Gold outlook

I must say that I am extremely hesitant giving a Gold forecast. The fact is that I have not had a losing trade on the precious metals for over 9 months and the longer this goes on, the more likely I will be spectacularly wrong.  Add to that many smarties, including one sharp-shooter I know personally, are taking the opposite side of what I feel, makes me very uncomfortable.

With that caveat, let’s look at the evidence.

Pros for the bull market.

1)    The USD has peaked. I called the USD top a couple of weeks back and I think  it will be one for at least another 8-10 weeks. It could also most likely be a major, major top. Full Disclosure: Long GBP/USD since 1.21. It is hard to imagine a major move down in Gold in the face of USD weakness, at least in USD terms.

2)    The sentiment levels at the $1,125 bottom reached some of the most extremes of pessimism. Those have historically marked major bottoms.

3)  TLT-USD/JPY-Gold correlation is still running high and the smart money is very bullish on bonds. If the correlation continues, Gold and TLT could make a big move up together.

Pros for the bear market.

1)  COT sentiment never reached the depths of despair that we see at major bottoms. The relentless buying in silver futures in the face of silver weakness is also quite unusual.

2)   I have a few indicators that I do not share, and unfortunately you can take this for what is worth….they are still warning me that big slide is likely ahead.

3)    Gold is so expensive relative to every commodity that I think a massive bear market in Gold relative to other commodities is overdue.

Gold vs Platinum: Full disclosure: I am long PPLT short GLD for 10% of my portfolio.

This is Gold versus commodities. Looks like Gold is severely oversold, but if the 2016 high was the final top Gold has a lot of room to fall versus commodities.

And my favourite, the Gold: oil ratio which has averaged 15 since 1972 (after gold price was unfixed). I think this is due for a mean reversion to 12 and I just cannot see oil breaking $70 in the next 12 months. Yeah that means a $840 Gold to me. However, a case could be made that as we move away from fossil fuels, Gold could get permanently revalued higher against oil. I don't think we are there yet, but if that happened, Gold: Oil could permanently find a new floor at 20. 

To me the weight of the evidence paints me moderately bearish. But I have no positions except the Platinum Long versus Gold Short and a very tiny position short NUGT Feb calls.

Manipulation: Part 2

Repeating the examples of Part 1 with my take.

1) The Federal Reserve cuts interest rates and promises to keep them low to “calm” Bond investors.  (Bonds, Stocks) &

2) The Federal Reserve/BOJ promises to buy X amount of bonds and common shares per year for 3 years at least  (Bonds, Stocks)

A large percentage of the investing community see this as "artificially" suppressing interest rates and boosting demand for stocks. I have to disagree. While the Fed can control the short term rates, the long term rates have a mind of their own. In fact, every round of QE announcement and follow through has seen long term interest rates rise/stay flat (TLT go lower/stay flat) while withdrawal of QE has caused interest rates to fall (TLT to go up). So how the fuck can the Fed be influencing stock prices by QE when they cannot attain their primary end point?

3) OPEC cuts oil supply to increase the price (Oil).

As the producer of that commodity they have the right to set the price. We have no right to insist they blow up their budgets, run the risk of hyperinflation (Venezuela is already there) so that we can make an extra hiking trip in our inefficient SUVs. 

4) UBS sells stocks from its own inventory during a panic to trigger stop-losses on its customers, in order to purchase them back lower (Stocks)

Stop-loss triggering is used by every professional trader/bank since stop losses became available. If you don't want to be screwed, use mental stops away from common support zones or use options. If you don't like it go play Nintendo, don't play with the big boys. 

5) Between 2004-2010 Goldman Sachs fixes the daily Libor rate 1 basis point lower than it actually would have by selling a large amount of a Libor product to a pre-agreed colluding bank on close. It would only impact products that trade of Libor rate close and not influence any daily trading nor the long term movement of Libor. During this time Libor rose 300 basis points and then back down 300 basis points. (Libor rate)

This is a really good example. Because first it is manipulation and Goldman Sachs should have their balls cut off for robbing people. It also shows that over the long run they have no influence on the direction of Libor rates. Same as for Gold and Silver. They can cause selloffs (similar to example 4 above) but Gold price rose 700% in the 10 year period from 2001-2011. Silver rose 900% trough to peak. That is a massive failure for someone short. Here is another point, If the big banks were consistently short about 400,000 contracts during the bull run...with no counter hedge.....they would be short 40 Million ounces of Gold. That means trough to peak they would have lost 70 Billion. A bit hard to hide.  

