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.

 

Or not.  But I’m preparing for a double bottom and deflation.  I walk through a strategy further below to hedge against losses, and how to come out on top if shit hits the fan.

 

Let me explain.  A few weeks ago I wrote about holding and folding.  I feel in the next few days, there will be a run up with silver and gold by a few bucks just like last month leading up to June 1st.  This has to do with the mechanism with how the silver/gold price is set – called the COMEX.  There are “paper shorts” which smash the price down, never expecting to sell metal, along with “paper longs” who have no intention on taking delivery of silver.  This is an overwhelming majority of the silver market – with legit buyers and sellers dwarfed by the futures speculators.  In a nutshell, if enough people think the price will go down and short, they move the price down.  Well….this “short” was concentrated by big banks for years and has been in the spiral of death for a few months now.  Because of this, long story short, we saw a spike at the end of the May and June 1st a sharp spike in price as shorts tried to cover their positions.  At least that’s how I understand it.  Based off of tons of videos I watch, I’m making an educated “hunch” that the same will play out early to mid week this week as it did in May to June.

I’m now seeing “gold to $2700 by end of the year”.  “Gold to $2000 by the end of the summer”.

While I don’t necessarily doubt this, how we are going to get there might surprise you.  I’m going to try and thread the needle with this.  I might get too cute, as it were, but I am risking loss of upside versus risk of significant deflation – even if temporary.

Phase 1 – maximize utilization of resources (this week):

Through Weds at lunch time, I plan on letting my mining stocks run.  I feel a strong move up in silver is to happen in the next few days.  So much so, that I placed call options for $9 on First Majestic (AG) for 7/2 (back in mid June).  I looked up the price of silver on 6/1 and it had hit a crescendo over a few days and came down on 6/2 – so for these options, either I will exercise them on 7/1 and sell them right away, or sell my options and let someone else bite the bullet.

I originally bought 20 options for an avg of $.47 each.  That’s like $950.  Round numbers here.  I then sold 10 of them for $.70 for $700.  That means I now had 10 options that cost me $250.  Yesterday, the price of silver dropped a ton and moved back up, just like it did at the end of May.  This time, I pounced, and bought 9 more for $.28 each.  That’s another $280 out.  So…I’m sitting on 19 options (1900 shares) for a total cost of $550.  As of this moment, the value of them is $990.  And – I predict the share price is going up to $10.68 by Wed.

AG 06192020 price

Now…it’s not going there in a straight line.  There may be a “gap up” on one day next week, possibly Weds when everyone scrambles to cover shorts.  Who knows.  This futures market is a bit sketch, but it seems by Oct or so this mechanism will break and this will send the price of silver higher in a free market discovery method.

What you will notice is that it may need some very large candles or gap ups to get there by Wed afternoon.  I am confident that this will happen IF the Dow doesn’t go down by 2000 points each day.  The Dow went down 750 on Friday and I had one of my best days with mining stocks, even though the price of metals fell to a bottom earlier in the day before my hedge fund friends and bank shorts bought more long – as anticipated.

So with this, I also used the RSI to ensure that AG was not already overbought – at 53, there’s a lot of room to move upward.  Also – I checked the MACD and it’s right about to cross over.  I should wait for the crossover, BUT – I’m anticipating sharp silver moves upward, which will create the crossover confirmation – but after the move has happened.  With short term options, there’s a lot of speculation and risk involved.  So…this is not investment advice.

AG 06272020

What I did with my 20 options I bought at $.47 was essentially to lower my dollar cost average to $.38 and now own 19 options.  As of right this second, AG is sitting at $9.39 before my anticipated move.  Now – I have $550 in on this, and ALL of this was paid for from previous options profits.  I only use previous profits to speculate.

IF the price goes to my anticipated $10.68, that means that you’re looking at $10.68-$9.38 = $1.30.  You take this and multiply it by the 1900 shares, and you get $2,470 PROFIT.  On $550 risked…this is a 5x trade.

This all came from buying $950 or so of options from profit from my last win.  I’ll then take the principle+profit and tuck away for options down the road and to pay down margin.  We’ll come back to that in a minute.

