWrtFlAENzAKFA28CSjzcGMRt56wCXweg/w1148-h810/silver.PNG" width="1148" /></a></span></div><span style="font-family: georgia; font-size: large;"><br /></span><p></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I could go on. Some charts look amazingly strong. The worst of the bunch look “meh”. Not too great, not too bad. Most look at the least very solid. <b> So, the technicals confirm our fundamental view.</b><o:p></o:p></span></p><p class="MsoNormal"><span style="font-size: large;"><b style="font-family: georgia; text-indent: 0.5in;"><span> </span>Next up, leverage and
psychology</b><span style="font-family: georgia; text-indent: 0.5in;">. Have you talked to your
portfolio about using margin? Do it now before it’s too late. If you didn’t blow up your portfolio, get
forced out of positions, or suffer such emotional discomfort that you sold, then
congratulations, </span><b style="font-family: georgia; text-indent: 0.5in;">yesterday was a gift.</b><span style="font-family: georgia; text-indent: 0.5in;">
Why do I say that? I think I probably
lost more on paper yesterday than any other day I can remember. Felt like a punch to the gut at first. After some analysis, some personal analyzation
of my portfolio, and a few beers last night, I realized that’s a good problem
to have. I’m certain I have had equal percentage
losses, but if this was my largest dollar drop in a day than I have more money
then I use to, so I’m doing something right. Gold and Silver aren't at all time highs, the GDX isn't either. So I've done well building a portfolio of miners that have outperformed the funds at Van Eck and elsewhere.</span></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">I didn’t sell or blow up my
portfolio. <b>I have the same amount of ownership
in the same companies I had before, they’re just worth less now than they were
on Thursday. </b> And if you didn’t either,
than its a gift because we got a test run of what’s to come without actually
suffering any irreversible damages.<o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">There was one chart I posted in a
comment to a post by <a href="https://twitter.com/TheLastDegree" target="_blank"><b>@TheLastDegree</b></a>, which I will repost here (For those who aren’t
following <b><a href="https://twitter.com/TheLastDegree" target="_blank">@TheLastDegree</a></b>, I highly recommend you do. I have seen very few, if any people not only
nail timing, price, and strategy as accurately and as many times as he has but also
nailing stock picks that have unbelievably outperformed their peers in the gold
and silver sector.) <o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxgoovkuCksrb15MJG6AXgIPlZ7A9I9rb6evrWk341auG2O8hbFAJ6F0z7-OoAsVr5w9ErE5WA2hcsgwZ53_fQ-HXLAjQSOhy8jj8MtD7jblah3jvjE5l-8eMun4Jysk2s8PmGZ4hQ7Q/s1184/silverugly.PNG" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="967" data-original-width="1184" height="989" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxgoovkuCksrb15MJG6AXgIPlZ7A9I9rb6evrWk341auG2O8hbFAJ6F0z7-OoAsVr5w9ErE5WA2hcsgwZ53_fQ-HXLAjQSOhy8jj8MtD7jblah3jvjE5l-8eMun4Jysk2s8PmGZ4hQ7Q/w1213-h989/silverugly.PNG" width="1213" /></a></div><br /><span style="font-family: georgia; font-size: large;"><br /></span><p></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">This is the Silver chart from Oct
2010- April 2011. Going over the chart,
I calculated <b>5x in 6 months</b> that price moved <b>intraday 6% or more</b>. One of those times, like yesterday was a <b>10%
move</b>, and there was also a <b>15% decline for about 3 weeks in January.</b> Silver
ended January near $27 (only about 5% higher than where we are now) <b>and
practically doubled only 3 months later. </b></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;"><b>This was exactly 10 years ago</b>. For context, the Dow was 12,000, oil was 90
and Tesla was $5. <b>Volatility has
increased immensely since then</b>. <b>Prices
move far more drastically in far less time in all asset classes.</b> From top to bottom, the 2008 financial crisis
bear market in stocks lasted about 18 months and lost a little over 60%. The Covid-19 bear market lost 30% in just 4
weeks, then broke to new highs 5 months later.
This is what you get when momentum chasing algos make 90% of the trades
on the NYSE. <b>EXTREME volatility. It’s not going away. It will only increase.</b> In already volatile assets like gold and
silver, this means we will see extreme moves in the future, more than even
yesterday’s move. <o:p></o:p></span></p><p class="MsoNormal" style="text-indent: 0.5in;"><span style="font-family: georgia; font-size: large;">That’s the bad news, <b>we will see
more of this.</b> The good news is <b>it will
be followed by 10% up days in the future as well.</b> The other bad news is that the next step will
be 15% down days. As the saying goes, bull
markets take the stairs up and the elevator down. It’s what keeps it going, people panic, selling on big down days than chasing prices higher. <b>If yesterday put you over the edge, consider your
personal situation and strategy in order to keep your portfolio in harmony with
your psyche.</b> Here is what I advise:<o:p></o:p></span></p><p class="MsoNormal"></p><ul style="text-align: left;"><li><span style="font-family: georgia; font-size: large;"><b>Do not invest any money you may need for expenses</b> in the
future, or a possible unexpected large expense.
