Note: This is not financial advice.  I’m not a financial advisor and I’m wrong 100% of the time.  Investments are risky and nothing mentioned here should be considered financial advice.  Invest at your own risk.

The markets are a rapidly moving chaotic orchestra of dis-harmony.  Meaning, shit storms within shit storms in the midst of a hurricane of shit storms.  To try and predict these markets, you need to be aware that you cannot predict them, but you can only really use a macro level of what is going on with the economy as a compass to navigate your cruise liner.  I like to look at behavior, price action, news, charts – and instinct – to form a position I’m comfortable in.  My risk tolerance is not as much as others, so I tend to pull the trigger more quickly on options than I should when I’m making money.

This past week or so saw silver shoot up and then pull back a little.  Today it’s been up a little.  Gold seems to be hitting a lot of resistance at $1750.  Most analysts see gold pulling back in the short term to $1675 or even $1650.  Because the mining stocks tend to move with the metals prices, this can mean a pull back for the miners as well.  Long term, they are still a GREAT play, but maybe a pause for a short term.

This morning, I cashed out profits on GDX and GDXJ.  Some really smart analysts see GDX going back to perhaps $30-$32.  Here’s what the daily charts look like, and you can see GDX starting to move to the right and noodling down, with perhaps some correction downward possible soon.  The upward channels and wedges like this tend to pull back every now and then to cash profits and reload for another run up.  Could be a few days or a few weeks.  No one really knows where bottom is, but the concept is getting more shares than you currently have – rinse and repeat.

Here’s what that reality looks like.  The problem is no one knows if it will be a Fibonacci correction to 21, 38, 50, or 61.8.  Traditionally, gold goes to sleep during the summer and wakes up in August.  This year may be different.  All I know is just about every analyst I’ve seen suggests that there may be some form of pull back.  In this case, I will bank my profits and when I see another up trend, I’ll try and catch it.  I’m looking for a big green candle and the MACD to cross over.  It could be a few days or a few weeks before I get back in.

GDX 05222020

What you see in the purple is the Fibonacci retracement levels.  This is a “behavioral” study on how people seem to sell off.  It just so happens to coincide with the “golden ratio”.  Could it drop down to 32?  30?  27.5?  If I had 10 shares at $36 sold off for $360, and the share price drops to $30, I could then buy back in with 12 shares and ride that wave up.  Essentially, if you just bought a stock and held it, you’re good if it keeps going up over the long term.  However, to maximize all of these price moves, the thought is you can “buy on the dips” and “sell on the rips”.

Gold may very well continue upward, but almost everyone feels a pullback is coming.  I’m actually more partial to GDXJ at the moment due to the majors seemingly saturated.  GDXJ is very similar to GDX at the moment.

GDXJ 05222020

With both of my options on GDXJ and MTZ, I did well.  MTZ went way down first, and I bought more options at $60 and $65 and these doubled in a few days when the price went up and I sold them off.  I did well on my MTZ $35 options and sold them at 50% profit.  Could I have held on?  Yup – but these are extremely uncertain times and I’m new at this.  If I’m seeing 50-60% on a trade, I’m hammering it in and taking the profits.  Made a few hundred bucks on a few days work.  I’ll take it.

Silver….

I’m treating these miner stocks a little differently than gold miner stocks at the moment.  I hear the analysts also talking about silver dialing back a bit after its run up while people take profits.  Well….my PERSONAL opinion, which is NOT financial advice is there’s something hinky going on with silver that I wrote about previously and it could lead to a price explosion very shortly.  Therefore, I’m not selling my SIL, SILJ, AG options, or SLV options until I see what happens Wednesday.  I could get burned.  So could you, so don’t listen to me.

What I’m seeing right now, and for the past few days has been a $.50 spread in the price of spot price silver and the next silver futures contract.  The EXACT same thing happened with gold 2 months ago, but that was a $50 spread.  What is the big deal?

The spot price and the next futures contract should be relatively close in price with the futures contract a little more expensive due to holding costs.  When there is a LARGE spread, what this means is…..

  • Someone with deep pockets can buy many silver contracts (5,000 ounces per contract) at spot price, then turn around and sell them on the next futures contract. By doing this, a person can pocket $.50 per ounce, or $2,500 per contract.  If they buy 100 contracts, this is a nice profit.
  • This tells me there isn’t confidence that anyone could actually take delivery of large numbers of contracts at spot price because they do not believe the COMEX actually has the silver they say they do.
  • This happened with gold and cost HSBC $200 million in one day in late March.
  • These types of issues could lead to people demanding delivery of metals and have a “run on the bank”.
  • Many of these metals are levered out hundreds of times over with derivative tools.  People think they have metal, and don’t.  This could lead to issues with the proper functioning of the COMEX.  There’s a term called “re-hypothecation” which essentially means someone sold the same silver many hundreds of times over.  All of these people think they own the same bars of silver.  This may not end well and it’s possible we may see some big banks fail over this in the upcoming months.

