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.

 

No one KNOWS what going to happen.  But I think I got damn close last week which started playing out this week.  I started to see confirmation of this on Thursday and Friday.  And will begin to unfold in a more dramatic way this coming week.   I’m still relatively new to investing, but I’m what you might consider a “quick learner” and have a pretty solid background for this, so….here goes how I sort of put some things together.  And what may come of this…

How can you find these things?  It’s not about just reading a balance sheet, or looking at technicals.  What I have done over the last 6 months to get educated on this and make a move….

  1. Being a quarterback and reading defenses prior to snap.
  2. Using probability to guess a general direction.  Understand chart patters to see if anything is jumping out at you.
  3. Form a hypothesis – what is LIKELY to happen.  Assess your level of risk based on your confidence.
  4. Input geopolitical issues into the calculus as counterparty risks can make the best laid plans go sideways.
  5. Research, research, research.  I completely threw myself into the research.  I live and breathe it.
  6. Understanding the horse and the jockey (mining stocks)
  7. Look at technical analysis to check for concurrence.  There’s a lot of channels out there that do technical analysis.  I like watching these to either confirm my findings or find out what I have done wrong.

What happened?

You find lots of channels that are “silver pumpers”.  Every video is how silver will shoot the moon.  I get it.  But some things seemed to change the past few months that led me to believe there was a massive move coming.   One big thing the silver pumpers talk about is how silver is a manipulated commodity that artificially lowers the price of silver.  At first, it sounds pretty tinfoil hat.  And you dig a lot, lot deeper and find that it is not only possible it’s happening, it’s a certainty that banks have been doing for years.  They get a fine, which is a fraction of the money they make, and they continue to do it.  Check below for references on this.

Because of the research, I had been thoroughly convinced that there has been manipulation in the form of “concentrated shorts” and felt extremely confident I had witnessed this dozens of times over the last 6 months of watching spot prices.  I also listened to the Chris Markus audio book “the big silver short” in which he interviews the top analysts in the world – as well as the former CFTC commission chairman in which is openly admits that J.P. Morgan had an oversized short position after taking it from Bear Stearns.  The audio book dealt with the run up to $49 silver in 2011, and then how it was smacked down to a fraction of that price by banks holding concentrated short positions.

Reading defenses:

Once you sort of understand how the manipulation was going on, that is sort of how you could start to read the defenses that the other team had.  Silver price would move up over days or weeks, and in 5 minutes you could see drops of $.20 or $.30 in 3 minutes.  I didn’t just check daily or weekly prices, I watched spot price move minute by minute with refreshing my Kitco app maybe 2-4 dozen times a day.  BIG money was dropping contracts to sell silver.  The problem is – they didn’t have the silver.  In the futures markets, you can “short sell” and “borrow” silver in theory to speculate on the future price of silver with the promise of paying that silver back later.  Each contract is 80,000 ounces of silver.

What would happen is a big bank would see a price move up, and then near a resistance level, drop a ton of contracts.  This would then have the psychological effect of having people sell their positions – and in this automated world, it would trigger a lot of stop losses.  Within minutes, they would take back the contracts – thus triggering a lower price.  The law is supposed to have banks that are hedging these positions to be separate from banks purchasing/selling, but that isn’t what happened in the last 10-20 years.  What then happens is these guys are all coordinating moves.  Well  – those days are coming to an end.

J.P. Morgan was accused of doing this over a decade and a bunch of their people were arrested for “spoofing”.  Recently, some of these people have turned on J.P. Morgan and are testifying against them in a RICO case.  The idea was that J.P. Morgan would drive down price – and then when the price was low, they would buy up a lot.  There were eight banks with “concentrated” short positions.  Scotia bank is being investigated as well and set $168 million aside to close out their metals desk after 300 years to deal with covering their shorts and paying fines.

It is common for bullion dealers or the like to short futures contracts as a sort of hedge to their business.  The issue at play was CONCENTRATED shorts who would then use the weight of their big balance sheets to simply drop new contracts for metal they didn’t have to potentially buy up at low prices that THEY created.

So – it is well known that a lot of these banks have been manipulating silver and gold using “paper” contracts.  For the most part, they pay fines that are substantial – but pale in comparison to the profits they made.  This all recently changed with the RICO charges being filed.

