Masochism and the average Gold investor
Commodity Online | April 24 2019
UPDATED 15:21:23 IST

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By Michael J. Ballanger

Sector expert Michael Ballanger discusses generational attitudes toward investing and how they are affecting the precious metals markets.

Masochism: "gratified by pain, degradation, deprivation, etc., inflicted on oneself either by one's own actions or the actions of others."

On Friday afternoon, I completed my weekly missive, which was composed of a detailed analysis of just how magnificently Barrick Gold Corp. (GOLD:US) had been used by the interventionalists to manipulate the ARCA NYSE Gold Bugs Index (HUI:US), all of the big ETFs (GDX, GDXJ, NUGT, JNUG) and ultimately, the prices for gold and silver. Then suddenly, with little warning, I had an epiphany. Not only was the nine hours of work a complete and total waste of time, it suddenly occurred to me that a forty-year career spent nurturing a belief system anchored in the bygone days of Bretton Woods might just have been an exercise in redundancy and cognitive dissonance.

As if driven to reveal a hidden secret for all the world to see, I have carried an unalterable obsession with the notion that sound money principles would, in the end, return to prominence and in fact become seriously entrenched in the practices of governments around the world with gold and, to a lesser degree, silver acting as key components of a fiscal and monetary renaissance. Alas, as the Baby Boom generation fades away into old age and irrelevancy, it is at once both sad and obvious that the new wave of Gen-Xers and Millennials and Echoboomers have determined that there is little or no validity to the concept of sound money and have therefore rendered gold and silver, as monetary and fiscal canaries in the Modern Monetary Theory coal mine, as irrelevant and from an investment standpoint, useless.

I have on average about 200 conversations per week with investors from all over the spectrum in terms of age, wealth, nationality and interests. I normally make notes of the discussions, a fallback to my days as a financial advisor, long before email replaced notes as the proof-bearer of action and intent. What I found astounding is that all discussions pertaining to cannabis, social media, technology, or the future direction of the S&P500 lasted greater than fifteen minutes. Metals and mining conversations, including gold and silver, tended to be less than seven minutes and chats related to junior mining and exploration were less than three minutes with many instances of "subject changed" or "I gotta go."

Now, as a fervent addict to the thrill of new mineral discoveries ("There ain't no fever like gold fever!"), I have recently begun to feel like the heroin addict searching through life for that rush of euphoria that arrived long ago with that first hypodermic injection but the reality is that the new generation of investors found their hypodermic adrenalin in the form of technology stocks, then crypto, and finally and more recently, weed.

My friend James West was a gold and mining newsletter writer back in 2010 with the first promotional piece for Tinka Resources Ltd. but has since evolved into the foremost authority on cannabis and is enjoying a thriving if not booming career renaissance (and it couldn't happen to a nicer man). The remaining advocates for investment in precious metals and the related mining and exploration shares are in effect living a life "gratified by pain, degradation, deprivation, etc., inflicted on oneself either by one's own actions or the actions of others." In other words, they are practicing a form of masochism.

Take the last two companies that I have referenced in this missive, Getchell Gold Corp. (GTCH:CSE) and Western Uranium & Vanadium Corp. (WUC:CSE; WSTRF:OTCQX). GTCH is currently raising money and while it is going surprisingly well, it has not been an easy raise, what with the dismal action in metal prices since mid-February. WUC, however, began its US$2 million raise three weeks ago and Tuesday announced that it was significantly oversubscribed and in fact came in just under the full exercising of the 50% over-allotment option. This was a terrific development for the company but what surprised me greatly was the investor reaction to uranium and vanadium that was so diametrically different than the reaction to exploration for gold and silver in the most prolific precious metals environment in North America. The average investor "gets it" when you talk about the uranium (and vanadium) outlook but they stare at you with glazed-over eyes when you try to describe how Barrick Gold went from $1.80 to $3,300 per share from its activities in Nevada in the 1982–2010 period.

