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Post-FOMC Commentary: Delusions of Grandeur

Commodities / Gold & Silver 2019 Jun 21, 2019 - 05:34 PM GMT

By: The_Gold_Report

Commodities

Sector expert Michael Ballanger reacts to today's Federal Open Market Committee meeting. To the surprise of the many and the chagrin of the few, the Fed opted to do nothing with policy today and left rates unchanged despite clarion calls for a cut. As I wrote about earlier, there was (and is) zero rationale for a rate cut, what with GDP humming along and the best employment numbers in fifty years (if you believe them). Stocks moved higher despite several attempts at profit-taking, but that was no surprise because the Fed wanted to make damn certain the response to the statement and the ensuing presser would be a positive outcome.

The victims were bond yields (lower) and the U.S. dollar (lower), but the S&P rose 8.71 (0.30%), while gold had at its highest close for 2019 at $1,364.45. The lower U.S. dollar contributed to the advance in the metals, but we are still caught in a resistance quagmire between $1,350 and $1,375, with the relative strength index (RSI) screaming "Overbought!" after an $80 advance.


I am modestly short (hedged) via the GLD puts and await a signal that all is well and good with the gold trade before giving the "all clear" sign. On five occasions dating back to August 2016 has RSI for the GLD hit 70+, and every single time we got a sharp decline immediately thereafter. Each one of those events saw a sharp increase in the Commercial aggregate short position, which advanced sharply into the rise and led to each of the crashes. In the past two weeks, the aggregate short position held by the bullion banks has exploded from under 80,000 to over 200,000, and that, if nothing else, calls for caution.

I also went back to our old friend Goldman Sachs and bought the Sept $180 puts for $3.70 in the morning, before the Fed decision was announced. It is noteworthy that the financials all sold off after 2:15, which was not the type of reaction I would have expected with rates remaining unchanged. Higher rates are bullish for banks, as their spreads are currently disastrous given the inversion of the yield curve. The "Squid" is right back to the zone where I got short back in May, and appears ready for another descent. We shall see. . .

Last point on gold: The singular greatest danger over the intermediate term is that there is no "breakout" on this run, and that it catches an entire generation of generalists long at the top. As gold investors, we need a breakout above $1,375 that decisively surpasses that band of resistance in increasing volume and momentum, such that resistance becomes support and the entire metals complex undergoes a structural lift in valuation and sponsorship.

I am currently hedging against that materializing but praying that it indeed happens, because the gold market since 2011 has been like eight years of root canal surgery without any sort of sedation or tranquilization (an experience that Melania Trump knows all too well). As I wrote about at $1,287 three weeks ago, we will have our day, and whether it is here in June or later on in 2019, it is coming.

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 Corp. My company has a financial relationship with the following companies referred to in this article: Getchell Gold Corp. I determined which companies would be included in this article based on my research and understanding of the sector. Additional disclosures are below. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Getchell Gold Corp., a company mentioned in this article.

Charts courtesy of Michael Ballanger.

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.


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