</span></li><li><span style="font-family: georgia; font-size: large;"><b>Do not invest any money you are not prepared to lose.</b> Right now as we speak, some Fortune 500 company
is cooking their books Enron style and no one has any idea until it blows up
and goes to 0. This can happen to any
stock, anytime, it is always a risk. If it’s
too much, don’t do it. </span></li><li><span style="font-family: georgia; font-size: large;"><b>Do not use stop loses on your long-term gold and silver positions.</b> If your stop is too tight, you WILL get
stopped out in volatile swings often and usually end up buying back higher. If your stop is too loose, you will see
volatile swings that will stop you out at terrible prices and it will ultimately
prove a pointless endeavor that doesn’t actually offer you any “protection”. <b>In short, you’ll get bucked off the bull
before you want to.</b></span></li><li><span style="font-family: georgia; font-size: large;"><b>Do not use margin. </b>You
might think a small leverage of 5% is fine, and theoretically will not result
in a margin call even in a crash but consider the mental anguish of the volatility
on days like yesterday. <b>Also even a 99%
chance you won’t blow up your account means a 1% you do and walk away with
nothing.</b> If you are going to use margin
at all, <b>make sure you can pay it off immediately</b> on the spot if need be, in
full without selling your positions.</span></li><li><span style="font-family: georgia; font-size: large;">If the mental anguish was too much yesterday, consider <b>keeping
a portion in cash or completely unrelated assets, like the SPY fund. </b> (And always remember, in a crash everything
will go down. <b>When the margin calls
come, if you can’t sell what you want, you sell anything you can. </b> This is why gold reverses it’s bull moves in
major market crashes. No one wants to
sell their AAPL stock, so they sell their gold hedge, and then usually have to
sell their AAPL anyway) <b>If you suffered a bloodbath in call options on metals
and miners, consider converting some percentage into stock, at whatever level
will help you sleep at night if this happens again.</b></span></li><li><span style="font-family: georgia; font-size: large;"><b>Prepare to see this again.
Prepare for worse.</b> Prepare for
the fact that <b>at $100 silver</b> on it’s way to $150 or higher we will likely see a
swift, brutal, <b>30% drop</b> in a short period of time. Prepare for how much more your portfolio will
be worth then and how many paper dollars you would lose in that situation. If your doing something right, it will be a
lot more than whatever you lost yesterday.
<b>Think about the exact amount you could lose, 30k, 50k, 250k</b>. Really think about losing that kind of money
in a few weeks. Then when it happens, you’ll
be prepared, you were expecting it. (No guarantee
it doesn’t still feel like a punch to the gut though)</span></li></ul><p></p><p class="MsoNormal"><span style="font-size: large;"><o:p><span style="font-family: georgia;"> </span></o:p><span style="font-family: georgia;"> </span><span style="font-family: georgia;"><b>So the fundamentals are sound, the technicals
back us up and we’ve got our financial house and our minds in order for what’s
to come</b>.</span><span><span style="font-family: georgia;"> There is no need for alarm
here. It hurt, its done now, the bull market
is not over yet. Let’s watch some of
these key levels and prepare for a possible reversal on the relief rally, worst
case scenario. Crashes can happen
anytime. Know what you want to do in that
situation and how you’re going to do it. But for now, all is well in Gold and Silver land. Nothing here is unusual or has suddenly turned bearish. Now let's bring on Monday.</span></span></span></p><div><span style="line-height: 107%;"><span style="font-family: georgia;"><span style="font-size: large; font-weight: normal;">-Jonathan Mergott</span></span></span></div>Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com9tag:blogger.com,1999:blog-1868364813347908197.post-69882998251839411632020-04-20T19:32:00.000-04:002020-04-21T21:04:20.247-04:00Going for Gold<br />
<div class="MsoNormal">
It should come as no surprise that a 50% increase in the
Federal Reserve’s balance sheet in a short time, plus trillions in fiscal
stimulus from the government, mixed with historic unemployment and GDP
forecasts, have made gold a great investment.
I would like to highlight though, that gold was a great investment last
year as well, gaining nearly 20%, at a time of solid economic growth, no
inflation, the highest interest rates we’ve seen in a decade (for at least part
of the year), and all-time high stock prices.
A time when nothing was going “wrong” and people scratched their heads
as to why anyone would invest in gold.<br />
<br />
Similarly, after bottoming at about $275 an oz in 2001, gold began
steadily changing trend and moving higher, doubling from 2004 to 2007, at a
time of amazing economic growth, little inflation, and all-time highs in stock
prices. Nothing was seemingly wrong then
either and people were scratching their heads as to why anyone would invest in
gold. And then it happened. The same then as it did now.<br />
<br />
<br />
<ul>
<li>No, gold going up was not predicting a global
pandemic. Increased capital flows into
safe-haven assets like gold, WERE however predicting a market that was way over
owned, over leveraged, over enthusiastic, and ripe for a crash regardless of
what the catalyst or “black swan” ended up being. This wasn’t totally oblivious, people saw
this, people said this. If you’re paying
attention, they really do ring a bell at the top. CNBC spent months just before the crash
pumping an article on social media about all the cash Buffet has and how they were
baffled that he wasn’t panicking to spend all of it right away. Bob Moriarty, in very plain English said we
are going to crash, VERY badly, multiple times within 6 months of it
happening. Countless Wall Street big wigs proclaimed "cash is trash" in financial media. The sudden action of he fed pumping in October should have been a very big clue as well. The market’s parabolic move
higher in Jan 2018 convinced me to bail.
It crashed soon after, in the first batch of 1000 point down days we had
ever seen. Over the next 2 years, I
missed out on an additional 17% in the SPX, assuming I could have nailed
selling right at the high. I’m certainly
not crying over that lost opportunity.</li>
</ul>
<br />
<br />
The market has been problematic for a good couple of years before this
happened, and in the grand scheme of things, cashing out 2 years ago when
things crashed the first time doesn’t seem so stupid now. Looking at it now, holding on for that extra
little bit was just exacerbated greed, and that is exactly what market tops
are. You could look back now at a chart
of the SPX and see that last, dying, bullish effort in stocks as it hit the
“exacerbated greed” point, or you could have just been looking at what the gold
chart was doing. It wouldn’t have told
you “Mortgage Crisis!” or “Global Pandemic!”, but the reasons behind price
movements are immaterial. Financial news
spends 8 hours a day trying to explain the reason why the market is down
today. There are more sellers than
buyers. That’s it. CNBC doesn’t know the motivations behind
every one of those buyers or sellers any more than you or I do. They spend 8 hours speculating on the cause when
all you need to know is the result: Where is the money moving? Regardless of your feelings for a particular
investment or asset class, no one in history has ever invested their money into
any asset for no particular reason.
