The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, February 29, 2016.
This one-way and short-term stretched rally in precious metals is all about DUST. (See here) It's all about the insane behavior of hedgers and speculators watching what is a very overbought condition in the sector, and buying DUST to capitalize on the inevitable and pending correction that never comes. (i.e. because they continue to increase the open interest in DUST while driving the put / call ratio down, which is bullish because this is an inverse fund.) In the 'old days', before the day of ETF's, a few speculators might have shorted the shares at a similar junction, which would allow for a normal and healthy correction at a time like this, which in itself would be a perpetuator of the larger move.
Today however, because investors have been transformed into speculators / traders by the likes of CNBC, they don't wait for pullbacks to reload. No, no no - not today. Instead they are such insane and greedy idiots, the pawns of the parasites (HFT'ers, status quo price managers, etc.), they will pervert the pattern by stretching it too far, which is the case in precious metals right now. The first day these guys (hedge funds) stop buying DUST the shares will pull back, and then the put / call ratios of the other ETF's and COT distributions will matter, which could cause a violent correction. Perhaps this will happen after Super Tuesday (tomorrow) depending on how things turn out - changing the psychology of these semi-conscious knuckleheads.
Will this damage the longer-term move higher? Answer: Look at what these idiots (ETF speculators) did to precious metal shares since 2011. Is that a 'normal' bull market - going down over 80% from the highs? I don't think so. Thusly, one must conclude 'yes', this could affect the move higher - you bet (literally) - especially if these idiots don't ever become self-aware (unlikely) and cease their insane behaviors. This means we see a 'high level' consolidation in sector, followed by more gains until these knuckleheads are hit across the forehead sufficient times to get them to stop - and then the shares collapse. Again, if Trump and / or Sanders do well this week, even for the mentally challenged in the American hedge fund industry, they might see good reason to stop - because what's the worry - right?
Because both Trump and Sanders have stated they intend to audit the Fed if they get in, which should be good for at least a double in the metal of kings. And that's just for starters. If either of these characters get in not only will it be 'OK' for the Fed to print money again, with the spending plans they have, the printing presses would very visibly need to be cranked back up. Trump doesn't really have an 'economic platform', however he will quickly learn what the hell is really going on, and that living up to his big mouth would be very expensive. Is that why this year is the most volatile on record? You bet it is - and it's going to continue into next year as well - at a minimum. Because the status quo doesn't get booted out on its ear every day - and if they are going a) it won't be quietly; and b) it's going to hurt.
But what else will set silver free - the status quo's whipping boy? As I write, silver has fallen through $15 sharply, undoubtedly COMEX speculators lightening up in front of the weekend's G-20 Meeting. Because bad things tend to happen to precious metals around these meetings. Interventions come out of nowhere. Did you know silver is the only commodity not to better its 1980 high? Why? Because the status quo is scared stiff of what would happen if it does. If it were to repeat what it did from its mid-cycle correction lows in the 70's - it's going to $400 plus/ (i.e. 35 fold.) This is why the greedy bastard speculators play it so much, which makes for good fuel for the status quo's price capping machine - better known as COMEX. As Greenspan alluded to during his tenure - they can sell unlimited quantities of the fictional metals with just the push of a button.
So you gotta wonder if Trump will get JFK'ed before he gets in - because the Fed does not want the public looking at the books - I can assure you of that. The game would be over if that happens, so who knows what will happen by year-end. Gold and silver could (should?) be dramatically higher by then. My confidence in feeling legitimized to say that grew dramatically yesterday when I saw that even though the COT numbers for both gold and silver were far worse than last report, and the most bearish since the October top, open interest in both gold and silver dropped over 10,000 contracts each on Thursday, and another 5,000-plus contracts in silver yesterday (see here), which means the large specs are puking up their positions in a big way / rapid fashion. Just a few more days / weeks like the past two and paper gold /silver will be in positions to rally again.
Thus, our forecast for a one month correction higher in stocks set against this new development appears to have been spot on, where again, one should start looking for the broads to start rolling over once more about mid-March. Some would point out with a record short position in SPX futures right now, that new highs are more probable, however it should be pointed out this is smart money in the Big Contract (and open interest is not high), and that this was the case in 2008 as well. What's more, it should also be pointed out the dumb money in the Small Contract is the reverse of this situation, and that these guys don't have deep pockets and will be forced to act at some point, which would crash the market. These are the same guys that think because this is an election year the Fed won't let stocks go down. So the set-up is complete, which is why stocks will likely begin falling again sometime after mid-March.
This is very bullish for precious metal stocks because what it means is the shares don't need to see anything more than a normal pullback (38.2%?) before they will be in a position to rise again. And while moves back to 200-day moving averages (MA's) may be necessary before it's all over, still, even if this happens concurrent to silver vexing $14 (a full retrace) along side gold testing $1150ish, again, this would be a very bullish picture married to precious metal shares only pulling back in minimal corrections, which should be the case as long as the idiots playing DUST (and JDST) continue their foolish ways. (see here) Will this happen? Why wouldn't they sell their positions once a correction occurs? Answer: Because the types that play this crap (idiot hedge funds) are the same fools that think the Fed won't let stocks go down or gold up in an election year. So expect these guys to be stubborn based on this false belief.
What's more, if these numskulls have really bought into this, then the put / call ratio on DUST should remain low and declining, which is what would perpetuate the move. And hopefully, with any luck, as prices in the sector rise further, speculators playing the other non-inverse ETF's will start buying puts here too, causing their put / call ratios to rise, putting an even stronger floor underneath gold, silver, and the shares. This is of course a large part of what keeps the broads so buoyant - the ability to buy puts on every major and minor index in the US via puts on the ETF's. This is the fuel for the machines. Thing is, when you have a circumstance like this, one where they are caught by an unfavorable 'logic loop' (speculators are becoming increasingly bearish on precious metals), they can't change the algos because this would crash the broads. (i.e. therefore all shorts get squeezed.)
The 200-day MA on the HUI is all the way down at 128, with the 50-day MA set to push up through it - a Golden Cross. Often when a Golden Cross occurs; this is what triggers a correction. So don't be surprised if that happens here, especially if Hillary continues her tear on Super Tuesday. Why would this be the case? Because Hillary is a Wall Street rube - a vassal of Goldman Sachs. She's bought and paid for - and would turn a 'blind eye' to the continued suppression of precious metals while the boys in New York continue to rape the country / world. Thing is though, even if the Democrats are successful in taking the delegation away from the popular candidate - Sanders - it won't matter for Hillary in the end. Why? Because you will see a great many Democrat swing voters go to Trump in retaliation for such a betrayal - and turn outs in November will be a record this year due to a Millennial's awakening.
You heard it here first folks.
And then there's the jobs report later this week, which is another reason to be careful in precious metals right now. Any strength in the Employment Report and the dollar($) could push back up to 100 again - who knows? This is the kind of thing that could take silver - the status quo's 'whipping boy' - right back down to $14 again - and gold to sub-$1150's as well. Silver fell through its 200-day MA on Friday, so it's not a stretch to think the rest of the sector could test that metric - where again - that's 130ish for the HUI.
Of course much has changed since this report was first published. To find out the implications of these changes, one can visit us here.
Good investing is possible in precious metals.