Weds is delivery day for the silver futures contract, and some on the YouTubes feel that any day (or month now) the COMEX could default.  In past years, there were many banks with concentrated short positions to keep the price down.  How this worked is these banks would fire out paper contracts, drive price down, and then have their banking people buy up cheap.  It was called “spoofing” and JP Morgan is potentially under RICO investigation for this.  Scotia Bank is also being investigated for manipulation and was essentially forced to leave the metals market after losing tons of money like HSBC did.

So…I’m seeing a massive gap in spot price to futures price.  People are all tinfoil hat about explosion upward of silver price.

Silver dropped the other day, but man….it’s been fighting.  It would drop $.25 and minutes later fight back.  Then up $.25.  Then down $.30.  I’ve never seen anything like this in 6 months of following silver.

I also read how hedge funds have now started to look at silver.  This may be where the buying pressure is coming from.  Of interest here, the hedge funds are the ones who caused the -$37 price in oil.  Smart people who knew what they were doing essentially let idiot ETF managers run it into the ground – and they knew it was going to happen and had oil tankers rented on standby to take the oil, and they were paid $37 per barrel to take it.

Those same hedge fund managers I feel are putting upward pressure on silver now.  This will cause losses in the shorts very similar to HSBC with the $200 million in March.  The idea here is to FORCE these banks to:

  1. Cover their short position by then buying in and forcing STRONG upward pressure on spot to acquire the silver needed to fulfill contracts.
  2. Force banks into the “force majeure” which forces these contract holders to default and pay out.  This could cause spot price to absolutely shoot up and a run on metals to happen when it is revealed the COMEX doesn’t have the metal they say they do.

So – with my metals plays, I’m looking for Weds for something to happen.  Spot price could shoot up today, Tuesday, and Weds in anticipation of this.

Or…it could be a dud and nothing will happen.

What is interesting is a lot of the silver mines had been closed since early April.  The U.S. mint ran out of silver twice now and getting supply is near impossible.  Anyone trying to get investment silver has been shit out of luck for months.  While silver spot price was listed at $14, it was sort of a joke because you could not get American Silver Eagles for less than $25-$30.  India has come back online after 21 days of a lock down, and they are big on metals for security.  China manufacturing has also come back online, and they use a ton of silver in electronics and solar panels.

To add – JP Morgan was one of the “big 8” shorts for many years, but now they are out of the short game and have 1 BILLION ounces.

With less big banks able to hold the concentrated short position, HSBC just losing their ass in gold on this issue, Scotia Bank trying to get out of the industry, and Deutsche Bank in trouble…..JP Morgan and others being investigated for manipulation.

………it might seem the perfect storm has arrived for silver.

Lack of supply and lots of buying pressure coupled with lack of banks able to “hold the line” of concentrated short positions, perhaps forcing them into a net long position.  The only people who can really force this issue are hedge funds that smell blood in the water, just like they did with WTI crude last month.

The issue with WTI crude was that the contracts FORCED delivery of oil.  This had a lot of ETFs that were speculating on the price of oil to be forced to take delivery.  They don’t do that.  So they had to pay people to take the oil.

The EXACT opposite is happening here.  The COMEX is saying you have all of this silver here to buy (artificially) cheap, and hedge funds, silver investment buyers, and manufacturing are trying to gobble up all physical silver.  Many of these contracts over time are cancelled out or rolled over, or perhaps “delivery” maybe meant move it from one ledger entry to another in a vault where it might move 3 feet.  This time, it smells of everyone wanting delivery.

And the silver may not be there.

This can cause the “force majeure” where the default happens.  If so, this could potentially make the spot price go parabolic.  On one hand, you have the price set at $17 under the assumption that you have over 325 million ounces available via the COMEX.  Then, when defaults begin to happen on only 50 million or so bought, this could trigger manufacturers to start buying up all they can before the price goes through the ceiling.

None of this may come true on Wednesday.  Maybe 10% chance?  1%?  However, I can tell you it is most definitely not zero.   You need to watch the price action of silver minute-by-minute and you see it rapidly jumping all over the place.  There’s a LOT going on between the longs and short.

I have several dogs in the race at the moment:

-SILJ – this is the “silver junior miners”, but really, these are all of the major silver producers.  This will pop the most when AG, PAAS, MAG, SILV pop.