6) US Shale producers differ drilling unprofitable wells to help increase price of oil (Oil)

No different than 3 but if you listen to the news channel, Shale producers are somehow are "good" and OPEC somehow "bad".

7) OPEC agrees to keep over producing to bankrupt US shale with the idea of reducing production to bring prices over $200 in 3 years. (Oil)

This pricing out of competitors has been used in every industry in the last 200 years around the world. Depending on exactly how it is done, it may be illegal in some countries. 

8) Home Depot gets its major shareholders to agree not to sell any stock for 3 years…promising a large expense cut, large dividend increase and offer to buy 30% of remaining outstanding stock. Stock increases 100% with 1 year as shorts scramble for cover (HD stock).

Perfectly valid tactic. In fact, part of the reason stocks have gone up so much is due to the buybacks by the S and P 500 companies over the last 8 years. 

9) US Shale producers hedge 80% of their oil production for 1 year by shorting 500,000 contracts (worth 27.5 Billion) of oil futures as prices briefly touch $55. Prices remain depressed for some time (Oil)

This has actually happened. The producers are hedging major amounts and this will likely keep a lid on prices. So the producers (in this case oil) are the commercials on the COT, and they have been so badly burnt that when they once thought anything under $90 was a bad price, now think $55 is a great price. Their hedging is depressing prices and the dollar amount is higher than Gold shorting, yet this is rarely compared to Gold shorting. 

Still falling for you (r bullshit) Gary Savage

Manipulation Part 2 will be delayed as we had to bring you this more urgently.

So we have a charlatan who claims his “Model portfolio” is up 150%. I had my doubts. So I subscribed just to see what the fuck was going on.

Below was the second entry point of our genius. JNUG was at $23 at the time on August 31st. Note he had already committed 50% at higher prices. 

  

What followed was absolutely awful. Gold smashed through $1,275 and JNUG was down 40% in a flash. Did Gary sell? He found it hard to believe that many on his blog including me, got this right. He also found it hard to sell. In fact he was ready to back up the truck and advised never, never to sell into an oversold market. 

Some relevant comments from the discussion.

At this point with JNUG around $12, model portfolio was already down to a small 25% gain. This was the same model portfolio that had been blown to zero multiple times before. 3 days later he was totally convinced the bottom as in.

Even telling this poor soul who was down $90,000 that he should not sell.

While his subs were devastated, Gary's pie in the sky targets continued. He added three more "buys" over the next few days.

 But one sub stated the whole truth. "RESET THE MODEL PORTFOLIO BACK TO 100"

But Gary kept adding “buys" and more fanciful ideas to keeps subs on the losing trade. 

Even from $12, JNUG suffered another 70% loss before bottoming so Gary's refusal to give up on 3X ETFs had some bad results. Further, he added that Gold was going to test the highs in the next daily cycle and exceed $1,400 by November 13th or so. 

Finally, Gary did what all men of his low calibre do when faced with a large mess of their own doing. He blamed someone else and HE TERMINATED the MODEL PORTFOLIO. 

This is classic Gary. 

1) There is no natural scenario where Gold suffers repeated premarket attacks to cap price below $1,275 (so your trading only works when there is no manipulation which you repeatedly have said plagues the Gold market?)

2) There is no natural scenario where a daily gold cycle tops on day 2 (yeah there is you fuck, it is when you get the count wrong)

3) I just have no idea how to trade (Just stop right there Gary. You nailed it!!!!!!!!!!!!!!).

But Gary was not done in his Squirrel Pant Pressing land.....His Model portfolio was still up 54%!!! This was astonishing to say the least as someone else had confirmed that it was down to 25% at much higher prices for JNUG. Regardless he terminated the model portfolio. From here on out he was not going to use the Model Portfolio. 