There is always a reason. So,
when you see gold start increasing dramatically, and there is no obvious
“problems” in sight…get ready.<br />
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I think that gold is prepared for a multiyear bull run. It has already gone up a lot, and is likely
due for some cooling off here, as it has done in the past. There are 2 scenarios I am looking for in
regard to a pullback in gold that I will talk about. In addition, the gold miners have severely
underperformed the metal. With gold moving
as dramatically higher as it is now, their performance can at best be described
as sub-par. But when things are moving
lower, the miners have gotten destroyed.
They are undervalued based on almost any metric you can come up
with. I believe after a pullback in the
metals, you will see likely the last of “stupid cheap” prices in miners. Even if that is not the case, I believe the
profit potential on a modest rise in the miners is easily 30-50%. You’d be hard pressed to find that kind of
potential and value anywhere else in the market right now.<br />
<br />
I am going to focus on analyzing some
individual miners in this article and I am going to classify them in 3 categories. The first is “Investable”. These are the gold assets you can buy and
just hold as long-term investments in your portfolio for the next few
years. The second category is
“Undervalued”. These guys are the ones
that I believe are undervalued miners that are benefiting from higher profit
margins and increased reserves that the market is not accounting for in their
stock prices, because investors are used to suboptimal performances from them. These stocks are in a
solid position for great gains in an environment of higher precious metals prices
but could very easily give a lot of their gains back in the event of a nasty correction. These I would buy while the “wind is to my back” with gold and
silver prices trending steadily higher, expecting a hefty 30-50% profit, maybe more, but I would not get greedy or
overstay my welcome with these, so I would recommend taking profits on large
spikes higher near price target points.
The third category will be “Speculative”. These are mostly small miners, development
companies, miners with high costs and debt, in which a higher metal price could
really “save the day” for some of them, resulting in much higher gains. But the overall risk is much higher as
well. These stocks you should do
extensive research into before buying. These
are the kind of stocks where you could easily pick 10 and put an equal investment
in all of them, betting on higher metals prices, then watch some go up 50%,
others lose 50%, some double, and others go bankrupt. Then you are left being right about your overall
thesis of buying gold and miners and having 0% profit to show for it overall. They could have spectacular moves higher or
go completely bankrupt, so be aware of the risk.<br />
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First let’s look at the gold chart. In 2008, in the midst of a liquidity crunch,
gold got slammed 30% from $1000/oz to $700.
After that, it began steadily moving higher. The first 2 major peaks gold made on its bull
run that it began in 2009 corrected about 15%; from $1000 to about $850, then
from $1225 to about $1050. After that,
corrections lower were 9%, then 8%, then 6.5%, finally culminating with very
shallow pullbacks and a massive blast off to $1920/oz that marked the peak of
the bull move two and a half years later.
Ironically today, after hitting $1700 as the Corona-virus fears peaked,
gold again was a victim of the need to raise capital and plunged $250 to $1450/oz. This time it was only about 15% down, before
turning around and then tapping $1800.
Now we’ve hit the real ceiling everyone has been eyeing, the level gold
tapped 3 times in 1 year from Nov 2011 to Oct 2012 before collapsing.<br />
<br />
Gold is now up about 50% in 18 months, and
it’s unlikely we power through this level to test all time highs without a
pullback. Right off the bat, we can see
we have significant support at about the $1550 level, which interestingly, is
about 15% lower from $1800. This would
be a logical first target for a pullback.
It is not that gold might follow the EXACT same trajectory it did from
2009 to 2011, it is simply how bull markets are born and die. They begin in skepticism, mature in optimism
and die in euphoria. And the gold chart
from 2009-2011 perfectly paints that picture of investor sentiment. Every move at first corrected down more
because even the bulls didn’t believe in it and figured “Ok, this has to be it,
sell”. In the middle of the bull run,
the idea that it was a bull market became more common place, “Yeah it’s been
trending higher, so you should buy it on dips.”
Finally, there are very little dips.
Investors are piling in, and “analysts” calling for extreme gains are
all over financial news. And then that’s
it. A blow off top spiking higher and a
crash. It won’t necessarily be the same,
but there’s a good chance it will rhyme.
So, we will be looking for bigger pullbacks for now that we expect to
diminish in the future as the bull market goes on. A 15% pullback to strong support at 1550
seems logical.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3_l5b49Sl2uxPTcDGyIkkOq8Qr4inVnHr77NvnzhHsRE9GE5_vvv59qpYAgkD_lTkSy8uqGKqUP-3aKWalJJNEFfPIRMXrDuPKda-wnEGM-jjijPAcZiuXofQde25rJggInifGnzSzg/s1600/gold.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="834" height="490" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3_l5b49Sl2uxPTcDGyIkkOq8Qr4inVnHr77NvnzhHsRE9GE5_vvv59qpYAgkD_lTkSy8uqGKqUP-3aKWalJJNEFfPIRMXrDuPKda-wnEGM-jjijPAcZiuXofQde25rJggInifGnzSzg/s640/gold.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But there is another scenario this picture might be
painting. It looks right now, like gold
has formed a picture-perfect “bowl” formation over the last decade and could be
setting up to form a “handle” on a massive “cup and handle” formation. Cup and handles are widely regarded as one of
the most consistent, bullish, chart patterns and the longer a formation is, the
more “solid” it is said to be. On a cup
and handle, a pullback to form a “handle” on this chart pattern should not fall
below about 50% of the “depth” of the bowl.
The top area is $1800, the low of the bowl was $1050. This gives us a depth of $750, indicating
that a handle should not dip below $1800, minus $375, or about $1425. Again, very interestingly we can see our
strongest support level at around the “breakout” point of $1400-1450. This also is the level gold caught at in the
massive “corona liquidation” we saw a few weeks ago. After the handle forms, a break above the $1800
resistance level gives us a target that is equal to the breakout point plus the
“cup” depth. In this case, that is $1800
+ $750 = $2550/oz. That’s about 75%
higher from the anticipated pullback area for the handle at $1400. It’s very interesting how these pictures
paint a pretty clear and logical scenario that oddly aligns with support points
and previous lows. So which road gold
decides to go down will be interesting to watch, but either way it looks
obvious that you should be a buyer as we pullback to the 1550 level and lower.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Investable<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Onto the gold stocks and we are going to start with one of
my favorites, RGLD. After plunging to
60, RGLD has nearly doubled your money already if you were quick enough to buy
it there for the whole 5 mins it lasted.
