Gold Up-to-Date' COT Report: A Maddening Déjà Vu

By: The_Gold_Report

Precious metals expert discusses recent movements in the markets. In life, there are a distant events from one's past that embed themselves in one's memory banks in a manner and forcefulness that is directly related to their personal or historical importance. The birth of one's first child, one's first love affair or an athletic achievement fall into the "personal" category; the end of WWII, the first lunar landing or the assassination of JFK are examples of "historical" events. These events in one's lives are so crystallized in their vividness that one is many times able to recall sounds and scents from those exact points in time. Stated another way, how many times has a person had a certain song come on the radio and been memory-jogged back 20 or 30 years? In my case, the scent of hot dogs and popcorn bring to life hockey arenas and dressing rooms while the song "The Night They Drove Ol' Dixie Down" brings me immediately to the old Hamilton Mountain Arena where the Dixie Beehives won the Ontario Junior "B" championship in 1970. Fast-forward to 2019 and there is yet one more memory-etching that is transpiring: the COT report.

Over the years, there have been many financial or mineral exploration events that have occupied the frontal lobes of my cerebral cortex: the Hemlo Gold Discovery of 1981, the Crashes of 1987/2001/2008, most of the major discoveries of the 1990s and a few more far too insignificant to most to recount. There were also weekly reports that over any market cycle became cult-like events—the 1980s' money supply numbers reported every Friday at 4:00 p.m. became a Bloomberg news machine gathering of water cooler vintage. Today's version of the money supply numbers is the Non-Farm Payrolls or "Jobs" report, which arrives every other Friday morning at 8:30 EST with enormous fanfare, complete with panels of experts and their "guesstimates" along with "post-report analyses" where the panel members pick apart the number and its components in the same way sports commentators analyze a football game or boxing match. The "Down goes Frazier! Down goes Frazier! Down goes Frazier!" mantra from Howard Cosell in the 1970s is now supplanted with "Down goes Leissman!" or "Down Goes Santelli!" or "Down Goes Cramer!" when one of their NFP calls goes wide of the uprights. Circa 2019 and for most gold enthusiasts, the weekly Commitment of Traders or "COT" report has now assumed the role of the "obsessive-compulsive disorder" clarion call for those (like me) completely enrapt with "all things golden."

When the U.S. government shut itself down back at midnight December 22, 2018, it was decided that the delivery of a vast portion of all government statistics would be delayed until things resumed to normal. Of course, the major source of ad-revenue-creating financial news—the Jobs report—would be exempted from such nonsense as they deemed it far too important an interventionalist's tool to be delayed. However, as the COT numbers were unavailable to the public, the only thing some of us could look at was the open interest figures in gold futures, which still showed up on a daily basis from the end-of-day numbers. So, when open interest exploded in December, one could only speculate that the Commercial traders—the bullion bank behemoths—were once again spinning their web of subterfuge into the headline news of a "dovish Fed policy reversal" and "inevitable crash in the dollar."

Surely as the sun rises every morning, when the COT numbers began to play "catch-up" when the government shutdown ended on January 22, it was sorely and sickenly evident that the aggregate short position held by the bankster bozos was on the rise from the day before the government shutdown at 92,675 net shorts to the last week's number at 166,477. "The bastards are at it again!," I was thinking back in January as gold was advancing nicely into the $1,300s so with open interest ballooning each day and with each advance, you just KNEW that the bullion banks were going to rip the foundation out of the advance at a moment's notice and with not a shred of warning and as noted here and more than a few times, I sent out via Twitter the "call-to-action" on Feb. 20 with gold at $1,344.80 to "Dump all leveraged positions." The rest as they say is "history." $50 per ounce straight down with not so much as a peep out of anyone (of a regulatory moniker).

Friday morning's NFP vigil was reminiscent of the money-supply watch of yore; everyone was gathered around, smiling and laughing and sipping their lattes making their jobs guesses (as if no one cared) when out came the number and it was a whoppingly large miss as the myriad of 200,000+ guesses vaporized into tiny molecular misfires when it was reported that only 20,000 new jobs were created. Everyone, especially CNBC's Steve Leissman, went to the defense with the CNBC "chief economic commentator" said that the report was "wrong" (but January's upside blowout number was, of course, absolutely "fine"). The markets responded as they should have, with stocks plummeting and gold and bonds spiking and the CNBC crowd rushing to change their knickers. As the day wore on, stocks recovered from a 26 point S&P plunge to close down only 5.86 but gold and silver held on to decent gains with the Miners (HUI) going out near the highs for the day.

Accordingly, I go into next week modestly short (S&P and Goldman Sachs) but considerably overweight the leveraged precious metals positions mentioned on March 6 with the missive entitled " PM Reentry Time." NUGT, JNUG and calls on GLD and SLV were all replaced on Wednesday the 6, the day after the $1,282 lows were in place. We had the benefit of an unremarkable day with the lows being seen just after the opening with gold at $1,284.30 so most of the JNUG and NUGT were added to that day, which marked the lows for both for the move. With averages at JNUG $9.45 and NUGT $18.35, Friday's pop in the miners now marks the beginning of the move to test the highs and, as I said earlier this past week, an RSI at 35-40 is not ideal but it is a far cry from the 75 level on Feb. 20 when we pulled the pin on them.