About a month later. 

AND we are back!!!!!!!!!!! In fact the very first comment brought this up, but Gary dodged the question. Mind you Gary would have to close his old trades likely bringing his "Model portfolio" down by 90% but he just glazed over this and closed his portfolio on a day the markets were closed. My friend, I would like you to realize that people cannot close out real world positions on holidays. 

Regardless, JNUG was closed at an 80% (from $22.5 to $4.5) loss somewhere between December 22 and December 27.

Gary Savage/Toby Connor, you keep fucking up....so as Ellie Goulding would ask...(Why are your subs) Still falling for you?

Manipulation: Part 1

I changed my mind as to how we should do this. I found as I was writing, that I was defending my viewpoint based on my definition. Manipulation like beauty may lie in the eyes of the beholder. So first question of the day? What is manipulation? Settling on a definition will allow us to see the other person’s point of view.

Briefly, which of the flowing do you consider manipulation? Action followed by potentially manipulated asset class. 

1) The Federal Reserve cuts interest rates and promises to keep them low to “calm” Bond investors.  (Bonds, Stocks)

2) The Federal Reserve/BOJ promises to buy X amount of bonds and common shares per year for 3 years at least  (Bonds, Stocks)

3) OPEC cuts oil supply to increase the price (Oil)

4) UBS sells stocks from its own inventory during a panic to trigger stop-losses on its customers, in order to purchase them back lower (Stocks)

5) Between 2004-2010 Goldman Sachs fixes the daily Libor rate 1 basis point lower than it actually would have by selling a large amount of a Libor product to a pre-agreed colluding bank on close. It would only impact products that trade of Libor rate close and not influence any daily trading nor the long term movement of Libor. During this time Libor rose 300 basis points and then back down 300 basis points. (Libor rate)

6) US Shale producers differ drilling unprofitable wells to help increase price of oil (Oil)

7) OPEC agrees to keep over producing to bankrupt US shale with the idea of reducing production to bring prices over $200 in 3 years. (Oil)

8) Home Depot gets its major shareholders to agree not to sell any stock for 3 years…promising a large expense cut, large dividend increase and offer to buy 30% of remaining outstanding stock. Stock increases 100% with 1 year as shorts scramble for cover (HD stock)

9) US Shale producers hedge 80% of their oil production for 1 yer by shorting 500,000 contracts (worth 27.5 Billion) of oil futures as prices briefly touch $55. Prices remain depressed for some time (Oil)

So please in your comments please state which of these are example of manipulation and which are not. 

What happened to the Gary Savage Ship?

Thanks to the relentless assault by the SMT Exposed site, this blog and even Avi Gilburt, the Borg (Gary Savage) ship is taking some damage.

Thank you all for your participation. 

Markets:

The complacency and sentiment indicators continue to stay in extreme. If we do not have a 1% decline today it will be 67 trading days without one, the longest in the bull market since 2009. But the underlying economy looks quite strong. A couple of years back you can check the many sites including zerohedge which predicted that the Fed would not be able to raise rates and such a high US dollar would destroy the US economy. The economy has held up quite well in the face of a higher USD (which I think has peaked as I mentioned last week) and the falling dollar should be a nice tailwind to profits.

Trading Positions:

50% Long Equity TLT

3% Long Equity Various Calls Feb TLT

3% Short Equity GS

Long GS $220-$210 Put spread for Feb (10X), financed by selling $240 calls for Feb expiration (1X)

3% Short Equity FAS

10% Short Equity GLD: 10% Long Equity PPLT

About 6% combined short GDX $23.50 Jan 27th calls at 66 cents and Pan America Silver at $18.93

5% Short Equity SPX

1% Short Equity NUGT Jan 20 $10 calls. 

Gary nailed the USD call

Jan 17th. Gary Savage is not among those caught on the wrong side the market. No siree. He saw the USD was going to go down and he made the call.

 He was a bit early in December calling for the USD top though.

Quite early in November, when he was sure the USD was about to roll over.