We have rebounded to 110, but are still within a range of declining
highs since last summer, after peaking at nearly 140. Looking back, 60 was so beautiful you will
likely never get it again, but all is not lost if you missed that
opportunity. There is strong support at
about 90 on RGLD, and I would expect to see at least that level in a decent
pullback. From there, support is a
stepladder down, coming in about every $5, at 85, 80, 75, and 70. Our expectation would be for 80-90. This is a good position to buy into RGLD and
they have proven over the last decade that this is a stock you can invest in
long term that will do well in good times for gold, and also do well in the not
so good times as their business continues to grow and make money. Ultimately, we would be looking for a retest
of the all-time highs after a correction, back near 140, giving you a profit of
nearly 50% on this name.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1dPtYMQq0m4JN7AIko-vnog23r7ehrVoXEiKtZUEwa7w2bnFb5lfm60NkEp-_2hDJ-T8E4BPH4ZpqAzfrKw41HOdx_TQcpkFWq2tCs11Q1fzqJFNl5fbcNJ91WWnHnKQyb4D0XOJYWA/s1600/rgld.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="815" height="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1dPtYMQq0m4JN7AIko-vnog23r7ehrVoXEiKtZUEwa7w2bnFb5lfm60NkEp-_2hDJ-T8E4BPH4ZpqAzfrKw41HOdx_TQcpkFWq2tCs11Q1fzqJFNl5fbcNJ91WWnHnKQyb4D0XOJYWA/s640/rgld.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Franco-Nevada (FNV) has been a difficult one recently. I bought FNV a while ago and it has soared. Since then, I have been wanting to add to my
position, but have found it difficult because it has never really fallen to a level
that I believe offers a great value.
This is often the case with “leaders” in a sector. They will continue to outperform while giving
very little opportunity to buy. FNV has
rocketed to a new high as gold taps 1800, which few gold stocks have actually
done, proving it really is one of the best names to own for gold. The difficulty is the buying point. On a correction, it would be unlikely to get
a great pullback on this. It will likely
be shallow and bottom between 90-100.
That I think is a good level to buy at, while of course, leaving some
dry powder in case of a deeper correction.
I would have a target of around 140 on this stock as well, giving a
great profit potential from a buy at 90.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0ZCv8L1NEjIgT2qTW2iBo_wyzMIyV_q3NaL3agTRF_vpTtUHIyCoLAsnQ-1YV3mEWQk6aR5DmeA6WvViyVlsYZYRpX6MI_Wc7s-w09RE1fnZXHo2KoqVqmPILuztq_KtJ8JRVcxlMkw/s1600/fnv1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="770" height="530" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0ZCv8L1NEjIgT2qTW2iBo_wyzMIyV_q3NaL3agTRF_vpTtUHIyCoLAsnQ-1YV3mEWQk6aR5DmeA6WvViyVlsYZYRpX6MI_Wc7s-w09RE1fnZXHo2KoqVqmPILuztq_KtJ8JRVcxlMkw/s640/fnv1.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
WPM is the other great royalty/streaming company that has
weathered the bear storm in gold and silver much better than most miners and
offers a great upside potential. This
again has been difficult to “buy” because corrections are always shallower than
I would like, but it is again, a sign of why you should be in the leaders. Too many times people make the mistake of buying
a laggard in a sector because the value is still there after a move higher in
their competitors. Investors expect it
to play catch-up to the rest of the industry.
What usually happens is the laggard continues to lag, while the leaders
continue to lead. You’re not “pulling
one over” on the market and getting a “deal”.
Laggards lag for a reason. WPM is
high quality for a reason. With a decent
correction I think it’s possible to snatch up WPM at about 26. I would love to get 22-24 level, but I doubt
that will happen, as it will likely keep trading for a premium. My target for this one would be back to it’s
all time high at around 40, giving it about 50% profit potential.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinaJDmKD4YDnEXuUnVi-oLFpwhunR0GKjlUEDebHszk4LtrBdkoV9wIF6OXxa9r2g0XGS6LTM4m8gOJiUvghWxxGwkeKU1ft8iolHHrLPvtxMvhyphenhyphenGcf0sDBzPnIMc7ZYMA01AhMpw4gw/s1600/wpm.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinaJDmKD4YDnEXuUnVi-oLFpwhunR0GKjlUEDebHszk4LtrBdkoV9wIF6OXxa9r2g0XGS6LTM4m8gOJiUvghWxxGwkeKU1ft8iolHHrLPvtxMvhyphenhyphenGcf0sDBzPnIMc7ZYMA01AhMpw4gw/s640/wpm.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Newmont mining is the only miner I’m putting in the
investable category and for good reason.
Miners are subject to cost increases, host country instability,
literally 1000 different variables that impact their business that is not the
case with royalty companies. NEM is the
biggest gold miner in the world with about 7.8 million ozs of gold expected to be
mined this year, and 15 operations in 9 different countries. 8 of their mines are in geographically safe
places like the USA, Canada, and Australia.
The acquisition of Goldcorp last year was one of the best buyouts I ever
could have hoped for in the gold sector, combining Newmont’s management with
the addition of Goldcorp’s assets. For
years, it performed like a lot of the other gold miners, getting killed when
gold goes down, and drastically underperforming the metal. That has turned now. NEM has a great production, a great portfolio
of assets, great management and looking at the stock chart, it shows. NEM is up 100% since this time last year. And
in addition, they have raised their dividend and will likely continue to do so
as gold goes higher. The last few days
have been almost parabolic as it has shot higher and tested it’s all time high
from 2011 at 62/share. I would be
looking for a test of around 50-45.
