The Rhyme of the Ancient Speculator: Bullish Silver COT
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Precious metals expert Michael Ballanger explains why he believes why he believes gold has begun a new bull market and what the silver COT report is saying about that market.
Twenty-seven months and two days ago, I was under huge emotional duress due to the dreadful action in the gold market as prices had been under severe manipulative pressure since mid-October. Under the excruciating weight of incessant shenanigans (interventions), the price of gold was in abject freefall, having plunged from $1,189.90 to $1,062.60 or around 10.7% in a mere six weeks. On Friday, December 4, the COT for the week ended December 1, 2015. was reported and as I read the gold portion of that report, I suddenly leapt out of my chair screaming with both surprise and excitement, knocking wine and beer bottles askew and sending the poor dog yelping into the safety of two womanly arms with the revelation that "something important" had just happened.
After watching the open interest suddenly shrink on the Wednesday-Friday after that momentous end-of-COT-week Tuesday, it became apparent that the much-reviled Commercials had actually gone "net long" immediately after, as gold bottomed into that fateful slide to its multi-year low at $1,045.40. And surely enough, with gold being pillaged in one the classic "Freaky Friday" collusive attacks, gold put in what now appears to be THE bottom and marked the onset of a brand, spanking, new BULL market which was subsequently borne out with one of the best market advances in history and one of the best market calls of my career.
Last night, after arriving home late after some family time, I had a similar epiphany of sorts and one perhaps liberally sprinkled with a pinch of "deja vu" as I perused a rather benign gold COT with Commercials covering a few gold shorts into the bombing to under $1,320 but what sent me into one of my "grande mal-esque" emotional seizures was the silver COT, where the monetarily-masochistic Large Speculators have now gone completely and totally over-the-wall NET SHORT silver and now hold a massively bullish aggregate short position of 1,508 contracts.
That I cannot recall ever seeing a "net short" position by the Large Speculators is irrelevant; just as the Commercials have to be heeded in their power to control direction in the precious metals by way of insidious activities (the nature of which are well-documented in this publication), so too must we heed the tendency for the Large Speculators to be found on the losing end of the Commercial Trader's bullwhips with outsized positions, either lightly-long (at bottoms) or largely long (at tops). To be "lightly long" or "largely long" is still "long" but today and now, they are "SHORT." Now, this does not mean I'll go out and mortgage the cannabis patch in order to own (more) silver but it does give me great solace in my recent purchase of five (more) silver bars in the $16.65 range. I opt for physical, non-leveraged silver for two reasons: 1. It is easier to sleep at night knowing that you simply own it and therefore are not looking to trade it and 2. In looking back at my trading "acumen" for silver futures and options when reviewing tax data back to 2009, I have found myself resembling a "mule" as in "beaten like a rented mule" or the "schoolboy" as in "thrashed like an errant schoolboy." In other words, it took me until late 2015 to understand that the money I was committing to a margin deposit at the CME was actually a contribution to the educational or vacation fund of any one of the Commercial traders. These bullion banks have been sued, issued SEC and CFTC subpoenas, exposed via documentaries such as "Inside Job," and via testimonies by organizations such as GATA. Yet, with astonishing deftness, these cretins wiggle and squirm out of any culpability, guilt, or penury because the commodity they manipulate and the investors they defraud are not the allies of the global banking cartel and, by natural progression, governments.
So, when I write these missives and I get all warm and bubbly over the always-wrong Large Speculators having moved to their first-ever net short position in CME silver futures, march forward with liberal quantities of hubris and skepticism and trade accordingly with the knowledge that the data upon which I base my excitement is still coming from within the walls of the House of Smoke and Mirrors (the Crimex) and prone to further levies of dis-and-misinformation.
Disclaimers notwithstanding, junior exploration and development issues such as Canuc Resources Corp. (CDA:TSX.V) (formerly Santa Rosa Silver Mining Corp.) recently announced a 10-metre section containing 5 g/t gold and 210 g/t SILVER at its San Javier project in Sonora, Mexico, and represent the kinds of low-market-cap entry points for speculators. Intermediates like Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) and Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE) are both trading at around 50% of their recent (2016) highs and appear to be worth accumulating. Exploration juniors such as Stakeholder Gold Corp. (SRC:TSX.V) are in Nevada in the hunt for a Midas-type discovery (gold-silver) with its Goldstorm Project now in the exploration phase. Remember that these are still "stocks" and are vulnerable to broad, non-precious-metals-related market drawdowns that can result in us being right (on the commodity move) but wrong (on the stock outcome).
In sum, this week's silver COT can only be viewed as a bullish event and one where only over the fullness of time can we be sure that this week's contrarian's-delight overweight net short position by the Large Spec masochists is a true "BUY SIGNAL" in the same vein as was the December 4, 2015 COT for gold. I will tell you this: In discussing the silver COT over the past twenty-four hours with fellow precious metals players, there is a degree of cynicism and disinterest larger than the reaction I was getting two long years and three short days ago for similar set-ups for gold. In the next ten months into 2016, gold rallied 31%, silver rallied 52.4% with the HUI advancing 185% in one of the biggest money-making rallies in decades. If the yawns and body-language dismissals are any indication of history rhyming, we are at a similarly important catharsis and the cynics and skeptics will be residing in body bags at the shoulders of the "Atria Argentium."
Forewarned is forearmed.
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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1) Michael J. Ballanger: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Stakeholder Gold Corp. and Canuc Resources Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies referred to in this article: Stakeholder Gold Corporation. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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All charts and images courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.