I watched spot price like a hawk for 6 months straight.  The past 3 weeks or so, I’d see strong moves up.  It would be swatted like usual, but almost immediately I saw the price recover.  I had never seen upward moves like I had seen.  I was used to the massive contract drops, but I wasn’t used to seeing price recover.  This got me really curious to looking into this MUCH closer.

The defense was telegraphing strong long positions were being added.  In the past, the price moves down would take hours or days to move back up.  I was seeing these moves back up in 5-10 minutes, or maybe an hour or two.  This was signaling that contracts were being dropped to sell, but people/groups were gobbling all of this up.

What most observers don’t get is the futures desk trades something like half of all silver mined in a year in a single day.  It’s mostly paper contracts speculating a position one way or the other – but the 8 big banks that had concentrated shorts are now being told – “you need to deliver me silver”.  I had read somewhere that this past month, if those “stood for delivery”, it’s like $300 billion or some cartoon money if people wanted their metals.  It seemed to me like a big hedge fund or money fund decided they were going to buy up anything sold.  It’s the only way I could understand the price action back up.

Silver is by FAR the most paper-oriented price, and this form of manipulation appears to be ending.

What I don’t know is…

  • when exactly this will be over, or are their short positions listed at $18.50, $21 etc that may be drawn down over time
  • If this will move spot $.50 or $50.

What I do know is…

  • The concentrated shorts did indeed “spoof” and suppress the price of silver artificially for many, many years
  • History suggests that the gold to silver ratio may correct to 10:1 to 30:1 at some point in the next 12-24 months.
  • If the price of gold is to be $3,000 in the next 18 months according to Bank of America, this could put silver now at $30 using the 100:1 current ratio, $60 using a 50:1 ratio, $100 using a 30:1 ratio, and $300 using a 10:1 ratio
  • While silver is a massive industrial metal used in thousands of applications today, the amount of silver in each item is mostly so small that a price move of 10x silver has little bearing on the overall price of the product.
  • Silver’s industrial demand is only going to continue to move north over 10 years, and if prices are low, mines will have to shut.  At $17 spot price, there’s still a 50 million ounce shortage per year.  Some of my PERSONAL calculations have silver usage at 1.5 billion ounces needed per year in 2030.  There is 900 million mined now.  Silver is mentioned a lot in the solid state battery conversation, which could make this an even higher number.

Billionaire Rick Rule made billions on finding the right uranium stocks in the early 2000s.  He said that he likes play that are imminent.  He is poor on timing, but he knows the play is a certainty.  I know silver demand exceeds supply, and every year less and less mines are producing silver due to artificially low prices.  Either people will have to stop using silver, or prices will have to go up.  Given its extreme importance in electrical conductivity, it is a certainty that price will have to go up.  At issue was the paper market keeping prices artificially low.

If it appears that is cracking…….the imminent play is underway.  This guy seems to think that silver is hitting the upper $20s in the extremely near future.  Another prominent guy lays out that he heard big banks are now being directed to reduce their short positions.  This has massive upside implications on the price of silver.

References:

J.P. Morgan spoofing and RICO case

Scotia Bank charged with Spoofing

DOJ leaking they now have tools to track manipulation better, just before end of silver contract delivery date

Silver mine production

Probability

With probability, you are using math to guess outcomes.  There’s a 5 in 6 chance that the roll of a die will NOT produce a 6.  Quickly in my head, I’m seeing 83%.  Likely.

When dealing with all of this, there’s a lot going on with probability, but you start tacking all of these items together.  I first got in to silver when I learned of the repo issues of September in early October.  I threw myself in to everything, and to make a very, very long story short, I was concluding that our stock market was about to go through a major correction.  It drew me towards the precious metals due to me seeing the 10 year was getting trashed.  The fact that the stock market was going to downturn was not my epiphany – it was well known it would happen at some future date.  The problem was, I needed to know how people could make money off of this.  How did people play the housing market in 2008 when some knew it was going to tank?