In October too, USD was not bullish to him because it was on a "Crawl". This was NOT a bullish pattern.

Just waiting since September for the USD to go down.

But USD was sooooo bearish in August.

And the "First Stage of the Bear Market" began in July.

So you see "folks", for $500 a year you too can have this priceless analysis, with a nice brag at the end. 

The ethics of newsletter writing

We had a fantastic dinner last night. I come from a large family and all were present last night for a total of 24 adults, including parents, siblings and their significant others. We had people from very diverse walks of life including two lawyers, two finance professionals, a philosophy major and one cop. So it was a good place to start an ethics/legal regulation debate.

I have previously discussed my new blog writing stint to them and I have most of them as regular readers. We have discussed Gary Savage before although never in such a large setting. We got around to discussing the ethics of writing newsletters for a living.

After a lot of debate, we almost unanimously we agreed that for people selling a newsletter,

1) All trades should be logged externally so no one can back track on what they said.

2) Full disclosure should involve actual trades placed for one's own account. Warnings when subscriber recommendations are not matched by placing same trades for one’s own account. So if a newsletter writer tell you to put 10% in JNUG but puts only 1% of his account money in it....a disclosure/warning should be issued. 

3) Full disclosure should involve all holdings of personal wealth. For example, it is easy for me to blow up 0.1% of my money on JNUG while espousing a 50% exposure to newbies.

4) Full disclosure as to what percentage of one’s income is dependent on subscribers versus other sources including trading.

5) A "cut-off" for losses at which point all subscription fees are refunded. 

6) The Disclaimer when subscribing should mention all this and should add that the disclaimer is rendered VOID if the newsletter fails to follow any of these. Meaning not following the rules above means you can get sued.

Gary's subscribers should encourage him to voluntarily follow these in order to improve his reputation. My suspicion is that no one who has "millions" sells newsletters for a living. Certainly does not go around begging people to sign up for a $10 trial offer.   

To Gary Savage:

Think about this Gary. You have caused people to lose a lot of money. Between the email and blog discussions I have had and the Smartmoneyexposed website, you have cost people millions. Many are suicidal. You have shown a remorseless, arrogant, approach while destroying lives. How would you feel if someone scammed you and you no longer could spend your days climbing? Sure you have a "Buyer beware" disclosure. But you never bring up the possibility of loss in your comments/commentary. You also know how wrong you have been. You have called for $20,000 Gold and 400 SPX a USD crisis multiple times, a Yen Crisis (after it had already declined), about 50-100 calls for a Gold bottom, 50-100 calls for a USD top and severe decline.  Yet every call is made with 100% certainty. If you are wrong like you have been for the last 5 years and Gold even has a mild bull market, people will lose a lot of money following your recommendations in the 3X funds. Is this what you want to be? As you go past your 57th birthday? (BTW you look quite young for your age. The rigors of trading 3X ETFs have not done any damage, perhaps because you do not trade them personally?).  If you really have those personal millions, and you don't "need" this as you have said time and again, close down your subscription. In trading as in life, our most powerful weapon is our ability to change our mind. Use yours. 

Oh Gary....Why?

So in the face of more subscriber revolt, Gary published this awesome chart.

Idiots? Gary...Glass houses...Stones...no bell ringing?

Regardless, on the face of this it does appear that 3X funds do very well during a bull market. Of course, here is the rub, 

You must identify the exact bottom and the underlying must not be excessively volatile........something Mr. Savage Gary himself idiotically contradicts for JNUG. A single 33% decline would wipe out JNUG (say if India bans Gold Imports). Even if GDXJ recovered the next day....the daily contracts which account for bulk of the fund would go to zero. 

Ignoring that little tidbit and focusing on the first item....Identifying an exact bottom.... why is this important?

Let’s look at the same chart just set back 4 months.

If you had been 4 months early…Just 4 months....you would be up about 8% instead of 1,500%.

And the underlying would be about 135% (dividends reinvested). 

For a total underperformance of over 400% versus target.  

How early has Gary been?

He has called multiple bottoms over the last 5 years but he first showed NUGT in December 2013.