There is support there at 45 and around 40, but this would be very lucky
if we pulled back to there. This is one
you should own, so keep dry powder and buy small amounts as it declines. If we never see 45-40, at least you got some
at 50-45. If we do, you can buy a little
more.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilvXF2_UT9ml0VwQ_FH_GS6miy0J9M-B608OI_-BUmVXJNpiDxq710hf-dhganaETFCm3hDR26UVqMm02lC3DMTePQgjH8YEmzjmCXP0hoOrQ3q5ryw46gG4Ta_k72urMGsDO2OqQqfw/s1600/nem.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="807" height="506" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEilvXF2_UT9ml0VwQ_FH_GS6miy0J9M-B608OI_-BUmVXJNpiDxq710hf-dhganaETFCm3hDR26UVqMm02lC3DMTePQgjH8YEmzjmCXP0hoOrQ3q5ryw46gG4Ta_k72urMGsDO2OqQqfw/s640/nem.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Undervalued<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First up on undervalued is going be one that I was debating
putting in the “investable” category, Sandstorm (SAND). I decided to put it in undervalued instead
because the companies in “investable” are all much larger, more established
companies with bigger operations, and SAND is a little different, and more of a
growth story. I do believe it is investable
for a longer-term horizon if you are bullish on gold, but I also believe there
are protections in the other “investables” like much larger and more solid
revenue from their operations and dividends that SAND is not equal to (yet). If you’ve been invested in gold stocks over
the last decade, you’ve probably noticed how much better the royalty model has
performed and have been dying for more companies to invest in of that business
model versus miners. SAND offers the
best of both worlds, because you have the superior royalty model coupled with the
growth story of a junior miner. As they
continue to expand their assets and revenue stream, you have a solid growth
play and gold play. I was lucky enough
to add to my position in this during the recent plunge at about $4.40, but I
doubt we will see those extremely low levels again. The $5 area offers good support and is where
I’d look to buy more of this. Again,
keep dry powder in case you get a better opportunity, but I wouldn’t depend on
it, so don’t get to greedy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO1_PO7hnpWzqc0xnuhU-f8BTn1UL7gxCxhtsBL4XICUKzktdFpJ4CZvQ6pPm4Q8T0BJTfSEUOo612jdqIqWDwcccQN-YwIrEjMrH58OQxKBiowGgRycQ0mScfrQXEG6s-3cB7y0bjJg/s1600/sand.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="770" height="530" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO1_PO7hnpWzqc0xnuhU-f8BTn1UL7gxCxhtsBL4XICUKzktdFpJ4CZvQ6pPm4Q8T0BJTfSEUOo612jdqIqWDwcccQN-YwIrEjMrH58OQxKBiowGgRycQ0mScfrQXEG6s-3cB7y0bjJg/s640/sand.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
AG is a stock I have been a shareholder of for over a
decade, buying in the $2-4 range from 2009-2010, and getting a nearly 10-fold
increase by 2011. They have not been
slouching during the decline period in precious metals, increasing their
production from about 10 million ozs a year in 2012-13, to over 20 million
expected this year. Their estimate for
their all-in sustaining cost is about $14.50/oz for 2020, earning them about
$1/oz right now where silver prices are.
The margins for the silver miners are not spectacular, and that is not
news to the market which is why most have lagged gold miners. But with a production level that is about 50%
higher than just 3 years ago, their leverage on higher silver prices is much
more massive than ever before. The
market might be expecting $1 in profit or less off of their production right
now, but if you are eyeing a silver price that is closer to $20/oz after a
correction here in the metals, then that profit margin is 500% higher then it
is now. Looking at the chart, those lines
I drew at the bottom might seem all clustered together like there is not much
difference between the support levels, but I doubt we will see the spike low
area near $4 again. Buying at $6 and
below is a great price I believe. If you
can nail it at about $5.50, I think you have a 100% profit margin on this, as I
believe that a conservative target is back to recent highs near 11, especially
if were looking at $20 silver.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsCNJLVZC3dACxD-fp8EhimLq0oYlojuXNJzBpSnF1mSdga4S3V4vz-UMtGfbkGcfrGHI3H4uIkFBh-fhqqNFhQadSpbRUs82a0g779CEYnmEqnn7XdK1GIQEb3oTktT5mqUn7nnSFVA/s1600/ag.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="770" height="531" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsCNJLVZC3dACxD-fp8EhimLq0oYlojuXNJzBpSnF1mSdga4S3V4vz-UMtGfbkGcfrGHI3H4uIkFBh-fhqqNFhQadSpbRUs82a0g779CEYnmEqnn7XdK1GIQEb3oTktT5mqUn7nnSFVA/s640/ag.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yamana, AUY has performed nicely over the last year or so
and I expect that to continue. They were
able to sell an asset that was underperforming for them and use the money to
pay off debt and have since also increased their dividend. Their production of 972k ozs of gold last
year is expected to modestly increase to 1 million ozs a year by 2021 with an
expected all in sustaining cost of around 1000/oz, giving them significant profit
at these gold prices. There is not much
of a “growth” story here, but there is another undervalued gold miner here with solid operations and production looking at $700 in profit per ounce at these
levels. There is good support in the
3.25-2.75 region, (we will call it about $3).
The recent highs around 4.75 and 4.50 also seem like a logical bullish
target after a pullback, giving a nice opportunity for a 50% gain from $3.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVcpWXPNYTTlfPt8RA2F_ZkYc25M8xHKtPVCCttdnYcVJ-70JmoU6LF8nVUEEKYKLgZAOqnJAtoSJTh-VK_cWlieHRNh6OcOOTeB-yIWHvDsagC5CIxheTWOptgtk5psG-GfvE5IIBaQ/s1600/auy.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVcpWXPNYTTlfPt8RA2F_ZkYc25M8xHKtPVCCttdnYcVJ-70JmoU6LF8nVUEEKYKLgZAOqnJAtoSJTh-VK_cWlieHRNh6OcOOTeB-yIWHvDsagC5CIxheTWOptgtk5psG-GfvE5IIBaQ/s640/auy.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
SSR Mining has performed very well over the last year or so. I have not followed this company as closely
over the years as others but I have been paying closer attention this past year, and
I like what I am seeing. Their 3 major mines are in the USA, Canada and
Argentina, and are expected to produce 360k ozs of gold and about 6.5 million
ozs of silver this year. Last year they
reported record production which equivalated to 420k ozs of gold equivalent ozs
at an all-in sustaining cost of around $960/oz.