There was a high likelihood that stocks were going to tank and people were going to go back to precious metals – I saw precious metals are a “safe haven” for assets when the stock market blows up.  Inflation was a likely occurrence, and silver and gold are your best hedges against inflation.  In many times in our economic history, when the stock market had problems or inflation was problematic – it would cause metals to soar in prices.

I needed more information.

Meaning – with stocks going down, there was a way to make a small fortune on metals?  Sign me up.  Additionally, gold had already started a rally for the previous year leading to that point.  Gold was making all time highs in other currencies.  And it was just beginning a bull run here.

It appeared there was a high likelihood that at some point, people would turn to precious metals.

COVID popped the bubble, but I was already heavily invested in metals prior to that.

Mike Maloney has an incredible series called “The hidden secrets of money“.  In this, I learned that all “fiat” currencies in the history of mankind failed.  Most 7-10 years, but all within 30-40 years.  We are now 49 years in to the “petro dollar”.  I learned a lot about the Weimar hyperinflation in World War 1 with the marks.  I learned that throughout history – in 5000 years, that only gold and silver have been money.  Everything else is considered “currency”.

Additionally, I took a look at the gold to silver ratio.  It was 86 when I started investing, but it had gotten to 125 at the peak.  So – not only were gold and silver the under-valued asset class, but silver was under-valued relative to gold – by 25% more than at any time in the 5,000 year history of the metals as money.  To put it into perspective, for 4900 out of 5000 years of history, silver was somewhere around 15:1 valued to gold.  So – it was now 9x less valued that its historical value?  It comes out of the ground at 10:1 to gold.  And – known bullion has both gold and silver somewhere around 2.5 billion ounces.  Where 97% of all of gold ever mined is in bars/coins/jewelry, a vast majority of all of silver ever mined has been lost to manufacturing.  For example, the amount in a cell phone is tiny and can’t be recycled when silver is $15 per ounce.  So this silver will never be recovered from waste until silver someday is $100 or $300 per ounce.

You then see that silver consumption is about 900 million ounces per year and consumption is somewhere like a billion.  While only 200 million is used for investment (maybe a 5th), this is in a silver bear market.  What might happen in the worst economic outcome in 90 years????

Something like 70% of all of silver mined is a byproduct of other metals, like base metals.  With manufacturing being 60% of demand, you think that a recession would decimate silver demand.  Well – silver has a dual usage.  It is an industrial metal, but when times get tough, it also serves as gold’s little brother.  So investment demand skyrockets when industrial demand drops.

Furthermore, industrial demand is not letting up, and will continue to increase.  It is mostly used in solar panels and electric cars, TVs, 5G , etc.  However – the amount used in each of these is such a small amount, that it would not matter if silver is $15 per ounce or $150 per ounce.  So it’s not like if price goes up $10 that they would stop using it for copper.  Meaning, if price shoots up, it’s not going to significantly change industrial demand.

To put it into perspective, there are 3 million electric cars on the road now, and Kieth Neumeyer (CEO of First Majestic) estimates that each electric car uses 3-5kgs of silver.  This might be high, but even if it was 20 ounces, think about the estimates that have 125-150 million more electric cars on the road.  Think of California forcing all new houses to have solar power.

The saying now is – if you are going green, you need silver, and lots of it.

The saying is, “gold moves first, but silver moves further”.

There were rumblings on the YouTube verse from Bix Weir (kind of tin foil hat guy, BTW) saying the COMEX is going to fail – but these claims aren’t new.  Precious metals experts were claiming the COMEX may fail with June delivery at the end of May for silver.  Eric Sprott – the Bill Gates of mining stocks more or less said there’s “problems” he’s seeing.  Friday, on his weekly chat, he confirmed what he was seeing.  And what others were, including myself.

Additionally, you had Keith Neumeyer, CEO of First Majestic, come out and say when silver price was $15 that he was just going to “hold on to supply”.  This sent shockwaves everywhere, as it costs about $15 for most of these miners to get an ounce of silver.  Most of the “easy silver” on the planet has been mined, and if anyone wants more supply, you are looking at lower grades and more expensive mining efforts.  This requires higher prices or else pretty much everything made with silver comes to a crashing halt.

