Got Gold Report – Bargain, Bargain, Bargain!

HOUSTON (Got Gold Report) – Both gold and silver seem to be clawing their way up and out of the harsh September rush-to-liquidity reaction lows, and if we are reading the signs correctly, both are experiencing rising support, albeit in a choppy, less than robust sort of way for silver.  

Traders and investors have been buffeted by the severe political crosswinds out of Europe, but if we may be permitted to be very simplistic, just about everything we see coming at us from over there and from here in the U.S. just about has to be supportive for precious metals prices.  Governments have can-kicked and printed their way into a big old global debt mess and have decided to attempt to fix it with a lot more of the problem instead of allowing the credit and debt bubble to self-clear by market forces.  As long as they intend to keep the printing presses humming and interest rates artificially low – negative real rates; as long as the governments and central bankers are determined to debase their currencies in an attempt to spur inflation we, and more and more people all over the world just about have to seek refuge in “stuff” and in precious metals, do we not?  At the same time all the uncertainty and angst has played hell with the more speculative miners and explorers we love to ‘game’ since about March or April. Welcome to a bargain hunter’s paradise called “Vultureville,” … uh, we mean “Bargainville.” 

We led off the last full GGR (October 16) with a chart of the Canadian Venture Exchange Index or CDNX, a decent proxy for the smaller junior miners and explorers we track and trade here at Got Gold Report. Recall that at the time we had just endured a very harsh downdraft in the miners and explorers as well as in the Big Markets. Fear and panic ruled the first week of October.  Babies and bathwater were flying en masse then and, as Vultures (Got Gold Report Subscribers) already know, because they have already received our September-October and our November-December “VB Roundup Updates” … as GGR subscribers already knew, because they have constant access to all of our nearly 40 small resource company and technical charts (where we often add notations of what we are up to around here), … our Vultures knew we were gleefully, but calmly setting up on the bid in preselected, lower-than-low “panic targets” for a much larger than normal number of the issues we have chosen to game.  (For bargain loving Vultures it’s the equivalent of a man in a sporting goods or hardware store with everything 70% to 85% off! – SRC Nirvana.) 

And, as it happens, the Trading Gods were very, very benevolent to us – we think and hope. 

Indeed, right, wrong, win or lose, in the slightly more than three-week period ending on October 14, but peaking on Wednesday, October 5, our super-low, “Stupid Cheap,” panic “stink bids” were fully or partially filled on an even dozen of our Vulture Bargain Companies of Interest (VBCIs) and fully fledged Vulture Bargain (VB) issues.  In order to “be there” on the bid, we chose to deploy a portion of our trading reserves, the amount of our trading line we hold back and jealously guard for emergencies and anomalous, panic-inspired sell-downs.  As long-time Vultures know, it is a rare event for us to use more than a thimbleful of our reserves, and even more rare to use them on more than one or two issues.  Does that help put our September/October “action” in an understandable context?   

Because of our impression then that we were near a selling/fear crescendo on October 5, this one time we deployed what amounts to a double bucketful of our very precious backup reserve ammo on multiple “Faves.”  We explained our reasoning to Vultures thusly in our most recent Vulture Bargain Roundup Update: 

“… this is or has been by God a panic cascade, and when those very rare events come around we want to be able to take advantage of them.  Having the panic targets serves us two purposes.  First, by studying and choosing the zones in advance, it removes any uncertainty during the heat of battle as to where we are comfortable adding during a crisis.  Second, by choosing what we refer to as “has-to-be-SC” (Stupid Cheap) prices for those zones, prices we would be delighted to own the shares for, it has the effect of keeping us from using up our limited reserve capital until the issues gets to SC or better.

As always, by sharing the (panic event) zones we have noted in blue we do not intend to tell others what to do; that is and always will be up to each Vulture as they see fit.  What it is, however, is sharing our own targeting in a time of ongoing crisis, during this protracted buyer’s strike.  (At 10% to 25% of the most recent highs, depending on the Guru-chosen issue, like a 4-for-1 to 10-for-1 sale!)  A 2008-style super confidence puncture could once again get underway and this Vulture wants to attempt to make the best of it if it does.