Phase 2: draw back assets and get cash

I have a OneGold (more on that later) where I have “digital silver”.  I feel Weds is going to be a nice high, and I plan on liquidating then.  There’s some cash.  I’m anticipating a deflationary event, and by liquidating them, I may face some loss in premiums, but that’s better than 50% loss in metals prices.

With my stocks, I plan on cutting roughly half.  I think silver is “supposed” to have a good month.  Everyone keeps saying that.  Gold $2000 by end of summer.  I’m also a contrarian, and I’ve heard people saying that the stock market is going down, again.  Hard.  The last time, this hit gold and silver HARD.  This also hit the mining stocks.

Everyone decided to cash in their gold, GDX, SLV, and mining stocks to cover margin calls.

Within 3 weeks, gold fully recovered and last week hit 7 year highs.  I believe gold has a STRONG future.

If I had more intestinal fortitude, I would hold everything and wait for another bottom and another recovery.  3-4 months from now, my miner stocks will be as they are today.  OR…..a new bottom is hit and it takes 6 months for miners to recover.  OR…miners are not affected, gold and silver have an amazing month of July and I lost a LOT on an up move.

Meaning, I can potentially lose 30-50% of my investments with the possibility of them coming back in 3-6 months.

So – if I have half in, and it loses half – I’m down 25% with the strong possibility I’m “whole” within 3 months.  But that 50% off to the side?  That then gets pumped back in at the new lows, or close to it.  That money can then double.

For example…

100 dollars in First Gold USA.  I take out half.  This leaves $50 in the stock and $50 cash.  If I feel it may go down again to 50% value, that leaves $25 in the stock and $50 cash.  I then decide to take that $50 and re-invest it, and now the company will re-inflate back up to its previous level.  But that $50 I’m putting in becomes $100.  And the $25 that was there, re-inflates to $50.  So – I’m now at $150 for a 33% gain.  

Now – I take out the $50, and the stock market in stocks goes silly up.  Maybe let’s just say 20% up.  So I have $50 in cash and $50 in the stock.  The $50 in the stock becomes $60.  The cash doesn’t move.  This then becomes $110 by mid August, for 10% gain.

So – if the stock market goes down and takes my gold and silver with it, I have a potential, when whole, to make 33% profit on the existing money I have just to get to “whole”.  If I take the cash out and avoid the risk, I can then possible hit an up move in the stocks and get 5-20% gain on my stocks.

Risk reward here is: Take out money for a 133% profit on a devastating down swing OR LEAVE all money in for a 50% downswing, then maybe it re-inflates to get me whole in 3-6 months.  OR take money out and lost out on an up move?  Everyone needs to gauge their own risks.  For me, I like the idea of buying some of the miners I love at a discount!!

Phase 3: De-lever

I have two option plays now, a short term play that will be over by 7/1 with 19 AG and  3 SLV long call for $15 in Oct.  I bought that out of the money back in the day and now want to cash out Weds when I feel silver might hit $18.50-$19.50.  I am cashing out OneGold that day as well and moving that cash to my Etrade account.   The SLV call option I have should look nice Weds and I’ll take 50-75% profits on that.  I COULD hold until Oct, but again, if deflation happens in August and it takes 3 months to re-inflate, I could lose all of my money on this call option.  Take the 75% profits and pay off margin.

I also have margin I bought stocks on.  Not a ton, but the sale of my items above will take a good portion of my margin down, along with the sale of 1/2 of my stocks.  With no margin calls, I don’t have to sell stocks when they are low.

Additionally, I bought OneGold items on a credit card with 0% for a year, when silver hit $12.  I have already made 50% profit on it and drew out good profits to then put into my trading account.  I’m now using some of those profits plus the OneGold cash to pay that off.  I’m projecting a total of 66% profit from that move.  AND – if silver drops back down to $11-$12 again in a deflation, along with gold down to $1500 or so, I will buy the shit out of these all over again in the same manner with 0% interest.  Rinse and repeat.  Except this time if silver hits 12, I see the re-inflated prices busting way past $20 rapidly.