Lastly – I had seen massive differences between the spot price and futures price.  Somewhere around $.50-$.60.  A few months earlier, this happened with gold on a larger scale, due to its much higher price.  You were seeing $50-$70 spreads with gold.  As of this writing, the spot price is $17.84 and the futures price is $18.49.  That is a $.64 spread!!!  Here’s the deal – in a normal situation, wouldn’t you buy millions of ounces at spot and turn around and sell it on the futures and make an assload of money with arbitrage?  They call it an “arb” situation.  Well, the same thing happened with gold.  But the deal was, no one believed all of the gold was there, so if they bought at spot – then they would be on the hook for delivering with futures.  When this price becomes extremely wide, it’s telling me that there isn’t a lot of confidence in the existence of the metals at the price that spot says are there.

What you saw in March with gold is Scotia bank got burned and left the metals desk after 300 years.

 

This all is telling me that:

  1. There was a high probability of money moving into the metals in 12 months
  2. Silver has been highly manipulated, but appears this is coming to an end very shortly, if not as I’m writing this.  There is a high probability given everything I’m seeing that the concentrated short positions are drying up, removing the downward pressure on silver.
  3. Supply issues with mining could cause severe disruptions.  The price of silver is mostly irrelevant to the price of the product due to small usage.  However, these items are absolutely needed for production.  I heard on the Morgan report last night that 66% of silver delivery has been disrupted.  Could the COMEX be selling silver that doesn’t exist (yet)?  That was at issue.  There is a high probability there are supply issues given all the interviews I’ve heard and stats point to mine closures worldwide.
  4. Demand is strong, even during a recession due to investment.  At the end of March, pretty much every bullion dealer in the United States was out of all silver and all gold.  There is a high probability investment demand has skyrocketed, making up for some loss of industrial demand.  Coupled with likely supply issues, this leads to an abrupt imbalance of supply and demand.
  5. This is the worst economic item to happen since the great depression.  During times of fear, gold is highly bought.  The gold ratio was 125:1 in March (highest ever in the history of 5000 years), and historically, over the last 100 years, it’s at about 30:1 and maybe 45:1 over the last 30 years.  There is a HIGH probability that silver outperforms gold, and all the banks and forecasters are extremely bullish on gold.  This makes the case for silver at a very high probability of correction or even over-correction to 20:1 before settling at 30:1 or 40:1.
  6. J.P. Morgan is now long 1 billion ounces of silver, or about 38% of the world’s supply.  They now have a vested interest in higher prices, not lower.  This puts additional short pressure on the remaining banks – whoever they are.  You could see HSBC, CIBC, and Scotia bank got murdered in March.  Others can be getting slaughtered as we speak.  There is a probability that J.P. Morgan uses this pile of metal to build a crypto currency or sells at massive profits when silver inevitably goes up.
  7. Many people may stand for delivery at the end of May.  This can send the shorts on a tear to try and find metal to replace what they shorted.  This can shoot spot price up.  By a lot.  We saw this on Friday, but I feel there’s a possibility this “gaps up” in the coming days.  There is a better than even probability that the COMEX cannot deliver the silver it said it had in its vaults.  This insecurity in the supply of silver could have a possibility of causing an industrial “run on the banks” to get as much supply as they can.  There is a probability then that at no point ever again will we see silver in the teens…or perhaps twenties.

 

This all told me there was a high likelihood in 2019 that people would move to precious metals.  Recently, there was a higher probability being forecasted that silver manipulation may be in its endgame.  We have seen the price of silver rise almost $3 (20%) in the last month – after gold made all of its earlier losses back in weeks, it took silver a few months to recover.

As I saw the price March higher and the shorts get swatted back up – with banks taking massive losses in gold in March when the spread was high, this was telling me that the silver short position may get decimated.  Ted Butler (a silver analyst) wrote that the banks were at $7 billion recent loss on their short positions in May, and this only gets worse as silver prices rise.  This was before Thursday and Friday, which saw another $.80 or so get tacked on to silver.

 

References:

Scotia banks exits metal desk after 300 years and sets money aside to cover shorts and fines

CIBC lost $64 million in a single day

HSBC lost $200 million in a single day.  

Eric Sprott confirms issues may happen with May delivery.

Ted Butler on $7 billion short loss

Take a look at GATA.org for some of this

This interview has confirmed what I’ve been seeing with the difference in spot and futures prices.