-SIL this is supposed to be a silver miners ETF, but 35% of it is Wheaton precious metals, which I think is a streaming company.  I’m going to let this play out over a week or so, but I feel I’m going to be exiting SIL at some point because I want closer action to the miners like AG and PAAS, which I’ll get with SILJ

-AG options at $8.  I bought these awhile back and plan to hold these for a bit.  Up at one point 60% on them, but if what I think will happen next week happens, these might mushroom cloud

-SLV options.  I also bought these awhile back for $15 strike price pretty cheap when silver was like $12.50 an ounce spot.  While these are up nicely, if silver suddenly pops to $23 or $26 in 1-2 weeks, these might go out of orbit.

-MAG silver.  This company is supposed to be pouring their first silver by the end of the year and could be one of the silver majors right away.  These are a long hold that could double in price in 7 months.  $30 silver could make all miners go into orbit, but these guys have the richest mineral deposits and the lowest cost of production.  Meaning, their profit could be far better as a percentage than some of the others here.  MAG is also part of SILJ, but I wanted the additional “pop” of owning a good stake of them outright.

With SILJ, you see what I’m seeing here.  My guess is if there is a pullback, it will be much briefer and the run up will come sooner.

SILJ 05222020

 

Miners are still equities!!!

I feel that there’s another big pullback coming with the Dow and S&P.  However, the NASDAQ does indeed look like its own beast now, and these stocks don’t seem to be letting up.

1921

With my projected double bottom (see above), I feel 2Q profits are going to crush most companies.  Those excluded are probably the Netflix, Amazons, and Googles of the world.  Miners could also be affected because mines were shut down and product wasn’t sold.  Additionally for silver miners, where AG posted a $17 avg sale price for silver in Q1, most of this quarter it’s been $14 and they refused to sell until it hit $17.  The “break even cost” for most silver production is $15.50.

So – Q2 could also be cruel to miners, but we saw them pop right back up for the most part over a month, gold miners leading the way.

Why I’m more gung ho on silver now…

The gold to silver ratio seems to be an ominous predictor of bad things to come.  In the two times in recorded history it touched on 100:1, bad things happened immediately thereafter.  In this case, it had hit 125:1.

Gold-to-Silver-Ratio-Long-Term

 

What tends to happen in times of economic distress is: “gold moves first, silver moves furthest”.  As of this writing, the ratio is now 100.38.  It has come down over the last month because silver is starting to outperform gold.  Traditionally, silver also picks up more in the summers.  This, along with gold going to sleep during the summers suggests this ratio could be tightened up more with a combination of higher silver prices and lower gold prices.

If gold does retreat to $1650, and the ratio tightens to 80:1, that is $20.65 silver.  To put it into perspective, in 2011, the ratio touched on 32:1.  It is also projected that in the next 18 months, gold will hit $3,000 (according to Bank of America).  For argument’s sake, if the gold to silver ratio is anywhere near 32: 1, that would put silver at $93.75.  For those who think that silver price is nuts, consider that over the last how many years, many of the big banks have been accused of silver price manipulation.  This is not tin foil hat stuff.

So in 1980, there was massive inflation leading up to the silver and gold prices soaring.  That same situation is presenting itself here with inflation.  When you add $6 trillion to the money supply, this is expected.  It has started in food prices, if any of you have seen the prices of bacon lately.  It will continue in the prices of goods as we move away from Chinese goods and have to buy more expensive American goods.  Some expect inflation at 5-15% in the next year alone.  This again, sets up nicely for silver.  If we see mass inflation and a run on silver, this could once again produce a 10:1 ratio like in 1980.  This could suggest possibly $300 silver prices.

All of the above seems to hinge on whether or not the COMEX can be brought to its knees in the days, weeks, or months ahead with a few concentrated silver shorts possibly getting their asses handed to them soon.

Download the Kitco app.  Take a look at spot silver price.  Then go on yahoo finance and look up SI=F for the silver future prices.  Keep clicking refresh as Weds comes and goes.

Get your popcorn out!!  I’m hoping for at least a little fireworks.

Popcorn

And….while people might sell off some silver miner stocks expecting a pullback, for me this is a hold.

Some other sources….

This guy is one of the tin foil hat people, but was also part of GATA in the 1990s and is very much in touch with the price fixing schemes – and he is one of the people who think the COMEX is about to go nuts.  In addition, Ted Butler, who is one of the anti-price fixers in the silver space, reported that the shorts are now down $7 billion with the current silver price, and this gets far worse for them as price continues to rise.