Phase 4: HOLD

While all my metals people are thinking the sky is the limit this month, I disagree.  I’m in the camp that there will be another great deflationary event just like March.  This might be worse, but I also think there may be the same floor as in March, as the fed will prop things up as long as they can.  With the re-closures happening and turmoil everywhere, along with currencies getting debased everywhere – I do see another plummet, as I predicted a few months ago here.  In that post, I saw this as a double bottom similar to 1921.  The big difference is in the W in that formation was the fed pumped the system back up artificially to make the bull trap that might bigger to fall.  Now, COVID here ripped the band aid off quickly, so in this chart it was a 2 year drop that we got in 2 weeks.

1921

Many people point to 1931 and a coming great depression – and felt this bull trap could lead to a 90% sell off.

1929

The circle above is where they point us at being at, with the worst of the pain to come.  I STRONGLY disagree with this, as at the time they were pegged to gold.  This meant there were bank liquidity problems.  While I feel a second bottom is coming, there’s a limit to that bottom because liquidity right now is unlimited and the Fed is backstopping everything.  That being said, you cannot replace all of the earnings lost.

2Q is going to be a bloodbath, I believe starting 1-2 weeks out.  My hope is that it’s after Weds.  Friday was some pain with 750 points lost.

So…I’m going to hold from 7/3 to maybe 8/21 to see what happens.  This leaves me in a strong cash position if the stocks all fall, but gold and silver don’t budge and go higher, I can get back in if I want a little at a time.

Phase 5: Re-enter the markets

If the worst happens, and a deflationary event happens, I can then:

  1. buy back in to all of my favorite stocks as supreme discounts
  2. set up lots of long call options on strong equities that bounced back last time
  3. load up onegold again with cheap metals

If the markets don’t suffer, and gold and silver go up….

  1. By waiting until mid to late August, I have de-risked my portfolio.
  2. I can capture gains up
  3. My “loss” is potential “gainz” which are greed-driven.

Now…when I re-enter the markets, I’m also doing so on an upswing. For those of you not familiar, look up the MACD charts.  These can help you confirm that you are in an upward trend.  My BNO mistake was buying on the way down before it hit bottom.  I want bottom to hit, confirm it with MACD, then buy aggressively back in.

Phase 6: hold tight and watch the digits go up

The last crash a few months ago had gold smashed down, but recover in 3 weeks.  Most of that was blamed on many people buying on margin and selling everything to pay off margin. Due to the amount of gold/silver in GLD and SLV, it was suspected this somehow smashed the paper prices.

What is interesting now is if there’s another bottom in store…many of these businesses are not coming back and gold/silver will be really primed and ready for strong, aggressive moves up as many suspect these could also be part of a new currency system down the road with some form of crypto or using this in a fractional system.

What is going to happen when Vanguard pulls out of Nike and Pepsi and all of the big ones?  Where do they put their money?

Gold and silver will now be bought more by “big money”, driving the prices up.  This, in turn, also lifts profits of miners to all time highs – also attracting institutional money.

If you invest in a Barrick right now, you are looking at possibly 2-3x in 2 years.  Some of the junior miners over the next 2-3 years could have a 10-50x.  I think the worst of the worst mining stocks (of the majors) might get you a 1.5x.

If you have a company like First Majestic, you are looking at $10 stock right now for about $18 silver.  At $21 silver, they are probably a $14 stock.  Some predict silver will hit all time highs in the next several years surpassing its $50 high.  This could have First Majestic these days trading at $40-$50 during that time.

Phase 7: keep an eye on the gold to silver ratio and act

I wrote a piece about the gold to silver ratio back in the day.  I’m going to give you an example – for any of you that may have some silver or have it vaulted, take note.

I like the idea of having some physical metals, but nothing in the house.  Or, very, very little for emergencies.  Let’s just say you put 100 ounces of silver in a bank security deposit box.  Today, you could take that 100 ounces and trade it in for $1800 (about) or take it to a local coin shop and trade it for 1 ounce of gold.  That is the current gold to silver ratio (GSR) of 100:1.

However, gold moves first, and silver moves furthest.  At times, the ratio goes up and down.  Had you had $10,000 in silver in 1971 and converted it back and forth from gold to silver, you would have had something like $900,000 last year.  That’s a nice return.

But – in the short term, it’s POSSIBLE (though not likely) we could see all time gold and silver records.  Everyone is calling for $3000 gold.  Some have called for $600 silver.  That is a 5:1 ratio.  I don’t expect a 5:1 ratio, but I could expect a 10:1 or 20:1.  How would I play this?