Hypothesis

The hypothesis I came up with in November was:

“Silver will rise significantly in price in the next 12-24 months as money leaves Wall St and moves to safe havens”.  I was perhaps expecting silver to go from $16 to maybe $24 within a year.  Maybe an off chance it hits $49 again?  But man…as I dug and dug, I liked more of what I was seeing.

Given the most recent developments, I have changed my hypothesis.

“It is apparent the silver short manipulation game may be at an end after decades of price suppression.  This is how the price dropped from $49 in 2011.  The government is now charging those who perform manipulation in RICO charges.  Banks and countries are trying to do metals-based cryptos.  J.P. Morgan has 1 billion ounces of silver.  We are in the worst financial crisis of many generations.  Currency printing (printer go brrrrrrr) will have an effect of significant inflation.  As it takes more currency to purchase metals, it has the appearance of metals shooting up in price – whereas you are actually seeing the value of your currency get lower.  Gold is now at an all time high in virtually all currencies other than ours and the Swiss.  Inevitably, this dwarf our all time high in our currency.

It appears that silver may have a path and trajectory laid out to not only hit $49 when you remove the concentrated shorts, but shoot much higher.

The best leverage on silver price is through the miners, junior miners in particular.

My investment strategy will seek 3-20x”.

So far I’m now at 35% in 3 months, and this is BEFORE silver explodes.  This was with a price move of about $2.  Wait until it moves $30-$60.

The reason is this.

If it costs $15 to make an ounce of silver, and the COMEX price (artificial) is $16, this leaves someone like First Majestic to make $1 profit per ounce.  If they mine 20 million ounces of silver, that is $20 million profit. I’m using simple numbers here.

If I own silver that I bought at $16 and the price hits $20, that is a 25% return on my investment.  Yay!! But if you are First Majestic, and the price goes $16 to $20, your profit goes from $1 to $5 per ounce.  Having a multiplier effect.

Additionally, for simple numbers, if you are a miner and have a “vault” of 10 million ounces of silver in your mine at $17, you are looking at a “valuation” of $170 million.  If you have a market cap of $150 million, you are a little under valued.  $200 million?  Maybe a little over valued.  But if the price of that silver moves from $17 to $34 to $68…that then has the valuation going from $170 million to $680 million.  If there were 170 million shares, that took the share price from $1 to $4.  And – their profits are now from $1 per ounce mined to $50 per ounce mined. This creates a literal cash machine and your stock prices go insane.

Now – the big money STARTS with the big known companies.  The Barricks, etc.  But the REAL money is finding the right juniors.  Maybe they are scraping by at $16 per ounce cost and $16.50 spot.  Maybe they have millions of ounces of silver available, but it would cost $20 to mine.  At $16 prices, you shut down the mine.  At $25 prices, you may have 10 million ounces at $5 per ounce profit.  Many of these miners may also be purchased out by the majors looking for tier 1 assets.

So – if I could do research on the best miners and junior miners, I could make serious money.

Billionaire Rick Rule, CEO of Sprott – made big money in 2007 with uranium miners.  The spot price was $8 and it cost $50 to make.  He contended either the price would have to go up, or the lights would go out.  That the price of uranium was irrelevant to the item produced (like silver).  The price of uranium hit $150 and he had 5 junior miners he backed.  He said the worst of those 5 had a 22x return.  That is where I’m going with this.

So – if I had bought silver at $16 and it goes to $32, that’s a 2x return.  I see it hitting $64 within 2 years.  That is a 4x return.  Nice!!

But if you are First Majestic, and that $1 profit per ounce turns in to $48 per ounce – that has the effect of giving you 48x returns.  In all fairness, when the prices go up, they tend to mine areas that have a higher cost of production – the lower grades.  As price goes down, they have to mine the higher grades and shut down the lower grade mines.   None of this matters with $100 per ounce silver.

Another thing – if both gold and silver have around 2.5 billion ounces that you can buy above ground, and silver is $17 per ounce and gold is $1700 per ounce, this has silver as an entire industry at $42.5 billion and gold at $4.25 trillion.  I want you to consider what happens when large institutional investment goes in to these markets.  With silver, it has a MUCH higher movement in prices.