After hitting 19, it crashed in the liquidation panic down to 9 and is
now stalling out on the rebound at 17. 9
would be an ambitious target, but I think we can see 11-12, and that’s where I
would like to start picking some up. With
their solid production and costs, I’d expect a target back near the highs,
giving a 50%+ profit potential. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhop16RXqQMF8ofX_2J1DFDWg9MoVnShuXg24boLUH1AjX4F0-P7WQNZ-erjxix0QCzvma-Z4UdgmWX9U5bHMZrtnpuUlPdZT_wGj4XE3ar8W-IuO7SI6LkuzgZxZc-ReM1W5hfEuLePA/s1600/ssrm.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhop16RXqQMF8ofX_2J1DFDWg9MoVnShuXg24boLUH1AjX4F0-P7WQNZ-erjxix0QCzvma-Z4UdgmWX9U5bHMZrtnpuUlPdZT_wGj4XE3ar8W-IuO7SI6LkuzgZxZc-ReM1W5hfEuLePA/s640/ssrm.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
PAAS has been another very good performer. They had a production of 25 million ozs of
silver in 2019 and 560k ozs of gold at an all-in sustaining cost of 10.50 and
950 respectively. Their original guidance for 2020 would be
about a 10% increase in silver production, to about 27.5 million ozs, and about
a 18% increase in gold production up to about 650k ozs. (I say original guidance because most
companies have pulled their guidance due to COVID-19). Their anticipated all in costs for 2020 work
out to a silver equivalent of about $5.50/oz, giving them significant profit at
these levels. The stock has performed very
well over the last year or so, going from 11 in June to a high of 26 just in
February. It plunged back to 11 in the liquidity
scare, and then rebounded nearly 100% to 21, and now sits at about 19. Again, 11 would be great but I won’t hold my
breath. Silver has lagged and the high
silver exposure in PAAS could drag it down on a pullback, so I would be looking
for about 15-14 as a target to buy at. At
that point, a rally back above 20 is giving you nearly 30-50% in profit which I
think is not an extreme expectation. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_GkJoh_9P2cNoBU5RSik5jQ_Jt5JhJfCtJtOSQuxxLfb471a_1cMGQ1LmPNU2xNYNb3iZoBqxmvVawU02chTA2dpBNb26tBvfOz5BdAFiqkpFV1DH33T4VHc9_OFqhYF3drK9dUDqPg/s1600/paas.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_GkJoh_9P2cNoBU5RSik5jQ_Jt5JhJfCtJtOSQuxxLfb471a_1cMGQ1LmPNU2xNYNb3iZoBqxmvVawU02chTA2dpBNb26tBvfOz5BdAFiqkpFV1DH33T4VHc9_OFqhYF3drK9dUDqPg/s640/paas.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
HL, Hecla has performed better than I would have expected. I bought some at about 1.60 and doubled my
money within a year. On this past plunge
downward, it bottomed at about 1.50 and bounced up 66% to 2.50. This is one that could just as easily have
been in the “speculative” category, but with solid production, low cash costs,
and the market performance, I think it is superior enough from those other “speculatives”
to be put in the undervalued list. There
is solid support here around 1.50, and like a lot of the silver miners, has noticeably
underperformed gold, so I would in this case, be expecting a retest of the lows
in that support area. I believe at around
1.50, you are buying an undervalued mining company with a 50-100% upside
potential, but I should note, I wouldn’t place a huge investment in this name,
but it is worth owning some.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlEr0q5iLo83K8mu103ikAGxij5tP6_4wPimZ8blerbDjNjALUodn_-ZAhTO-WHG9SSPT3SqyexL1dPchQiwp_jBt3b_AhJjs00EQR-2IFOno-ORzvdZYLH3-bV_Zv7NRc2lekvwqyIg/s1600/hl.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlEr0q5iLo83K8mu103ikAGxij5tP6_4wPimZ8blerbDjNjALUodn_-ZAhTO-WHG9SSPT3SqyexL1dPchQiwp_jBt3b_AhJjs00EQR-2IFOno-ORzvdZYLH3-bV_Zv7NRc2lekvwqyIg/s640/hl.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
CDE is another that has surprised me on the upside but performed
about as expected on the way back down.
This is another stock that was borderline “speculative”, but a few
things are giving it the “undervalued” edge, including solid production on
their operations and their diversification from a mostly silver producer, to about
a 55/45 split between silver and gold.
CDE has stopped reporting all-in sustaining costs, but as of not too
long ago, they were about 18/oz, making them very high in the industry. Cash costs are less, but all in sustaining cost factors in development costs for new operations they are working on, which are
very high right now at CDE, as they are burning through their reserves very
quickly. The benefit to high cost
producers is when metals begin to rally to their cost level. At 14, no one is counting on any profit from CDE. At 18, they are now break even and the
markets assumption of no profit or a significant loss begins to change rapidly,
and these miners play catch up really fast.
After going from a little under $3 in June and tripling to a little over
$8, it’s been one of the best performers last year that I have in my watch
list. But as metals pulled back and the
panic ensued, it lost all of its 2019 gains already in 2020. The outperformance of gold to silver is going
to help their costs this year, and if you are looking for silver at $20/oz,
then the market is severely undervaluing CDE right now. This is another I think could retest its
panic lows near $2.50, and I would like to pick some up at $3 or less. I believe the move to $8 was a little over
enthusiastic so I would not target that area on a move back up. I would be looking for an upside target
around 5-6.50, still giving a 100% profit from a buy of 2.50-3.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguEqUwygq-iPz0jTzqe_urkWFBM8QnHTX4t8Kq8RwzPTmI1fmz8mdV0PO89rdSEQ8ZlIxbR7gBXfcVTjSIoRr6Osn1c1EfFFVaEnTi0oafRldVWFqoK62ZiBH4-mCM_Slq3_I4EKwD8Q/s1600/cde.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguEqUwygq-iPz0jTzqe_urkWFBM8QnHTX4t8Kq8RwzPTmI1fmz8mdV0PO89rdSEQ8ZlIxbR7gBXfcVTjSIoRr6Osn1c1EfFFVaEnTi0oafRldVWFqoK62ZiBH4-mCM_Slq3_I4EKwD8Q/s640/cde.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
GFI. Over the last
few decades everyone has done everything they possibly can to get as far away
from South Africa as possible. Although
there is more gold in SA than nearly anywhere else in the world combined, political
instability makes it not an attractive place to do business. In addition, many mines in SA are very old
and go miles into the ground to produce gold, making costs very high. The upside is reserves. With such high costs, it may only be
economical to mine 20 million ozs at a price of 1500/oz. but at 1800/oz, now there could be another 10
million economical ozs, and that often happens to these SA miners. GFI has diversified away from SA as well, now
having operations in Ghana and Australia.
