Michael Ballanger: Gold & Silver’s Overbought Condition Has Been Worked Off

The overall set-up for both metals could not be better. Michael explains…

by Michael Ballanger via Streetwise Reports

To put it mildly, the business of financial forecasting is not only an inexact science, it is a magnified case study in handicapping, the likes of which you find in sports betting such as horse racing or basketball. You take a basket of data inputs, such as the last five heats run by a certain filly or the accuracy of a basketball player shooting free throws and you assign various weights to the data, which allows you to determine whether the horse or the player has the ability to shine.

In financial forecasting, you take a similar basket of inputs, such as 10-year Treasury yields and average dividend yields, plus a barrage of other factors, which allows you to gauge direction and amplitude. In sports, you are handicapping a winner, and by how much, while in financial forecasting you are handicapping the direction and by how much.

The difference between the two lies in veracity: Can I trust the input data upon which I make a decision? In sports, thanks to the wonderment of instant replays and television, a horse’s track record is out there for all to see, while a basketball player’s shooting accuracy is exactly the same. Not so with the economic data provided by the government or GSEs that fall under the watchful eye of the central banks and/or treasury department. I do not place one iota of faith in the big numbers, such as unemployment, wage growth, and gross domestic product (GDP), largely because their manipulation has become commonplace among incumbent presidents. Therefore, it is far easier to predict winners in athletics than it is in the financial arena, unless you discount all government statistics as “compromised” (which I do, all the time).

What prompted this line of thought this morning was an article from Coindesk.com that essentially confirmed my engrained cynicism in all markets here in the nineteenth-soon-to-be-twentieth year since the New Millennium arrived. Back in mid-2017, friends were bombarding me for my opinion on Bitcoin and Litecoin and a myriad of other cryptocurrency names. All I could say is, “Why ask me? I don’t own any.” This was my quaint little way of admitting that I too wrapped up in the trials and tribulations of the precious metals markets to care a whit about some phony alternative money scam. Any market moving from under $100 to over $19,000 in less than five years is, today, and was, in 2017, a bubble waiting desperately for a reason to be popped. That reason arrived on Halloween Day 2017. with this statement from the CME Group:

“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME Group Chairman and Chief Executive Officer. “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”

The exact second that I read that, I immediately thought of all of the reasons I have amassed, over forty-odd years, for why I refer to the CME as the “Crimex,” and as soon as my laughter subsided, I scrambled to determine the exact date that Bitcoin futures were to begin trading. After it was determined that it was scheduled for mid-December, I wrote: Cryptojunkies: Beware the Ides of December, a publication that capsulized my distrust of anything “Crimex” with the following paragraph:

As I wrote about in the commentary entitled The True Meaning of Bitcoin’s Success, this is all about the arrival of the hyperinflationary melt-up characterized by various asset classes going into systemic price spikes. Stated another way, it is about the purchasing power of fiat currencies experiencing sudden and dramatic crashes. This recent narrative of a digital currency replacing gold as a store of value is as non-sensical as the idea that ‘dollars’ whether from the U.S., Canada or Zimbabwe, will maintain their purchasing power over time. The bankers reeled in gold in 2013; they will reel in the Bitcoin as well. What both have in common is the medium of control.”

The rest, as they say, is history, because Bitcoin peaked at $19,898 the exact night that futures trading began, and within the next year, found a bottom in the $3,000 range, taking a large number of Bitcoin enthusiasts into insolvency. Thank you, CME Group, and Mr. Duffy.

Now, the speech given by former CFTC [U.S. Commodity Futures Trading Commission] Chairman Christopher Giancarlo at the Pantera Summit in San Francisco last Monday, has to go down as the biggest “in your face” flaunting of the role of government in what are supposed to be “free markets” that I have ever witnessed. He is quoted as saying: “We saw a bubble building and we thought the best way to address it was to allow the market to interact with it,” with “we” being the various agencies and departments. Also from the article: “One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked.”

So let me get this straight. Three months before the launching of Bitcoin futures, Terry Duffy is extolling the virtues of his exchange for its “transparency, price discovery and risk transfer capabilities,” while secretly, the four agencies/departments—including the Treasury (under Smilin’ Stevie Mnuchin)—are quietly conspiring to use that venerable institution to torpedo the cryptocurrency bubble, and with it the life savings of thousands of Millennials drawn into the bubble in the final months. Did anyone tell the late arrivals that were listening to Mr. Duffy that there was “another agenda?” Are actions like these typical of “free market capitalists?”