So…my overarching investment hypothesis:

  1. Silver demand is increasing year over year, we are already in a deficit, and all of the easy “cheap” silver has been mined near the surface level.  In order to get to the rest of the silver, prices need to be significantly higher.  In a true supply/demand scenario without the paper market, silver could easily be $50-$100.  This is an opportunity I cannot ignore, as silver hit $49 twice, the paper market appears to be in an endgame, and there’s a model based on the uranium market in 2007 to replicate.
  2. Closely continue to research the price of silver and follow its movements.  Invest at a pace to buy when both going up and down to dollar cost average.  The price will not be vertical, but will have periods of strong moves with corrections.  Buy on dips, not vertical moves.
  3. Continue to position my portfolio defensively with the anticipation of continued market troubles for traditional equities may then drive large institutional money towards the mining space shortly.
  4. Continue to perform as much research on junior gold and silver miners as possible
  5. Follow the rules of “big money in big companies, medium money in medium sized companies, and small amounts of money in speculative investments”.

Calls…

I have no idea where price will end up.  Price shot up 20% in the past month, and IF price manipulation is a thing of the past, I do not think it will be very long before it hits $21.  This may be the last key resistance levels of any remaining shorts.  If bigger money starts coming into SLV and going long, this may blow out those shorts.  Once price hits $23-$25, this will catch the attention of main street and the race to $50 could be inside of a year.  Given there may be no concentrated short position left and the idea that silver may be part of a bi-metal crypto backed by many nation states as a replacement for the dollar as the world’s currency – the idea now is that they want the metal prices as inflated as possible when they make a flip over.

While physical silver is important to have some, it’s dangerous really to have any of these in your home and I know vaulting solutions are a way forward for many people and are cheap.  My personal preference currently is to invest in miners.

I could see $21 silver within 2-3 months if this manipulation is over.  Anything on a bull run will have movements up, people taking profits and the item going sideways or down, then more runs up.  Anything that goes parabolic up will go parabolic down.  That being said, the concentrated short position was an artificial push of price down.  If this is removed, there may be a quick move to $30 as it overshoots, followed by maybe a retracement to $22 – and then a 2-5 year bull market maybe taking it up to $50, $75, $150.

Why?  If you look at the gold to silver ratio in history, combined with our current economic conditions, combined with 2011 and 1980 as benchmarks – you could see the ratio get as low as 30:1 or 10:1 (1980).  If Bank of America is right, and we see $3000 gold within 18 months, this could suggest as high as $300 per ounce silver!!!  Others see gold hitting $5,000 or $10,000.  My thoughts are if the endgame for the feds is to use some sort of gold standard to get back to currency, they need to have gold go a LOT higher now, so when they do peg it, it can cover as much of the debt as possible.  We are rumored to have 8,300 tons of gold.

So…anywhere between $21 and $300 per ounce.  Got it?  Well – if I bought all kinds of physical silver for $16 per ounce, that’s a 30% return on $21 and maybe a 20x return on $300.  But what if you had some physical tucked away in a vault, but used your lunch money on the right miners and the WORST of your miners was 22x?  Maybe you have 10k you saved up – this could turn that into 220k in 2 year?  Doubtful – but that’s the idea at least.  What if you are a First Majestic and the price of silver hits $150 in 2 years?  Maybe $125 per ounce profit?  Compared to maybe $1-2 ounce now?  So if you bought 1,000 shares at $9 per share today, could those potentially hit $100-$150 per share?  Those are big questions and wildly speculative answers.  But – it shows you the possible upside.

When to bail?  If you just take a gold miner and hold on to them for 50 years, you may have large returns during bull markets and your shares get demolished in bear  markets.  For me, I’m watching videos on technical analysis and evaluating Fibonacci retracements.  So for me, I have a strategy of where to set stop losses, and where to get back in.  Maybe there are retracements back 38%, but I pull the plug at 22% and get back in on the way up?

Geopolitical issues

While I covered most of this above, we are now in a situation where everything is screaming precious metals.  It’s just a matter of days or weeks until large institutional investors start hitting GDX, GDXJ, SIL, SILJ, etc.  When they are hit by big money, the share prices will skyrocket.