"Big money" not to be confused with "Smartmoney" was "anticipating an impending bottom"

How did that work out? Oh not too bad...just a 90% loss.

Even more fun was what Gary said beyond that....

Fuck "Who wants to be Millionaire?" 

Gary went straight for the "B" word. Gary I think the "B" word you were looking for was "BANKRUPT". 

Addendum:

Found another priceless NUGGET.

http://www.bullionbaron.com/2011/12/goldsilver-on-verge-of-bubble-phase.html

Shows GARY was really, really, really, really, really early.

"By the fall of 2014 I expect we will see gold somewhere between $7,000 and $20,000 an ounce."

So when he says JNUG will go to $1,000...please ask him why Gold is not yet at $7,000.

Gary probably failed grade 6...Multiple times.

While some retail traders are bailing and others are voicing concerns over Gary’s silliness, it appears that the man himself has decided to double, or should I say Triple down. 

GDXJ had a 200% rally from the 2016 low and it was relentless. JNUG managed a 1,100% rally of the low and Gary managed to catch anywhere between 5-10% of that, depending on how many lies you believe. 

Such moves are more the exception rather than the rule. Going by HUI’s performance, the 2016 rally was only matched once in the entire 11 year bull run (2002) from 2001-2011. In fact my tremendous success in going long and short GDX was owed to identifying the virtual lockstep with the 2002 rally. The point here is that if HUI rallies 150% from the lows once about every 15 years, and Juniors (GDXJ) rally 200% from the lows, it is going to be very unlikely that this can be repeated multiple times. So a JNUG move of 1,100% is very, very unlikely. 

Even then, from its peak in 2016, GDXJ gave up a whopping 40% of its NAV and JUNG did an impressive 88% drawdown (From $32.5 down to $4). It follows that such rallies require massive drawdowns to reset sentiment.

So let’s assume we can mimic this volatile year (2016), how many years of such rallies and declines will JNUG require to reach 1,000?

So here is what we assume:

1) Every year GDXJ rallies 200% from its low. Then declines 40%.  Every single year. 

2) You are a stupid retail trader and you believe Gary. So you invest in JNUG. Starting with a price of $4 for JNUG at the end of 2016 and assuming we get 11X increases (because of straight linear rallies compounding more than 3X) on each run up and 88% declines, we need 13 years to reach 1,000. Not 4-5 as the master says.

JDST	Low	High
2017	4	44
2018	5	58
2019	7	77
2020	9	101
2021	12	134
2022	16	176
2023	21	233
2024	28	307
2025	37	406
2026	49	535
2027	64	707
2028	85	933
2029	112	1231

But wait; there is more as the salesman said. In addition to achieving this extremely unlikely possibility one more thing must happen.

There was not be any 1 year period without this kind of movement.  A standard sideways chopping range over 2 years can decimate 80-90% of the value.

And here is fucking funniest part. When you see this you will laugh your ass off. What if all of this happened? What if Gary after being wrong every year from 2011-2015 finally got something right, 2 years in a row? What if GDXJ went up 200% each year and then had a 40% correction? Every single year.  

And now just for fun we will assume that instead of doing this fucktard JNUG thingy, you just invested in GDXJ, what would happen then?

Starting with same GDXJ value as JNUG’s (I have adjusted the price so it is easy to correlate what is happening), you would have 10 times more money in GDXJ then in JNUG. 

GDXJ	Low	High
2017	4	12
2018	7	22
2019	13	39
2020	23	70
2021	42	126
2022	76	227
2023	136	408
2024	245	735
2025	441	1322
2026	793	2380
2027	1428	4285
2028	2571	7712
2029	4627	13882

So even if you believed this ludicrous outlook, why would you "invest" in JNUG over GDXJ? Not to mention that in any other sideways/long consolidation scenario, GDXJ would outperform JNUG 100 fold over the coming decade.  

 So Gary, the first lesson is on the house.          

To all other readers, if you find my research and ideas useful, please consider donating a nominal amount to UNICEF or a charity of your choice. When you do please email me that you have even if it is $1. I have a goal of raising $1,000 for charities for 2017 through my blog. Thank you.