Here is yet another example of life in the isolated world of sound money advocacy. I was recently introduced to a private start-up company (that shall remain nameless, at least for now) and suffice it to say, the best description is that it is a type of "Facebook for Cannabis users." I had the pleasure of meeting over lunch with the 30-year-old Millennial female, exceedingly well trained and very well spoken, with a Master Grower's License and an MBA from the Ivey School, a couple of weeks ago after which I was asked to offer consulting advice in the area of capital markets related to financing. She asked me if I could assist the company in finding a few investors to participate in its seed round and while I won't mention the amount, I proceeded to call an accountant friend that uses me for feedback on mining investments. This very successful fellow has over the past ten years had his fingers in major real estate deals and crypto deals but also in the early-stage cannabis deals such as Canopy, so with that knowledge, I decided to ask him to assess this new non-mining venture as more of an "acid test" than anything else.

I described the deal as best I could, which was totally lame given my total ignorance of anything related to social media or weed. His reply after perhaps three minutes on the phone was "How much as you trying to raise again?" and after I told him (it was north of six figures), he said "I'll take it all," at which I choked on the phone and I said would get back to him shortly. I then proceeded to call a very successful realtor I know and I got precisely the same result. "I'll take it all. Send me the forms." I then proceeded to make seven additional calls and got seven additional "I'll take it all." responses. The point here is that I could work for a month to set up the best mining deal in the world and it would take another month or two to finance it but if it is anything related to the Millennial checklist of "suitable investments" (which include social media, cannabis, artificial intelligence and blockchain) four phone calls and it is done. Now, the contrarians would tell me that it is a sign of a "classic top" but the reality is that for the past decade, investors have been rewarded by buying more of "what is working" and selling "what isn't." Pot deals have been working but more importantly, mining deals, by and large, have not.

So, when I use the term "masochism" to describe the behavioral quirks of the average gold investor, the term "glutton for punishment" comes leaping into the forefront. To be constantly searching for that drill hole in the sky or the ultimate ascendancy of gold to $10,000 per ounce as all politicians, regulators and bankers disappear into a vaporous hole of failure and disgrace is not only unwise, it verges on Einstein's description of madness: repeating the same behavior over and over for the same negative outcome.

Over the years, I have been asked hundreds if not thousands of times "What would take gold to $10,000 per ounce?" and I always reply with the same conclusion: "When the USS Nimitz pulls into Gibraltar for a re-fit and they refuse the credit card." The American Empire dominates the world; the American "dream" is force fed around the globe; and the American monetary experiment has been duplicated by central banks everywhere to the extent that the Bank of Japan will soon own over 50% of the Nikkei and the Swiss National Bank owns $87.5 billion worth of U.S. stocks bought with money it printed out of thin air. Back in the days before the internet, the mere thought of a central bank dabbling in stocks evoked shrieks of horror; stocks were for gamblers and bonds and bills were for serious, prudent investors. Back in the day, counterfeiting was considered a crime and neither citizens OR central banks were allowed to do it. How times have changed...

While the average American sees little benefit to owning gold, domestic prices in Australia, Turkey, Russia and India have recently approached or surpassed their one-year highs. Only the U.S. and China (pegged the USD) have stayed at or near the levels of 2011. From the numerous charts posted below, it clearly demonstrates gold's utility as a protector of purchasing power, particularly in countries such as Turkey that have experienced sever currency crises. The point here is that gold actually has fulfilled its role as a safe haven in all countries across the globe except two: the U.S. and China. The U.S. vigorously defends its currency versus gold and China has a USD peg on the yuan and yet, the two countries are diametrically opposite in their actions. China has been a voracious buyer of gold and seller of U.S. treasuries while the U.S. has done the opposite.


Canada gold price



Australia gold price



Russia gold price



Turkey gold price



India gold price



China gold price


U.S. gold price


The name of my publication was changed last year from "Gold and Gold Miners" to GGM Advisory for one very simple reason: relevancy. If actuarial tables conclude that the Baby Boom population is a rapidly shrinking demographic, if studies of investment demand confirm that the new generations of investors are decidedly ambivalent (if not hostile) to gold and silver investment, and if regulators and exchange officials continue to condone and indeed endorse continued price suppression, then waiting for the USS Nimitz to become a disabled, unpowered relic leading to a moon rocket in metals and miners could become a very, very long exercise. Most of us that are in or are approaching retirement don't have the luxury of time on our sides to await the arrival of that one singular event that justifies twenty or thirty years of holding on to the precious metals while the S&P 500, the NASDAQ, cryptocurrencies and weed make millionaires out of 30-something messiahs too young to remember the bursting of the dotcom bubble and in some cases, the 2008 subprime meltdown.