(So we did, right, wrong, win or lose. God didn’t make the winner’s circle for cowards.)   

Here is just one of the examples we shared at the New Orleans Investment Conference of an issue that has been cast overboard by a fearful and panicky retail market. 

(Northern Tiger Resources, our Vulture Bargain #7.  One of our favorite targets, a Low-Volume-Panic-Spike lower.  Vultures understand the theory behind our interest in LVPS events and why we are willing to take an over-sized position in them, even if a little early.)  

In a very long trading career one will likely be able to count on both hands all of the sure-enough cascade sell-downs and major buyer’s strike events – they are exceedingly rare, but they don’t seem “rare” in real time.  They just seem very frightening.  The more frightening they are the better they are – ALWAYS. Remember 2002?  Remember 2008?  The extreme volatility of those events turned out to be very, very good buying ops, did they not? Toward the very end of this report we share an exceptional graph along those lines for our Vulture members.   

Believe it or not, in a long trading career we don’t get very many opportunities like the one being gifted to us right now.  We think it pays to think in those terms, even if we end up early in our timing.  The other side of the cascade selling valley looks just like the side we entered from.

***

We are getting ahead of our message for this week, so let’s take a quick step back in review for just a moment.  Just below is that CDNX chart from three weeks ago, along with a short snippet of what we said then, followed by the very same chart updated through November 4.

CDNX from Friday, October 14, daily. 

In the last full report three weeks ago we said then:  The calendar “says” it’s time for the juniors to get more attention.  The recent news and deal-flow says that juniors are “hotting up,” but is that translating into a bounce for the issues we affectionately call The Little Guys? 

A bounce? In a word, yes, a little.  We have definitely gone from super-buyer’s strike to a bargain hunter’s, insider’s and deep-value trader’s recoil.  No question about it.  Just look at that chart.  But the smaller, less liquid and more speculative miners and explorers have been so mistreated, so battered and abused, so maligned by a fearful and worried-sick market (nearly cut in half since March as a group), they have a very long way to go up, just to get back to the surface of this turbulent market pond. Recall also, that the CDNX is and has been underperforming the Big Miner indexes since 2008, so the carnage shown is actually much, much worse than it looks as hard as that may be to believe. 

The same chart updated through Nov 4.  

CDNX, daily updated through November 4.  Note the challenge now of the 50-dma.  The “Little Guy” proxy is already more than 300 points (more than 25%) higher than its panic lows on October 4.  We have to regard this particular snap-back rally as an impressive specimen, do we not?  In the process the CDNX has put in what could turn out to have been a “V bottom” – one of the most reliable signals in charting if, but only if “confirmed.” 

As we said in the last full report:  The Little Guys have an enormous amount of recovering to do as a group before the general public will have confidence in them again. 

By then, however … by the time the public has enough confidence to buy the heck out of the smaller issues (like they did in January of this year near the recent peak), it will likely be time to once again offload a basket of them (or at least a portion of them) to await the next crisis of opportunity – to await the next 50% to 70% off (or more) red-tag-sale for The Little Guys. 

Meanwhile, we are not yet certain that this crisis is done.  Calendar and seasonal influences notwithstanding, we can never be certain of such things – in advance.  What we can say, almost universally, is that The Little Guys are officially and undeniably “on sale.” The long-term buyer’s strike has wreaked market-wide slaughter on the share prices of so many of the smaller companies that the entire space seems like, walks like, and quacks like a bargain.”

Bargain, Bargain, Bargain!

Well, … armed with our own assessment that we were nearing a selling cascade peak, or at least the potential for one, and with the counsel of the best Vultures in the business, very, very savvy people like Rick Rule and Eric Sprott suggesting they saw compelling value too, we “threw caution to the wind” and deployed some of our reserve ammo at some of our “Faves” in the small miners and explorers. 

