Gold: Bear or Bull Market?

Source: Michael Ballanger for Streetwise Reports   07/08/2021 

In honor of Independence Day, sector expert Michael Ballanger celebrates the American “tribe,” and also reflects on a potential precious metals bear market.

I write this weekly missive on the evening of the day in which Americans celebrate their independence from British colonial rule, an event that happened in 1776, but was quickly mimicked by most other British colonies, the most notable being Canada in 1867 (after defeating the Americans in the War of 1812), and then India in 1947 (after seeking it in 1857, a full ten years before Canada actually snatched it from the British in 1867).

There is an important untold irony in the foreigner’s impression of Americans, and it cannot be told by any journalist or online blogger or self-professed pundit that has never lived among the American “tribe.” I have lived among this tribe and I can tell you that the DNA that pulses through Yankee veins is unlike anything you will encounter anywhere else on the planet. Ergo, I am able to opinionize my emotions from personal experience and intimate interactions from a sample size far greater than some Dutch blogger or English megalomaniac hiding out in Peru.

Having been educated in Saint Louis, Missouri, and having spent four wonderful years under the tutelage of the Jesuits, for which I am eternally grateful (and owing), what you all do not know is that I entered the USA filled with preconceived notions of what to expect from “America,” thanks to a Canadian educational system that allowed teachers to use their lecterns as political pulpits. By the time I graduated from high school, the leftist propaganda spewed out in Canadian schools had crept, through a type of informational osmosis, into the forefront my personal bias vault, such that when the old Air Canada DC10 landed at Lambert Field in late August 1971, I was sure I would be in a battle zone of John Wayne lookalikes and Sylvester Stallone wannabes. In short, I expected the humanity’s worst.

As I reflect back to the four years of Jesuit teachings and American (Midwest) life, I can tell you with absolute sincerity and abject certainly that the Hollywood image of the American “tribe,” depicted in varying degrees of bellicosity and ferocity, is nothing like what I encountered back in the Stagflation ’70s. Perhaps if my sample size was a U.S. military base or a police academy, I might change my antiquated viewpoint. Alas, it is derived from neither.

In the late 1990s, during a period of intense media coverage over sexual misconduct by members of the Catholic Church, I was interviewed by a member of a fledgling global cable news outfit as to the allegations of sexual abuse in the Jesuit priesthood. I went “on the record” in detailing the “close intimate relationship” I enjoyed with three of the priests in respect of my “personal education.” At that point, the reporter shouted to her recording crew, “We got a live one!”, at which point the throng descended upon us. As the incendiary 1970s recording lights blistered me, I proudly described that I had just received my diploma from Saint Louis University (SLU), with the only reason being that septuagenarian math teacher Father Andrews (who was a hockey fan) took me aside and tutored me in the basics of algebra and trigonometry, the foundations of which I had missed while playing Junior in Saint Catharine’s en route to a Memorial Cup showdown against Guy Lafleur and the mighty Quebec Remparts.

I later explained that, after a painful breakup with a girlfriend, a young Jesuit “bother” (Brother Pius) sat with me in the rectory and talked as we did shots of tequila until I passed out in the wee hours, only to awake with a blanket over me and a credit note for free breakfast in the priests’ private commissary the next morning. No skullduggery, no silly business, nothing other than good-hearted concern for duty that might (and should) be seen for what it was: righteousness.

The preceding paragraphs have nothing to do with money or investing; they were written because of a fondness I have carried for a country whose citizens are anything but the stereotypes depicted in films, television and print media. At the risk of an overly broad generalization, the friendships I made and still have to this day, nearly fifty years after returning to the Great White North, are with good souls, dedicated to a strong common ethic not always rooted in causes but frequently rooted in community and family. The American friends with whom I have competed, battled, laughed and loved deserve to have a glass raised in honor of the anniversary of their independence from authoritarian rule and gunboat diplomacy, with the latter being of utmost importance in the year 2021.

Over the weekend, I pored through what must have been twenty-five “commentaries,” with opinions on gold and silver, for the express purpose of getting the pulse of sentiment as we plod through the ennui of summer markets. While there was nothing definitive in the overall degree of either bullishness or bearishness, I can tell you that, for the first time in what feels like years, there are murmurings of “bear market” suddenly creeping into the gold/silver narrative which in itself is good. We have rarely seen bearish precious metals commentary in recent months, which is typical of the early stages of most downturns.

But since we are a few short weeks away from the Aug. 7, 2020, peak, at the intra-day futures of $2,115.00 per ounce, the painful truth is that a one-year downtrend absent new highs is more “bear” than “bull.” In fact, I would never have shorted gold at US$1,909/oz via the GLD July $175 puts in early June if I had been convinced that gold was still in a primary bull trend.

