Email, tweets, voicemail messages and every other form of indirect confrontation have been used to convince me that my reluctance to join the masses in piling into the gold trade after an 82% advance off the lows in the past six weeks in the NYSE Arca Gold BUGS Index (HUI) and a 20% advance in bullion prices year-to-date is somehow FAULTY. . .notwithstanding the fact that in my Dec. 8, 2015, email entitled "Keep the lead in the pencil…" I wrote:
"These first two days of the week are not fazing me in the slightest as I fully expect that the gold market is being primed for a major advance at or around the Fed announcement on Dec. 16. You can't have the Commercial Cretins down to a paltry 2,911-contract short position versus all-time record shorts in the Large Specs and be timid in your positioning. Due to the time of year, it will be more volatile than normal but I just keep adding to my Direxion Daily Gold Miners Bull 3X ETF (NUGT) positions and await the eventual rape-job that is going to be inflicted on anyone short this market. I eagerly await the screams of protest as the market gets lifted above $1,100 next week and all those buy-stops get triggered. As for the miners, they are trading so egregiously discounted to historical norms that, according to a quant that I know, if they revert to the historical mean and gold did nothing, you would get a 40% advance in the HUI just for starters.
So with gold at around $1,078 at the time I wrote that, I was long the Market Vectors Gold Miners ETF (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ) unleveraged ETFs, I owned a small position in the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and a small position in the NUGT January $25 calls, and I owned sizeable positions in Kaminak Gold Corp. (KAM:TSX.V) (then $.78), Tinka Resources Ltd. (TK:TSX.V; TLD:FSE; TKRFF:OTCPK) (then $11) and Stakeholder Gold Corp. (SRC:TSX.V) (then $0.10). Needless to say, the reason I was so table-pounding, eye-bulging, drool-inducing bullish is well documented and quite familiar to anyone who actually takes my opinions seriously, so when I watch bear after bear after bear throw up the white flag and come crashing over the wall and down into our bullish camp buying anything and everything gold friendly, but then actually try to LECTURE me as to why I should NOT be cautious, I have to stand back and rub my eyes. CNBC's Fast Money Traders are bulls; Jim Cramer is now touting gold as if he actually "called it" back on December 4 and the blogosphere is abuzz with an army of newly found gold "experts" selling subscriptions and providing "advice" (although they claim it isn't). The turnaround in sentiment has been the most rapid turn I've encountered since the mid-1970s, but with the advent of the Internet and social media and instantaneous communication, what took months back in 1976 has taken literally days here in 2016 and that, my friends, has taken me somewhat aback.
So where am I this morning? Of all of those names mentioned above, I am long all of them save the calls and JNUG, some of them with reduced positions, and two I have added to (KAM and SRC). I own some hedges that are lower in price offset, of course, with the advance in the "other side." I continue to believe that we are in a near-term distribution phase and that we will all have a better entry point for the names we like (and the names we sold at HUGE profits in the last three weeks) later in May or June.. Bill Fleckenstein recently remarked that "the majority of gold bulls are now expecting a pullback" and my reaction is "Who can blame them?" because when everyone else was looking for new lows back in December, the very few of us that threw technical analysis out the window and loaded the gun under $1,060/oz gold and around 100-110 on the HUI were fully prepped for an explosive advance into Q1/16 and now that we have had it, staring blankly down upon my bank statement seeing a six-figure cash balance instead of a negative balance a mere three months ago, is a welcome site and worthy of celebration, which I did and am doing with gusto.
OK, enough of the prevent-defense type of commentary and on to the next few weeks.
I am going to be watching the COT report this afternoon and with gold essentially flat for the week and with the Commercials having moved to the highest net short position in years at 171,000 contracts, only a sharp decrease will get my undivided attention. If we see Commercial short-covering into a sideways market, the next move will unquestionably be to the upside and I will be lifting my few paltry hedges in expectation of a spike to $1,450/oz in the midst of a massive Commercial Signal Failure. If, by contrast, the number moves into the 180,000–200,000 aggregate short position, I will instead reduce positions in the GDX and GDXJ ETFs and consider puts on the SPDR Gold Shares (GLD).
And make no mistake, as an intermediate and long-term bull (as you all know so well), NOTHING would delight me more than for history to prove that at $1,270/oz gold and at 180 for the HUI (and with FINALLY some big capital gains and a seven-figure cash position to relish over), I was dead wrong in being cautious. Well, I love being dead wrong with a well-stocked Libation Library and a fully armed medicine chest while still sitting with a boatload of gold and silver and their miner brethren sitting in my stock accounts.
Last point: I have been quite a vocal BULL of Yukon explorer/developer (soon to be producer) Kaminak Gold ($1.45) and am a consultant to Yukon explorer Stakeholder Gold Corp. ($.45) and have been an ardent fan of the Yukon as a mining and exploration jurisdiction for a few years now. (The Fraser Institute ranks it #1 for mineral potential and in the top ten overall.) Well, I added to Kaminak this week after attending the PDAC in Toronto and the scuttlebutt around the convention floor and in the bars and restaurants is that there is something "going on" with KAM. You all have read my analysis on Kaminak since late 2014 when I entered into my "Scurvy-Ridden Bilge Rats" portfolio and I have liked the company's Coffee project and alluded to the Feasibility Study from mid-2015 as solid rationale for ownership. I also said IN PRINT that I didn't think it would be around for very long back in 2015 as well, so when I say that there is speculation in the current market that KAM is "under accumulation," the big question remains "Who?"
Kaminak is a buy—period.
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.
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Michael Ballanger: I own, or my family owns, shares of the following companies mentioned in this article: Kaminak Gold Corp., Tinka Resources Ltd. and Stakeholder Gold Corp.
From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.
All images/charts courtesy of Michael Ballanger