As we said in the last full GGR:  “We cannot know if we have reached and bounced from “The Bottom” or just “A Bottom,” but we do know that the bounce signature shown in the CDNX graph above is exactly what we might look for when looking for an ultimate capitulation, selling exhaustion and reversal which is so typical of major turning points.  The “V” signature on charts, a so-called “V-Bottom,” if and only if confirmed with consolidation and eventual follow through, is one of the most reliable signals in charting. (If we seem redundant on that point it is because it is important.)

Confirmation of “V-bottoms” always comes swiftly (in a matter of weeks), or not at all, so at least we do not have a long wait to find out if this one is going to “stick it and run,” or instead stick those who believe in it right in the left eye.”  

Well, so far so good.  The “Little Guy” index has done nothing to negate the potential V Bottom and has given us a good measure of “follow through” despite all the damnable, confusing and frightening turmoil on the global newswires.  What will “cinch” the deal would be a new, much higher turning low on the very next CDNX pullback attempt, no lower than that first little consolidation (near 1,500), and the ‘best of the best’ would be if that was also in the shape of a much smaller “V.”  It might be too much to ask for, but at that point any technically minded market watcher would bullishly call the V Bottom “confirmed.” 

Remember that we fully expect that the larger, better funded and more liquid companies, the mid-tiers and majors, know full well that the companies they are secretly targeting are pretty darn cheap right now. We know from discussions and rumors at the just completed New Orleans Investment Conference that some of our favorites and companies of interest have signed confidentiality agreements with unnamed due diligence doers, and it is a reasonable bet that some of the companies we just spent time with will not be around this time next year, having been gobbled up by the ‘Bigs’ in SRC natural selection Darwinism.

We expect the merger and acquisition wire to heat up even more than it already has over the next little while, in other words.

With the uncertainty of developments in Europe, with our own debt issues here in the U.S. and the so-called “Super Committee” about to be in the klieg lights just ahead; with capital attempting to flee and seek safe harbor from Europe and Argentina and other nervous countries (and some of that capital likely to land in gold); with the apparent monetary easing by the ECB and continued devaluation of all fiat currencies still underway; with central banks net buyers of gold and China quietly buying up gold companies and shipping all of their production back to Beijing on the QT, we just about have to conclude that the long-term trend of gold is unlikely to reverse anytime soon – so we have to think that the Big Miners’ propensity to go resource replacement shopping among the successful junior miners and explorers is ascendant. We also have to think that sooner or later traders and investors will start breathing again and target the juniors that are themselves targets of the ‘Bigs.’ 

We Vultures just have to manage our resources and weather this buyer’s strike storm (for as long as it takes) while accumulating a very few of the delicious, overly cheap bargains very fearful sellers are willing to toss overboard like so much chum.    

We have to remind ourselves that as dire and uncertain as things seem at times, that markets are forward looking barometers that attempt to tell us what to expect in the near to mid-term future.  If we hold that to be true and we then look at what the Big Markets are “saying,” maybe we can worry just a little less about the near-term future – even if the news people, sellers of Armageddon books and prophets of doom don’t like that idea.

As bad as things have seemed in the press lately, the S&P 500 has broken out above the summer fear consolidation.  That isn’t all short covering, friends and fellow Vultures. 

On that “high note” of the introduction, let’s pause here and move directly into the full Got Gold Report.        

Got Gold Report       

First things first, the Got Gold Report – the full report – is published biweekly at least 24 times per year.  Between reports we communicate more regularly on the GGR web log, which is always free and open to the public, or in our COT Flash reports and Vulture Bargain Hunter reports reserved exclusively for subscribers.  COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports which cannot wait until the next full report.  Vulture Bargain offerings appear ad hoc as there are developments we feel merit comment for and in the resource company issues we track closely. 

Our aim is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with.  Vultures, after logging in, please see the commentary in our numerous technical charts located in their own section of the password-protected subscriber pages. We update most of the Got Gold Report linked charts each week, sometimes even the weekends when we don’t publish the full report. Changes to the linked charts are almost always completed by 6:00 pm ET on Sunday evening (except when Monday is a holiday) and occasionally during the week as events unfold.

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