Bullion Bank Short-Covering Will Become Year-End Profit-Taking

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Source: Michael Ballanger for Streetwise Reports 11/27/2017

Precious metals expert Michael Ballanger discusses why junior gold and silver explorers have been underperforming the lithium and base metals explorers.

As I sat in my den last evening looking out over lovely Lake Scugog and her plethora of weeds clogging shorelines, intake lines and Yamaha outboards, I was contemplating the likelihood of a rally into year-end and whether or not it might include ANYTHING that I own because, quite frankly, nothing in my world has worked very effectively since the first half of 2017. With the exception of the Pilbara play in West Australia, the junior gold and silver exploration issues have been sadly underperforming the lithium and base metals explorers largely because of the sharp advance in non-precious-metal prices, which in turn was triggered more so by U.S. dollar weakness as opposed to an uptick in industrial demand. There have been virtually no new gold or silver discoveries in either of the Americas and developmental stories cannot hold a dime store candle to the blockchain and marijuana stocks. Accordingly, it has been difficult to ascertain the correct positioning with a scant five weeks left in 2017.

However, after looking down the list of office parties to which I have been invited next month, it reminded me of 2015 when the Commercials covered into year-end and actually took their aggregate short position down to 2,911 contracts, down from the record high seen in July of that year. In doing so, they cashed a gargantuan paycheque with seven-figure bonuses across the board and since we have not seen wins of nearly that magnitude here in 2017, they still have roughly $70 per ounce of profit on that aggregate net short.

Since the $1,360 peak back in September, the price has retrenched to below $1,300 to as low as $1,262 but you have to trust human greed and the need to crystallize 2017 performance numbers and therefore assume that there will be a mad dash to cover before the shut-down which is probably only three weeks away. The major question for me is whether there will be a catalyst creating an air pocket in price between now and year-end. Tom McClellan points to a 13 1/2 month cycle low due for gold at the end of December but cycles are all about timing and rarely about price so therein lies the rub. I am going to argue that downside risk is contained by way of the size of the Commercials’ short position with the only possible surprises being an upward jolt into the New Year.

As an exercise in masochistic experimentation, I recently added some limited dollar exposure call options on the JNUG (leveraged Junior Gold Miner ETF) and the NUGT (leveraged Senior Miner ETF) by way of the JNUG January $15 calls (at $2.00) and the NUGT January $30 calls (at $2.65) earlier in the week and …read more

Source:: The Gold Report