Loading ...Ballinger on gold–3-31
Silver Strategy: Accumulate weakness or buy the breakout?
Since 2001, I have found silver to be an exceedingly difficult market in which to trade, be it as an “investor” back in late 2001 at around the $4.00 level or as a trader in 2014-2016 in its rangebound purgatory bobbing and weaving at the end of the JP Morgan string between $14 and $22. The best trade I ever had in silver came while standing in the queue at Scotia Mocatta the exact DAY that silver topped above $50 in April 2011. I was buying a 1-ounce silver maple for a friend for her birthday and the clerks at Scotia Mocatta were walking through the queue asking “Buying or Selling? Gold or Silver?” of every person in line and all I remember was that everyone was answering “Buying” and “Silver”. I immediately called my office and sold my entire holdings in silver and silver stocks and then fretted for the next month over whether or not I should buy it all back in the mid-$30’s and the stocks all down 35%. The bottom line is that I found it very difficult to trade silver – and gold as well, for that matter – because I was perpetually thinking and trading like a chump. Instead of thinking like a bullion bank trader and buying “breakdowns” and selling “breakouts”, I would do the reverse and get sucked in every time because some self-professed technical analyst would point to somethink like a “tombstone doji!” or “that big ugly red candle” that was MOST ASSUREDLY going to take the metals down into oblivion (but never did). Equally as bad were the silver bulls (that usually resemble gold bulls on both amphetamines and steroids) that would be typing always in uppercase letters that “SILVER HAS BROKEN OUT AND IS ON IS WAY TO $200!!!!!” paving the path for an onslaught of retail chump buy orders into which the JP Morgan traders would feed infinite numbers of synthetic “silver” contracts by way of the Crimex until the buyers exhausted themselves after which the behemoths nudged it off a cliff and rang the register for the next 20% decline as they covered shorts into retail “chump” regurgitation.
So needless to say, here we are in 2017 and silver has been in this arduous trading range for what feels like an eternity making it no easier to trade and/or invest in today than it was in 2001 or 2014. The manner in which silver is treated by the Crimex participants has now taken the vast majority of longs offsetting the JP Morgan sausage factory of short sale specialization to new and unheard of levels. Since the silver market has taken on a different personality in recent weeks is an understatement; the GTSR now below 70 into a generally weak PM complex of lower gold and softer miners is giving me the courage to begin building a position in the USLV and the SIL in advance of what I see as an impending increase by the beginning of summer. As the seasonality chart would indicate (shown below), the time to accumulate is between now and June but I am of the opinion that the pop will come in April around tax-deadline-time in the U.S..
The most compelling chart of all if the one of the gold-to-silver-ratio shown below. The ratio is so very close to breaking an uptrend which began in April after the central banks all teamed up to crush the PM’s during the September 2010 gang-attack which caused a waterfall decline in both gold and silver which did not reverse until December of 2015. If this 70 level on the GTSR gives way to a sub-60 print by now and April 30th, it sets up a further decline and ultimate test of the 40 level. If we were to see a $1,500 gold price and a 40 GTSR, that would be reflected by a $37.50 silver price (and big moves in the silver equities).
My dillemma is whether or not to wait for the possibility of a dip in April to accumulate or damn the torpedoes and take the plunge into the USLV (triple-leverage ETF) here or a basket of juniors or a few carloads of silver futures. One way or the other, I am definitely getting my toes wet today for the first time since 2011 by buying a 25% position in the USLV at $16.30 with a 2017 target price of $50.
My rationale for owning silver is really quite simple: in inflationary times, silver ALWAYS outperforms most other metals and all other assets. Since I see renewed (and welcomed) inflation on the immediate horizon, silver is the right choice. Since I am already a large participant in the silver juniors by way of Santa Rosa Silver Mining Corp. (now Canuc Resources Corp.)(CDA.V), I need look no further junior silver players but adding a few leveraged ETF’s and/or the high-blood-pressure-creating futures exposure is a great excuse for lock-breaking of liquor cabinets and medicine chests in order to moderate behaviours far exceeding normalcy.
Michael J. Ballanger, B.Sc.,B.A., CIM