The chart shown above is from the December 2015 start of the big bull move off the lows at US$1,045, and it is obvious that the August 2020ñMarch 2021 drop threw gold into bear market status by the 20%-plus magnitude of the pullback. However, there was zero commentary in either the blogosphere or twitterverse of the possibility of gold being in a bear market because, after all, have you seen the money printing going on out there?

The reality of the current action in gold is that it needs to do a lot of work in the sub-$2,089 range to restore the uptrend. Further to that, gold cannot break the secondary uptrend that sits right at the recent June low at US$1,750, and if it does, the bear will have emerged unchallenged, with US$1,300 in its crosshairs.

Near-term, the 100-dma line at USD $1,792 is experiencing an upside probe and as I have been telling subscribers since early June, when support is broken, it then becomes resistance and since the false breakout above the 100-dma back in early May, prices have to get back above it and stay above it for at least a two-day period in order to give us hope.

I went long the junior miner ETF (GDXJ:US) calls last Tuesday, and a few of the JNUG:US under US$80, which marks the first stab at the bigger gold miners since March of 2020. The 100-dma (daily moving average) for the GDXJ sits around US$49.50, so I will be eying that resistance as well, to determine whether to take a “scalp trade” or whether to add.

Make no mistake; the jury is still out. But unlike other rallies, I am somewhat emboldened as we are rapidly approaching the month when seasonality kicks in. I sold every top since mid-2020 by ignoring the perma-bull/conspiracy theory/#silversqueeze nonsense that permeates the space, and I urge everyone to do the same. There is a time to pound tables and there is a time to be quiet and until I get setups like I did in March and August 2020, I remain a silent bull, but will shift to neutral if the 100-dma test fails this week. I assure you I will metamorphose into a table-pounding bear if we break US$1,750.

As for silver, it has scaled the US$26.50 price cap that was in force for the last month, and the 100-dma at US$26.13, which has acted like a magnet for most of 2021. Silver cannot claim victory unless gold gets into gear, so the way to play it is by letting gold’s action tell you what the precious metals complex is going to do and then and only then move to silver if the coast appears clear, to gain the added leverage it affords when the group runs.

I watched an excellent podcast by Getchell Gold Corp. (GTCH:CSE; GGLDF:OTCQB) last week (click here) outlining the 2021 drill program at Fondaway Canyon in Nevada. Getchell remains my largest holding for a number of reasons, but in the current environment, the number one reason is that it is not enslaved by the gold price direction but rather “event driven,” with “undervaluation” (based on value-per-ounce comparables for the jurisdiction) key to risk assessment.

One last anecdote for my American friends: In the summer of 1987, I was vacationing in Portugal and wound up at a quaint little hotel in Albufeira. After slinging the bags into the room, I ventured down to the pool, where I noticed a large number of very pale-skinned sunbathers taking in the southern European sunshine as the afternoon wore on. After ordering a couple of mojitos, I turned to a young couple, raised my glass, and said “Felicidades!” (“Cheers!” in Portuguese). They frowned and turned their backs on me. I repeated it a second time, at which point the man turned to me and said in a very thick English accent, “If you do not mind, sir, we are trying to sleep,” huffing snootily as he punctuated our conversation. This went on for another hour and at least two dozen more couples, as the growing impact of the mojitos further liberated my friendly personality, but definitely unlocked the troublemaker in me with a venomous vengeance. Within an hour, I was doing my Portuguese impression of Dr. Hunter S. Thompson, moving from chaise lounge to chaise lounge trying in vain to elicit a response any response from the overly subdued/sedated group of English travellers.

After meeting complete and total failure in my role as “Canadian Ambassador of Happiness,” I ventured down to the lobby, where to my absolute delight, a tour bus full of very loud tourists arrived, complete with Hawaiian shirts, Polaroid cameras, and John Deere tractor hats. Not missing a beat, I found about a dozen of the biggest, loudest, and most inebriated of the group and marched them down to the pool. Arriving with the din and clamour of a Notre Dame marching band, I got up on one of tables, bouncing up and down, and proceeded to inform the silent sunbathers with the following bulletin: “Hey everyone! The Yanks are here!” The sound of the indignant silence could be cut with a knife. You see, no party in a foreign land is complete without a busload of Texans. God bless ’em.

Originally published Sunday, July 4, 2021.

Follow Michael Ballanger on Twitter @MiningJunkie. He is the Editor and Publisher of The GGM Advisory Service and can be contacted at miningjunkie216@outlook.com for subscription information.

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. 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.