If I have 100 ounces of silver, I could then get 5 ounces of gold at 20:1.  Or, 10 ounces at 10:1.  This is due to an overshoot.  It may then correct back at 30:1 before losing ground again.

So maybe I get lucky, and turn 100 ounces of silver into 10 ounces of gold.  That’s  long hold for me.  Gold may have hit $3000, but so what?  This is a long term investment, and the metal may be more important that pieces of fiat currency that are supposedly worth something.

Maybe 7 years from now, it hits 100:1 again.  I take my 10 pieces of gold, and then convert that to 1,000 ounces of silver.  A few years later, it goes back down to 10:1.  That 1,000 ounces of silver just got me 100 ounces of gold.  It’s most likely going to hit 20 or 30:1, but still, you get the idea.  So that’s how you might be able to turn 100 ounces of silver into 100 ounces of gold for a 100x return in 10-15 years.

So – the concept is, today, I could buy gold at $1700 and hope and pray it gets to $3000.  And then what?  Look at it?  Warren Buffet’s BIGGEST MISTAKE with gold is not understanding the value of gold to other asset classes.  How this is an asset that can be traded to relative value when things are under or over valued.

While there is a possible deflation coming again – if it hits $12 silver at over 100:1 ratio, I’m backing up the dump truck and getting more OneGold silver with the 0% card.  I’d fully expect the price to re-inflate again, and those profits would then go back into the equities.

However – I need to keep my eye on the ratio for anything I have vaulted.  The company I work with can do exchanges, and for security purposes, I’m not going to tell you which one I use, but there are several extremely popular ones that do not cost a ton.

If that ratio starts tightening, make the move to convert physical silver to gold.  Gold is the ultimate money, and using this GSR can allow you with a relatively small asset over the course of 30-40 years to build up a giant pile of metal you can use in your retirement or pass down to your children.  Or – when the value is sky high, trade some of it in for another asset class like stocks at bargain basement prices or real estate that is depressed in price.

Here’s the GSR chart – this is a little old, as it just hit 125:1.  I had bought some gold at OneGold at 90:1, and when it hit 125:1, I cashed the gold out and bought silver with it.  So – it was a way of making some money on that trade with value, not additional capital.

Gold-to-Silver-Ratio-Long-Term

 

Phase 8: Rip cord for all

Mining stocks are not a stock to hold for 30 years, they go in cycles.  You want to get in on the ground floor of a bull market, and pull the rip cord for your parachute when the bear market starts.  NO ONE can predict all of the bottoms and tops.  But you can get a good sense by economic indicators and metals prices when the time might be near.  Everyone I’m listening to seems to say this could be an incredible bull run for maybe 5+ years.  This is an opportunity to buy some junior miners like a “First Mining” for $.25, who are 3 years away from a construction decision, and another 9-12 months away from first pour in 2024.  That stock price in 2024 could be $4-8, and potentially much, much higher if gold is $3000-$4000 an ounce then.  Let me show you some math on this.

For a $1000 investment, that’s 4000 shares.  If it hits $8 on the re-rating with high gold prices, that $1000 investment is then $32,000 for a 32x.  Now, you have to know what junior miners to pick.  There’s risk.  What if…first pour is 2024 and the market recovers and gold goes back to $1200 in 2023?  Well, perhaps the stock in 2023 is maybe $1.10.  That’s still a 4x.

That all being said, silver will violently move up and surpass gold – but it is also the canary in the coal mine.  Watch copper as well.  When you see industrial demand start to pick up and copper prices are shooting up and silver prices are boosted by industrial demand – it’s a sign that a booming economy is a few months away.

In that case – I’m moving almost everything I have to cash and out of miners.  Maybe a few speculative cases with the junior miners that I’m waiting to get to production I leave.  I’m looking to leave this sector in 3-4 years up 5-10x.  And then – you find your AT&Ts, your SPY indexes, your mutual funds, etc.  All of these stocks will have been beaten up for years and as growth becomes a thing again, they will need capital.

In the meantime – don’t get wiped out in the next downturn, and there’s a way to hedge your bets here to then actually come out really well with maybe 33% return in 2 months!