So once again, we are sitting in front of the computer screens, mesmerized by the rearrival of déjà vu—that surreal feeling that we have seen this all before or have visited this space in another lifetime of portion of this lifetime. Over and over and over again, the Commercial traders relieve the CTAs and hedge fund managers and big trading houses of tens of millions of dollars by having an unlimited supply of phony, paper gold "inventory" with which to soften advances; massage support and resistance levels; and intervene at critical points in the trading cycle. Their illicit and unnatural supply of paper gold, which should have no bearing on the pricing process for gold that is physically delivered, has the uncanny ability to affect the fortunes of millions upon millions of retail and institutional investors around the world whose livelihood depends upon true, full, and plain disclosure of price.

That the bullion banks are allowed and able to access a fictional supply of gold and silver with the objective being to control price is a distortion of the spirit and intent of transparency and a violation of the veracity of price discovery. So, how on earth can one trade any market when regulators and justice departments turn a blind eye to both of these tenets so absolutely critical to the survival of the free market system?

The answer, at least for me, is quite simple: one must ALWAYS look behind the wizard's curtain. I do NOT trust ANYTHING that is offered by bloggers or amateur technical analysts as "gospel truth." I must have heard the term "Golden Cross" over 100 times in late January and early February as a reason to mortgage the farm and buy gold, but gold eventually returned last Tuesday to a mere $5 per ounce above the levels where the cross occurred. To have any chance of being successful in the trading universe, one must "Follow the Money" and in the gilded pits of the Crimex Paper Gold Transfer Station, I make it my life's mission to attempt to be on the same side as the criminals, at least as far as positioning is concerned.

For far too many years, I would charge into the calls of Barrick or Newmont on the strength of a "technical breakout" in gold prices, only to see those infamous "journal entries with zero value" show up on my month-end statement as my reward for identifying a technical pattern. The Commercial traders not only see those breakouts coming; they actually massage prices to CREATE the breakouts, seizing gargantuan mittfuls of paper gold to satiate the demand created by these patterns and in so doing, actually conjure up repeated occurrences of the deadliest technical patterns of all, "FAILED breakouts" and "FAILED breakdowns", the combination of both constitutes the derivative of the word "INSOLVENCY."

As comforting for stock market bulls as was the Powell-Mnuchin "policy shift" that happened during the final week of 2018, the same "policy shift" seen with this week's COT is equally as comforting for precious metals bulls. If "Follow the Money" serves as a reminder of what NOT to do when trading, those "fighting the Fed" are no different than those that have been "fighting the Commercials." Both of these entities have proven to be, over time, the drivers behind short-term (and even long-term) price movements. How many times have we read the words of our goldbug friends that point to the "MASSIVE SHORT POSITION HELD BY THE BULLION BANKS" as proof of an impending squeeze and price explosion? Dozens? Hundreds? Thousands? Now, how many times have we seen a short squeeze in ANYTHING that is government sanctioned? Answer: Perhaps silver in the last decade in its move through $50/ounce but it was brief and it ended in tears and no bullion bank went under or came anything close to "in trouble." At worst, there was only "discomfort" that was greeted with "elation" with the April 2013 Sunday Night Massacre that finally bailed them all out with a vengeful retribution of the most-foul manner.

I try to live by the "All is not what it appears" mantra and it took over 35 years to allow the osmosis of cranial capitulation to take effect. My only fear in doing so is the same fear which manifests itself in the minds of those detectives in the hunt for serial murderers—that they will actually BECOME a serial killer, but I think I am safe because the revulsion I fear at the thought of becoming a banker remains sufficient (we hope).

This week I look for a continuation of the precious metals advance and a fierce skirmish between the stock market bulls and bears as that big red candle you see in the above chart of the $SPX is only the second since 2019 arrived. Eight of ten weeks have been straight up and with a friendly Fed and a mountain full of "cash-on-the-sidelines," the eventual retest of the December lows is not going to happen without more than a few back-alley punch-ups. The manner in which "THEY" were able to levitate the market in the latter part of Friday gives rise to an early-week attempt for the bulls to reassert control. Whether that impacts the miners favorably or not remains to be seen, but as long as I carry an ample degree of both humility and cynicism into battle each and every day, I at the least stand a chance of coming home with my net worth intact. As distasteful as it may be, thinking like a bullion bank thief allows me to mount at once both a respectable defense AND psychological advantage so critical in posturing and positioning one's capital. In addition and equally vital lies the presence of amply-stocked liquor cabinets and indecently armed medicine chests with which to cope, both necessary evils within a very necessary battle.

Onward.

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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Charts 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.

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