China and Hong Kong are ratcheting up issues.  China wants to create its own gold-back crypto with a suspected 20,000 tons of gold to go after the dollar.  Russia has a lot of gold.  The price of oil is in the shitter and this is making the Venezuelas of the world very nervous.  Their currency is shit, so they had to pay countries in gold recently for aid, because no one wants their currency.  Interestingly enough, one of the largest costs of mining is fuel, and if oil prices are at lows, this can only bolster the case for higher operating margins for miners – along with higher metals prices.

Think about where Q2 earnings results are going to be.  All but FAANG stocks will get hit hard.  Even miners because mines were closed.  That being said, if you are a large fund manager, and everything is going to shit – but silver and gold are through the roof this year…where are you putting your money.  American Airlines?

I suspect that the turmoil that is all around us will lead to more fear and anxiety – and fears of possible hyper inflation.  This does nothing but make the case for metals stronger.  The US dollar as a reserve currency is now in danger.

What will replace it?  Every time a fiat currency dies, they replace it with a metals-backed currency.  That time is coming again.

Research, research, research!!

I spent roughly 3-4 hours per day over the last 7 months researching this stuff.   Maybe 500 hours?  While I may not have a geology degree or a finance degree, I do my research and have two masters degrees to show for it.  This doesn’t mean I went to Wharton and can tell you the best way to do an iron condor on options.  It means I have the ability to form logical thought patterns and do research to form a reasonable conclusion.

I listen to people who confirm my hypothesis to see what new developments may support my theory – but I also listen to contrarians to see where I might be missing something.  I also tend to find issues with their logic.

For anyone reading this far – start with the Mike Maloney series above.  It’s about 4 hours long, but this could mean the difference of a life changing event that could shape your investments for the rest of your life.  The first move any of you have is “gold compared to the stock market doesn’t win”.  Mike Maloney shows that you should move your money around asset classes.  Hold gold/silver when it is undervalued, and when it becomes over valued, move it to the stock market and real estate.  To go in with a bias is self defeating.  Be open minded.  See what he predicts will happen in the 2008 bubble, and then this most recent devastation.

Look up miners.  Read.  Watch videos.  Someone like me only serves to point out what possibilities are out there, YOU must do what’s right for you and your risk appetite.  There are some people like Harry Dent that feel there may be another large deflation ahead and gold could sink to $800 before it makes a move to $5000.  They could change the rules on the COMEX and silver could be $4 tomorrow (although no one can mine it for that, so good luck with supply).

Horse and jockey (mining stocks)

I’ve mentioned Keith Nuemeyer above several times.  He’s all over YouTube as the CEO of First Majestic.  You also have other dynamic personalities at the helm of some of these companies.  I believe Rick Rule said something like 5% of all management teams make 95% of the profits in the junior mining sector.  So – the idea is to find the right jockey.  If a hole in the ground has the best grades of gold on the planet, and you have an incompetent management team who blows through cash and it takes many years to long to get up and running, you will lose your investment.  Maybe you invest in a company in a bad section of the world and the company is nationalized.   These are “counterparty risks” and need to be assessed.  I look to find the right mining jurisdiction, good drill results, and the right jockeys.  Any project I see associated with “sprott” is a buy for me.  They aren’t in the business of taking over mines.  They provide liquidity and reap the rewards of that for worthy projects.

 

Technical refences

I watch a guy named John Howell for technical analysis of gold and silver, but I also look at many others.  These price moves are on price alone.  So when there is no major news to be had, how can we project the price to move?  These guys are right a lot more than they are wrong, and there’s a psychology that goes into these things on the macro level, especially for retracements – this is how I found to set my stop losses.  This is the difference between a small correction, big correction, major correction, or a downturn in the trend.

I did an analysis of GDXJ and MTZ here a few weeks ago.  I had options in both, and both paid extremely handsomely.  I am starting to trust my own technical analysis more.

MTZ – this is pretty much how it played out

MTZ-05152020-1

This is what it looked like a few days ago.  I had made something like 60% with my options plays and I bailed.  I need to learn to trust myself more.  A $500 profit taken early would have been a $3000 winner had I continued to hold.  Still learning more about when to ditch options.  I didn’t trust myself.  Cost me a ton to bail.

