No Respect: Gold, Silver, Bitcoin and Debt

Sector expert Michael Ballanger looks back at stock market behavior in the month of February, and its impact on the precious metals.

Source: Michael Ballanger for Streetwise Reports   03/01/2021 

As I look back upon the week and month that ended February 2021, I am reminded that this is the anniversary of the week that I tweeted out: “I say we are less than two weeks (and maybe hours) from the arrival of a Bear Market in global stocks…” What followed was a 32.89% crash in the markets, in what was undoubtedly the second shortest bear market in history, as the U.S. Fed stepped in and rescued the U.S. markets a mere thirty days after the stocks peaked.

Conditions a year ago were a great deal different than today, in that stocks were marginally overvalued, with the S&P then at 3,380 and the Case-Shiller price-to-earnings (P/E) ratio at 30.99. As this is being typed, the S&P is at 3,808 and the Case-Shiller is at 34.75, which is the second highest reading ever, surpassed only in 2000 by a 43.77 number at the tail end of the DotCom bubble.

Stocks are now the #1 topic of conversation on social media websites, which are the 2021 versions of the 1970s office water cooler gathering places where lies were told, rumors propagated, and indecent proposals made. Whether it is Bitcoin or GameStop or some ecological breakthrough using cow manure, stocks are now the national preoccupation, with the younger generations of Millennials and Gen-Xers beating down the doors to open “day-trading” accounts. In fact, this obsession is so acute that it now takes me over two hours on hold to speak to a “customer service” (oxymoron of the highest order) representative with my local, non-bank, discount broker.

The culprit in March 2020 was a global pandemic, beautifully orchestrated and masterfully executed by the global banks and governments, which allowed the perfect cover for an obscenely flagrant multi-trillion-dollar orgy of central bank and government “stimulus” (read: “handouts”) that allowed the large money-center banks to get “reliquefied” as custodians of the COVID-19 bailout binge. That binge has taken stocks to record highs, as economic activity collapsed and now represents an even greater threat to human survival than the actual virus.

This complete lack of respect for the integrity of global currencies is setting up a Minsky Moment for this financial lovefest and I fear that this week mirrors 2020, but with rising bond yields replacing a spreading flu bug as the culprit.

I received a call on Thursday from Fred Bechhold, a seasoned warrior from the Kansas City Board of Trade trading pits and a very astute observer of global markets, including the S&P, gold and the VIX. We have been great friends since the early ’90s and waged “deal warfare” together over many years in numerous campaigns. As an ardent bull on both Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB) and Norseman Silver Ltd. (NOC:TSX.V), I brought him up to speed on the two names, after which he expressed his conviction that some of the big U.S. managed money outfits are looking to lock in profits from this unprecedented run from the March 2020 lows by either raising cash or by adding some protection via volatility (i.e., the VIX or UVXY:US). Fred is the best volatility trader I know and for him to ring me to give me a “heads up” on the VIX was both noteworthy and appreciated.

Swinging over to the precious metals, gold had a thoroughly lousy week. But to subscribers to this publication, it came as no surprise, because for most of the year 2021, I have been skeptical of gold’s ability to hold up. As the chart below confirms, it was only two weeks ago I posted the chart on the left showing how US$1,800/ounce had to hold. Alas, it did not and now we are faced with the dilemma posted in the chart on the right, which highlights US$1,700 as the new line in the sand.

However, the next chart tells a completely different story, as gold’s technical setup is now giving me goosebumps, in that for the first time since late November, it is fast approaching oversold conditions. While it is still a tad early, I will be selling nothing in the gold space despite the two trendline violations that have armchair technicians downing valium.

If I am right, we could see relative strength index (RSI) readings in the low-to-mid twenties by mid-next week, which could give me a bullish setup for GDX:US, GDXJ:US, GOLD:US, and EGO:US, all positions we have owned in the past but are now flat. Most importantly, the junior gold developers and explorers, which until recently had been withstanding the downturn, finally buckled in the last two weeks, with the TSX Venture Exchange giving back 10% after a scorching move of 65.43% off the September lows.

By contrast, silver remains in a very calm, very orderly uptrend, with all of the #silversqueeze nonsense now on “mute.” It is no wonder that the technical picture for the silver equities and the developer/explorers remains vastly different than gold’s pitiable plight.

Our two premier holdings over the past couple of years have been Getchell Gold Corp. and Norseman Silver Inc., and while both remain solidly ahead (with more goodies coming), February is the first month that Norseman now leads in performance (+884.62% vs. +522.22%), which is a clear-cut reflection of the differential in sentiment between the two metals. Gold is seen as a “boring monetary metal owned by grandfathers and anarchists,” while silver is a “hip, eco-friendly, industrial metal pivotal to electrification.”

Being a granddad, I am a dyed-in-the-wool believer in gold’s utility as a store of value and a terrific long-term investment, regardless of age and circmstance. Another thing for you all to remember (as you text your friends bragging about your recent sale of Bitcoin over $50,000 and the new Volt you bought with your profits, sipping a seven-dollar grande latte while walking your gorgeous little Shih Tzu down the street, gold is an absolutely beautiful metal. Have any of you ever actually held a gold bar in your hand with a quartz halogen light beaming down upon it? It is a wondrous sight, and compared to silver or copper or even diamonds, there is nothing as magical as gold.

Apologies for the sermon, but I get tired of hearing the 2021 version of the “pet rock” narrative from a number of years back, and the “sell gold; buy Bitcoin” ad campaigns of last January. In a world absolutely drenched in debt, and where cryptocurrency values are determined only through negotiation otherwise known as “barter,” it is important to remember the words in this quote:

“Gold is the money of kings,
Silver is the money of gentlemen,
Barter is the money of peasantsó
But debt is the money of slaves.”
óNorm Franz

I would much rather preserve my wealth in the company of kings and gentlemen than in the company of peasants and slaves. Never forget that.

Originally published Feb. 26, 2021.

Follow Michael Ballanger on Twitter @MiningJunkie.

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.

Disclosure:
1) Michael J. Ballanger: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Getchell Gold, Norseman Silver. My company has a financial relationship with the following companies referred to in this article: Getchell Gold. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below.
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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.