They have solid production and even pay a dividend which is always nice
to have. My biggest gripe here is hedges. The company has hedged 200 million liters of
oil at a price of 58/ barrel for their operations going out until 2022. They have also hedged a significant amount of
their gold production at around 1300/oz.
When profit margins are thin, it can be enticing for management to hedge
costs and profits so that they are at least marginally profitable, rather than
roll the dice and risk bankruptcy. This
would be fine if anyone was ever able to get it right. Looking now, buying your oil for this year at
58 and selling part of your gold production at 1300 sounds really stupid, because it is. Their operations are
solid though, and I think in a pullback to near 4.50-5, there is a target of about 6.50-7.50. This is
not as enticing as other miners, so it shouldn’t be a focus on your portfolio.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZGsv8-OFDkvksAi9fHVsHBL5tL6nGw_uf9_zLSSD1vchLRHL5BJhyWtzR7OO8_2fycuzfawmnMCSJfxthNL__awqrqBPl6kLma_TAJ2ZeEw1UZVj6u68enXts7Lj_B0r-ZI8xIWqn9g/s1600/gfi.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZGsv8-OFDkvksAi9fHVsHBL5tL6nGw_uf9_zLSSD1vchLRHL5BJhyWtzR7OO8_2fycuzfawmnMCSJfxthNL__awqrqBPl6kLma_TAJ2ZeEw1UZVj6u68enXts7Lj_B0r-ZI8xIWqn9g/s640/gfi.png" width="640" /></a></div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
HMY I believe offers a better value to GFI, without the missteps
of bad management. This is another
borderline “speculative” so I wouldn’t build a huge position in this, but I believe
at these gold prices, their reserves and profit margins are very good, and I
would love to buy a little of this near the $2 level. This is another that has been one of the best performers on my watchlist, tripling from it's low near 1.50. I believe this is due to the significant leverage to gold prices that South African mines have. I would target an area of about $3-4 as a
price target, and I think that is conservative.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOQWv8HUH9kQjtAYM-Qd6lzzdUUDMB_pYdPkRs3xrbTd_VsxiV-jRUG-V7ysSVcSMvxJj7NBD94turjrs-w_CUnSN-0XS3MD0k9Y-eODUzjYq_MI0np8cd2hXLUtiFTyj5veg8n6cSJg/s1600/hmy.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOQWv8HUH9kQjtAYM-Qd6lzzdUUDMB_pYdPkRs3xrbTd_VsxiV-jRUG-V7ysSVcSMvxJj7NBD94turjrs-w_CUnSN-0XS3MD0k9Y-eODUzjYq_MI0np8cd2hXLUtiFTyj5veg8n6cSJg/s640/hmy.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Speculative<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
MUX has had a very hard time. Its biggest benefit has been CEO Rob McEwen
as it’s biggest shareholder, holding 20% of the entire stock while taking $1 salary
a year. He has invested 164 million into
the company of his own money. The entire
market cap right now is about 400 million.
He could buy the other 80% outright and own the company privately for an
additional 320 million. He wouldn’t do
that, because he is smart enough to know that he will never get the value for
his company privately that he would on the public market, but that does in some
way leave a “put” in the stock price.
Their production costs are quite high at over 1200 for their all-in sustaining
cost, with not much in actual production.
The stock has performed horribly for a decade, losing over 90% of its
value after falling from a high of $10 in 2011.
This stock has already doubled off its low of 50 cents to now $1, and
could do something similar if we have a retest near that 50 cent level, leaving
an enticing profit potential, but less enticing when you consider the risk, and
the many other miners with better portfolios out there. Bite on this if you really want to, but I
wouldn’t buy much or expect much.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgswkVODXW74WBp2Blm_tGFJ3I7Qiy0G2V_wTxo7t_B06PZroUknuOXmH331nGNNKvUTzYJASbZWfofzmd0VGsuB56i-BX5YCU0hXoQ8cxSw3Gt2IVET772Qau5qKOKPJlpCbvoQTO3Ww/s1600/mux.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgswkVODXW74WBp2Blm_tGFJ3I7Qiy0G2V_wTxo7t_B06PZroUknuOXmH331nGNNKvUTzYJASbZWfofzmd0VGsuB56i-BX5YCU0hXoQ8cxSw3Gt2IVET772Qau5qKOKPJlpCbvoQTO3Ww/s640/mux.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
IAG was one of my favorites in 2009-2011. Unfortunately, since that time their
production level has dropped, their costs have increased and they’ve made some
foolish bets on their hedges, hedging oil costs at around 57/barrel. It bottomed at 1.15 in 2015 then rocketed to
over 7 the next year before losing it all again. This past panic plunge brought it nearly back
to that 1.15 level, bottoming at 1.40 I would be compelled to buy a very small
amount at $2 or less, with an expectation of about $3 on a rally, maybe even $4. I would not count on much here, but with an
850k/oz a yr production, there is profit potential in this one if you get it
cheap, but I wouldn’t expect it to outperform it’s peers. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqQTVUa6WwDFvgofB4uLa2K7Q7yjJWtrQVhxpKs_1RewYNBvFRVgf5pQqEsZwiFvT8uLluHy0XHAr_BGLTrK6TG-MAg9NYr7GDUX6GcDFgapeaiX2DDZFoJ8pI4M6-Nu4tk0R6SDO6ZQ/s1600/iag.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqQTVUa6WwDFvgofB4uLa2K7Q7yjJWtrQVhxpKs_1RewYNBvFRVgf5pQqEsZwiFvT8uLluHy0XHAr_BGLTrK6TG-MAg9NYr7GDUX6GcDFgapeaiX2DDZFoJ8pI4M6-Nu4tk0R6SDO6ZQ/s640/iag.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
EXK has performed dreadfully. Their all-in sustaining cost is at $21/oz. Production declined 27% last year to 7.1 million
ozs of silver equivalent. There is
nothing here I see worth it. However, a greatly
rising silver price, close to their cost price would certainly make the market
reevaluate its economic feasibility and could see a very big rise, if indeed
production declines start turning a corner as management believes. It’s lost half of its value since September with