Since 2009, we have had numerous events that should have been the moment where gold and silver emerged as the "Go-To" asset class with the most recent being last Christmas Eve when the S&P closed in bear market territory while gold was screaming higher. With the flick of a switch, Treasury Secretary Smilin' Stevie Mnuchin stepped up and called upon the Working Group on Capital Markets to put a stop to the crash in stocks and since February 20th, every gold rally has been stomped out with intervention after intervention while every dip in the NASDAQ has been magically supported.

It is the same narrative whether 2001 or 2008 or 2018: rigging stock markets are essentially this decade's version of Roosevelt's "New Deal" back in the 1930s. Instead of building roads and dams, the policy-makers today build nothing except moral hazard and a generation of the "Entitled." It is a dangerous precedent and one which cannot last but the problem for us is that is HAS lasted a great deal longer than we might ever have imagined and there is nothing near-term to suggest that the Great American Ponzi Scheme cannot continue.

All right, now that I have concluded my rant on the madness being inflicted upon us, I have a couple of observations to make about gold. Earlier last week, I was looking at GLD wondering whether my GLD May $124 puts might hit $5.00 before the end of the week and then it occurred to me that my "Line in the Sand" at the prior lows of $1,282 and the subsequent "breakDOWN" was no different in its blatancy than the "breakOUT" in Barrick. So, I pulled up the GLD chart and lo and behold, while the sub-30 level for RSI sported two super buying opportunities in 2018, it has not been much under 35 in all of 2019 thus far.

Now, notwithstanding that the stock markets are getting somewhat stretched, I have to respect two things: 1) the dotted red line in the RSI window in the chart below and 2) that only in the perverse world of precious metals are technical "breakdowns" to be BOUGHT while technical "breakouts to be SOLD. Therefore, I have covered all of my shorts in both gold and the mining shares and initiated 50% long positions in JNUG, NUGT and the GLD June $120 calls. The chart below pretty much says all that is needed: we are at an inflection point that represented tradeable bottoms in mid-November and early March.



As a final observation (which could also be seen as a "confession" of sorts), I use my own behavior as a market barometer and with the benefit of time and age, I always go back and re-read my missives because they give me a sense of perspective on markets in the same way Anne Frank's diary provided perspective of a different time and place. Both diaries are extremely personal but both give the reader a wonderful window into the mindset of an era.

My entries from the week of October 19, 1987, revealed a relatively young financial advisor (34) coping with the total destruction of client assets, and to go back and re-visit the emotions contained in the words and syntax is still to this day painful. Anyone reading the diary of a young girl trying to avoid extermination is emotionally impacted far greater than by the musings of a stressed stockbroker but both messages allow reflection. I carry the utmost of conviction that sound money principles will prevail and I promise that I won't go into a seventeen-paragraph repetitive blather as to "WHY?" but if people are going to listen to what I have to say, I have to provide "actionable ideas" that carry logic, excitement, and weight.

My dad died in 2013 at the ripe old age of 89 and one of the things he drilled into me was that one of the things he learned as a WWII navigator in the RCAF was that many times, people tend to "think too much" as opposed to simply "reacting. As an example, as a fifteen year-old hockey-playing "sniper" (goal-scorer), I was going through a particularly painful slump where everything I fired at the net was getting blocked, saved, or veering wide. On the drive home from the venerable St. Michael's Arena, after hitting four goal posts and extending the dry spell to six games, I finally asked my dad (who never played the game except shinny on Grenadier Pond) what I was doing wrong, to which he responded "You're thinking too much—just fire the biscuit." The next game, on my first possession, I didn't even look at the net or the goal—I just ripped it from outside the blue line and, as if it had eyes, it pinged in off the far right post and into the goal.

As traders and investors, we all tend to "think too much" so when I launch one of my invectives upon all of you, try to remember that in the big picture, 5,000 years of fiscal history would validate the logic of owning gold but within that window, numerous generations have perished in poverty while bequeathing tonnes of it to their heirs, who sold it, bought (and smoked) cannabis, traded Bitcoin, and lived happily ever after.

Food for thought...

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.

Courtesy: Streetwise Reports

 

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