MTZ 05272020

 

Same with GDX – this is what I thought:

GDXJ-yahoo

And this is where it went – it broke up, but then retreated.  I killed off my options way early on this, at about a 50% profit.  At the top of the peak end of last week, analysts were talking that there’s a retreat happening.  I sold GDX and GDXJ on the second red candle on the way down, and bought back in when the green candle finished up at the end the day circled below.  It has since rallied in the past few sessions.

GDXJ 05282020

 

With this move anticipated, I decided to create a few lottery tickets to see how this might play out.  All of my positions now are gold and silver for long term with shares and some options, but I decided to write some lottery tickets.

AG at $9 for Jun5.  Price had just dipped below $8 last week and I bought these for like $45.  Got three.  Cashed these out this week and paid for this and my two other lottery tickets below.

AG at $10.50 for Jun5.  Bought 10 options at $7.60 each.  Idea was I felt silver could shoot another $1-2 rapidly.  Right now, I’m at 146% on this and feel this may double by Weds.  If AG hits $12, I could have maybe a $1500 paycheck on $76 investment.

FSM at $5 for Jun 19.  Price had just hit $3.80 or so and I rolled the dice.  Bought 20 options at $5.00 each.  Up 171% on it so far and have 3 weeks yet on this.  I think this week could be big for silver.  It’s possible this share price hits $6 or $7 with explosive silver.  This could take my $100 investment to perhaps $2000 for a 20x.  For each dollar higher, it’s another 10x.  I am letting this go to the end, so it’s possible this might even hit $8 if there’s a mad rush to silver in the next 2 weeks.

My two lottery tickets right this second are worth $500 on no cost to me because they were paid for by the AG options.  This is how I prefer to use options.  Short moves.  They cost less, and if you feel there’s a strong move coming, you can get in, make a quick buck, and get out.  If silver somehow sees $19 this week and $21 the week after, that $500 might be $5000.  Or, silver could track back, and they expire worthless.  But – they were PAID for by the first option.  So….there’s risk of losing nothing or gaining thousands?  I’ll take it.

Had I been a lot more confident, maybe I would have thrown a lot more at it?  20x on a short move?  Damn.  Well, as they say, small money at speculative picks.  I am trying to build my stocks up over time with sound moves, research, and the little plays here and there which add up.

 

Risks – there is no such thing as a “risk free investment”.  Generally speaking, the greater the risk, the greater the return.  In my eyes, the greater undervalued an asset is, the greater the upside is.  But there are risks I need to spell out.  All of the below are real risks with downsides.

  1. Recovery.  In 2016, there was a fake move up with silver and gold, and it went back down.  But, what happens if somehow everyone got back to work in a month and the economy roars?  This is not likely, but it is a possibility.  Most people I’m listening to seem to thing all of the currency being created could have a “stagflation” type of event over 2-5 years.  Perhaps the fall off of a cliff was ripping the band aid off of the bubble and the recovery is rapid?
  2. Paper markets – if the paper markets somehow survive this week, could they still continue to suppress silver and gold?  Yes…and no.  Eventually, the price of silver will be pegged at less than the cost of mining it.  So price must go up.  At some point.  I believe that has started.
  3. Nationalizing mines – it’s possible a mining company you like that has 2/3rds of its assets in Chile are nationalized next month.  There goes your investment.
  4. Silver to $4.  Take a look at the silver price charts.  Given its demand today and the cost to mine it, it doesn’t seem likely.  Recently, silver hit $11 something an ounce and we in the know collectively laughed and backed up the truck to things like OneGold.  It became impossible to get physical silver, and when you did see it, it might have had a 50-100% premium.
  5. COMEX blows up and LBMA just assigns a price.  So maybe all of this manipulation ends with spot price and the COMEX, and it just rolls into another body that just arbitrarily assigns a spot value.  This could erode all confidence in the free market and – be careful of what you wish.  If some person or entity just randomly assigns this number, it could destroy metals trading as we know it.  This is my major concern with this week.  What does happen if this breaks?  How do you then price mining stocks if there are no firm values to the metals in the ground?