a recent low of 92 cents. It could
easily break that and head lower, then rebound 100%, but I believe there is
better stuff to buy out there.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQPPVgY59g_SpcjPecTSULI5aenGixlLK5WUfS6DlaNHYtOihFep8_MWZotsrUkinXlMgtqgAG1O_MKnD0BQprJGabqE21T_R20XyzYG3vrhcmXof4lKB8btWB7l8r37yg0lq14n-66g/s1600/exk.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQPPVgY59g_SpcjPecTSULI5aenGixlLK5WUfS6DlaNHYtOihFep8_MWZotsrUkinXlMgtqgAG1O_MKnD0BQprJGabqE21T_R20XyzYG3vrhcmXof4lKB8btWB7l8r37yg0lq14n-66g/s640/exk.png" width="640" /></a></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
FSM and EXK have been pretty equal in their stock performance
for the last couple of years. There has
been nothing here that is impressive. This
is a stock I also own some of and I have been very disappointed and do not have
much faith in a rebound. It bottomed
recently at 1.50 then doubled to 3. There
is certainly money to be made if you want to try and catch a falling knife, but
there is money to be made in safer stuff too.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmOizk3uDhy2YJeBo2rdDGBWVX4ZCD0bAfXTYYWKGBIU2YHh4VwU1E72WwwFBMHBmFgVjQJUVhMa5JuUf7RFBjKHUICUGrNKGg50J7NckZ2VhWOCR2vKdGP0jOD4lL5JrWsWqZN9MrIA/s1600/fsm.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="789" height="518" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmOizk3uDhy2YJeBo2rdDGBWVX4ZCD0bAfXTYYWKGBIU2YHh4VwU1E72WwwFBMHBmFgVjQJUVhMa5JuUf7RFBjKHUICUGrNKGg50J7NckZ2VhWOCR2vKdGP0jOD4lL5JrWsWqZN9MrIA/s640/fsm.png" width="640" /></a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
Honorable and Dishonorable mentions<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There are some I am just not going to take the time to
analyze and I will briefly explain why.
GOLD, Barrick/Randgold merger, has been a historically terribly run
company. Barrick hedged oil costs in
2007 at 100/barrel and hedged their gold earlier in the decade at about $400/oz. After NEM bought Goldcorp, the new Barrick
launched a hostile takeover of NEM with an offer below the market price. The new CEO tried to explain why they “shouldn’t
have to pay a premium” to NEM shareholders to take their assets, because the “synergies”
would be more profitable for them with the merger. This is two companies with historically bad
management merged into one dreadful one.
The stock has performed pretty well actually despite this, but their
dumb decisions are like a ticking time bomb I would be avoiding in fear of what
“brilliant” idea they come up with next.<br />
<br />
GSS is a high cost producer in Ghana, that would greatly benefit from
gold at these prices, but it hasn’t translated to the stock performance. There is better stuff out there. GPL has done nothing but go down for years
and nothing has impressed me at all about the company’s portfolio or management. NGD has been another dreadful story that
continues to get worse. There is nothing
here to buy and they will likely get bought out for pennies or go
bankrupt. AU has performed quite well
actually but is another story of bad management and ill-timed hedges. A lot of the time, these companies can perform
based on their assets, so long as management stays out of the way. I’d avoid this as well. TRX has been developing the same property for
decades, and after personally working for them for almost 5 years, I do not see
any advancement in reserves, any timeline on production, (let alone earnings)
or any royalty contracts which was its entire purpose when it was formed. I have serious doubts this will ever reach
any meaningful level of production or ever prove any meaningful deposit, and
don’t advise gambling on a 50-cent stock simply because a big wig like Jim
Sinclair is the CEO. OR is a royalty
company which I would have loved to own, but they recently purchased a mine
they intend on producing themselves, steering away from the royalty model for
some unknown reason. In addition, many believe
they are biting off more than they can chew with this purchase and that the
value is just not there. Again, I’d
avoid. I’d especially avoid any company or
management who thinks mining themselves is a better alternative than royalty
contracts.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, there it is. Almost
all the miners on my watch list broken down with what I believe are very good buy
points if we can get a decent correction in the metals, with (what I believe) are
conservative price targets on a move back higher. I may be wrong about the “last chance to buy
miners at stupid cheap prices”. The
market might already be catching on, so it might be advisable to buy more lots
in smaller amounts starting a little sooner.
Gold has already pulled back nearly $100 from the high and miners have
not gotten crushed like they have in the past.
Earnings on a lot of these stocks for Q1 will start coming in next month
and I believe they are going to be very good across the board, so take an opportunity
on pullbacks to buy and hold the investables, buy and sell the undervalued ones
on big swings higher, and be very careful about speculating with the others. If you lighten significantly in your
undervalued category you will book profits while still maintaining a solid gold
position in some of them and long-term positions in your investables. As always, be careful out there in the market
and stay safe. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
-Jonathan M Mergott</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
**Full disclosure, many of the stocks that I mentioned I am an owner of personally, in all 3 categories. Do your own due diligence on ALL investments. Don't blindly listen to me or anyone else.</div>
Jonathan M. Mergotthttp://www.blogger.com/profile/07073985087907462882noreply@blogger.com5