I argue—for the record—that there is today, and will be in the undeterminable future, absolutely zero chance of me believing anything that emanates from the odious underbelly of the CME Group nor its conspiratorial allies, the CFTC, the Treasury Department, the SEC [Security and Exchange Commission] or the NEC [National Economic Council]. These are the stockroaches of the world, hellbent on supporting the stock markets, and by any and all means. while muting the precious metals markets (remember the Sunday Night Massacre back in April 2013?)—all the while using the unregulated Crimex as its “hit man.”

And yet, I see numerous analysts and newsletter gurus offering copious e-mails, posts, and tweets with breathless, table-pounding “research,” either fundamental or technical, expounding gold purchases or zinc purchases or copper purchases on the basis of “conclusive evidence” supporting an investment thesis. All I can do is just shake my head. How on earth can you invest in anything where the inputs are so skewed by sample contamination or agenda bias? The only method that seems to work effectively, at least for me—and certainly not a no-brainer—is using various momentum studies such as RSI [relative strength index] and MACD [moving average convergence/divergence] to avoid dramatic drawdowns.

However, what does not work is relying on CME data, such as bank participation data or GLD net inflow/outflow data (because the custodian is one of the notorious billion banks, HSBC Bank Plc). In a rigged casino, victory is avoiding losses.

If we take this a step further, I am looking at the most recent economic data as measured against the backdrop of Federal Reserve “policy.” If one considers the recently announced and introduced FOMO/POMO injections of billions of dollars of “liquidity” (printed money) into the banking system, amid a record low unemployment rate and the S&P within half a percent of all-time highs, one might conclude that the policymakers are not looking at the same data set. How can your actions be so blatantly stimulative when the economy is already booming?

There is something out there not quite right with the banking system around the world and since the banks all have counterparty risks of both domestic and global natures and origins, the recapitalized American banks may actually be inextricably linked to a foreign bank or foreign banking syndicate caught in a liquidity/capital quagmire. I am speculating that the departure of Draghi will be a timely one, and that the source of the Fed panic has a Eurozone origin.

My advice to all is this: You keep only three months’ cash within the banking system, and that is to pay for the necessities such as rent/mortgages, food and utilities. Your retirement nest egg and savings/wealth must be situated outside of the banking system, in order to be inaccessible to the confiscatory policies of the banks/government.

Now, that does not mean that private independent brokers (like Schwab or Questrade) are part of the same sweep, or that keeping your stock certificates in your safe/vault is a bad idea. High-yielding dividend-paying corporations such as utilities and food providers, while not totally immune from a banking sector accident, will still pay dividends. You just don’t want then held by a bank-owned broker whose back office could freeze access to any income generated.

It may seem trivial to many of you that I would react so vehemently to the admissions of Mr. Giancarlo last Monday, but I’m sorry; it is behavior most vile and it sickens me. To learn that anvil of government influence was dropped into the “free market,” so boasted of by Trump advisor, Larry Kudlow, is a contradiction to beat all contradictions. To invite people to trade in BTC futures knowing full well that they were designed as a bubble-breaking enforcement tool, and actually brag about it a mere two years later, is (in a perfect world) a class-action lawsuit waiting to happen. Of course, it won’t happen because this is a totally imperfect world in which we trade and invest, but also one filled with deception, deceit and disillusionment.

Shifting gears, to the extent that one still feels obliged to trade precious metals, I remain 100% invested in the GLD, SLV, GDX, and GDXJ, as well as a basket of juniors including Aftermath Silver Ltd. (AAG:TSX.V), Goldcliff Resource Corp. (GCN:TSX.V), Getchell Gold Corp. (GTCH:CSE) and Stakeholder Gold Corp. (SRC:TSX.V). I am also short the GSR from 92.4 (looking for 70). The only leveraged holding is a small position in the SLV December $18 calls from US$0.35 (now $0.24), and I am looking to add substantially to them possibly later in the week. The SLV chart is mildly constructive, having reclaimed the 50-daily moving average, which sits at $16.42, and moved above the downtrend line at $16.25.

Month-end is approaching fast and while we had a decent day today, I am fearful of a looming take-down between now and Halloween.

The overbought condition for both silver and gold has now been worked off, and considering that RSI for gold resided in the plus-75 zone for literally most of June, the recent 51.74 reading gives me a far-superior setup, while silver’s, at 52.93, is also in great shape. Mind you, these are not the minus-30 oversold “gifts” we had in late-summer 2018, but with conditions so precarious, and without knowing why the Fed has hit the panic button, the overall setup for both metals could not be better.

Follow Michael Ballanger on Twitter @MiningJunkie.

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.