Michael Ballanger dissects Friday's Commitment of Traders Report and whether it indicates bullish or bearish movements.
Last night as I sat in the den looking at a picture of my 1970–1971 Saint Catharines Black Hawks OHA championship team with a VERY young captain named Marcel Dionne smiling into the camera, I was suddenly slammed in the face with how quickly the years have passed. I remember that we knew it all; we were playing in the same uniforms as Stan Mikita and Bobby Hull and Bernie Parent and were certain to be on the back of cereal boxes before we got out of high school. We were living the dream and it took another decade for me to get that dream behind me, despite the fact that one can never ever forget being on the ice in front of 20,000 screaming fans.
Similarly, I have been living another "dream" of sorts since the mid-1970s—to be recognized as an expert in the field of precious metals and mining companies and while fame and recognition have flown in and out of my room more than a few times, they are best described as fleeting at best and illusory at worst. What most of us think of as notoriety is actually self-imagined importance in the world of financial forecasting because, as the great Gordie Howe used to tell the rookies, "Son, you are only as good as your last shift."
Which brings me to the topic of today's gold and silver prices and the importance of the Commitment of Traders Report (COT), which has everyone on the planet claiming it as their private analytical tool. Every newsletter writer or blogger whether they wear a big funny cowboy hat and carry an off-color moniker or not is now screaming from rooftops that "I wrote about the COT in 2012!" or "The COT has been MY specialty before HE started to write about it!" or "It has now become a cottage industry for 'analysts' trying to sell subscriptions." It is almost embarrassing to watch this schoolyard chest-puffing going on when the reality is that no one I read about called the 83% rally in the HUI better than I did back in the last quarter of 2015 and THAT is on the record and unarguable. However, it means jack s*it because Gordie was absolutely right when he said that thing about "your last shift" and with gold sitting around $1,250/oz and the HUI still struggling to decisively punch ahead through 185–190, it is still anyone's GUESS—yeah that's what I said, a GUESS—as to the next $100 move in gold.
As for the COT, the first place I learned about it in any detail was in Bill Murphy's GATA letter and for a while back in the 2007—2011 period, it was a pretty useful tool. But did I INVENT it as my private gold "indicator"? Of course not. Just like the USD/Yen trade has been a decent monitor in recent months, it hasn't ALWAYS been predictive and it has in the last couple of weeks been USELESS in timing gold. Every "system" eventually gets smoked out by Mr. Market and then you have to go find another one. That's just the way things work in markets.
Now look at the last bull market in gold and the range of aggregate shorts held by the bullion banks (Commercials) over that move from 2009 to 2011; it was consistently north of 200,000 net shorts and looks to have touched 350,000 near the top in 2011. Now, here I am, placing the livelihood of my family and friends on a number that has recently been a historically high figure, WITHIN THE CONTEXT OF A BEAR MARKET. If, however, this is actually a bull market as I have declared most recently, could that 195,372 aggregate short position reported last week be the lower end of the range of the new normal for bull market COT reports? In other words, could MJB actually be TOO CAUTIOUS as in not bullish enough? Should I back up the Ford F-150 to the loading dock of the TSX Venture Exchange and fill it to the brim with every imaginable junior gold miner within 500 kilometers of a producing gold mine? Should I go out and buy a boatload of GLD (NYSE:GLD) September $2,000 calls and SLV December $50s to boot? Well, if you listen to the pundits that have all the answers and spout off with podcasts five times a week laying out the things that are important in the week ahead, you will get the usual obfuscations as to what you should actually be doing—as in "With the Commercial COT for silver being this egregious, we COULD easily see $14.00 in the weeks ahead," and then when it hits $16.00 two weeks later and they get called on it, they get defensive and say, "I said IF this and that and this happens, it COULD hit $14.00, not WOULD hit $15…" and proceed to squirm out of essentially a really crappy call. However, as I just read about in the past two weeks, after saying "If this and that and this happens, I think gold could get to $1,285 despite the big commercial short position which I have told you is outright bearish for gold." And then when it hits that number, you get the following "Yee-hah! Didn't 'ol Biffy here tell you it would hit $1,285? Well, we're just doin' our job." Hold it, BIFFY—didn't you say that gold "COULD" hit $1,285 as opposed to "WOULD" hit $1,285? You can squirm out of owning that lousy silver call because of "semantics" surrounding the word "could" while you squirm INTO owning the gold "call" while using the same word?
Well, here is where MJB sits: I am completely confident in my intermediate and long-term bullish forecast for gold and silver and the miners and have placed my money where my mouth and pen reside. With that said, I am not terribly certain right now as to the short-term outlook. I exited the leveraged ETFs (NUGT and JNUG) with the HUI at around 160 and am feeling nervous about it having left a goodly chunk of additional profit on the table. Perhaps there are forces out there that are unusually powerful having arrived here in 2016 after being non-existent for the past five years. Volumes in the GDX (NYSE:GDX) and (NYSE:GDXJ) ETFs are outrageously high and the fact that the miners are staying overbought far longer than I would have imagined are contributing to my uncertainty. My heart wants to believe that this is typical of an early-stage bull but my trepidation over the power of the bullion bank behemoths keeps dragging me back.
In what can only be seen as an act of amazing bravery, I will wank out and await the COT numbers at 3:30 this afternoon and if I see a reduction in the Commercial short interest, I will tell you what I think gold and silver "will" do as opposed to what they "could" do and exactly what I "will" do with my cash balances. If the market goes the wrong way on me, I will fall on the sword of public scrutiny and take my medicine accordingly because I don't do "squirm" all that well. . .
2016-03-18 3:30 PM
COT Report
From where I sit, the COT is a brief respite from what looks to me to be an ongoing build in Commercial shorts and because the physical demand is so robust and since money flow is now GLD-friendly, I am going to continue to build my silver position while refraining from further hedges. While the Commercial Cretins covered in advance of the FOMC on Wednesday, my guess is that they are right back up there north of 200,000 short next Friday. Irrespective of that, the days of $100 smashes sure look to be a memory from the last bear, which ended in December 2015, so I'll be taking a more aggressively bullish tone next week and beyond. Translation: I think gold and silver will go up next week, and that doesn't mean "could" or "might". And if I'm wrong, the only person I will blame is a large Labrador currently hiding upstairs under a bed…
Here Fido, c'mon boy. . .
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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