More Upside for Direxion Daily Jr Gold Miners Bull 3X ETF?
This is my sixth consecutive (monthly) update on the longshot pick Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEARCA:JNUG) stock. I originally highlighted this pick for Profit Confidential readers during the third week of January 2016.
Looking carefully at the accompanying chart below, the following observations come to mind:
Based on the Friday, July 15 close, the potential gain from time of selection would be approximately 1,098%. This is not too shabby, even in the context of the greatest (and arguably most unjustified and overpriced) broad-market stock bull of all time. In fact, the local (recent) high for JNUG was even higher than its July 15 close. To understand why this happened, you have to remember (as explained in prior essays) that this pick is itself a derivative on a mining index.
Since mines, by their very nature, already give you leverage on the price of gold and this is a derivative (triple beta) on top of that, the pick is essentially one of the most powerful “pure plays” on the yellow metal you are likely to find. It is also extremely sensitive to any price movements in the precious metal (PM) complex itself.
Now, this is where things get arguably interesting. Given the leverage in the pick, “normal” up and down movements in the gold complex would, all by themselves, give us a nice ride in JNUG stock. However—and I have touched on this before—there is nothing normal about the gold pits. The gold market has been and likely will continue to be (for a while longer, at least) the single most manipulated market on the planet.
This Is Holding Back JNUG Stock
Hold on, before your eyes glaze over and you start mouthing the words “conspiracy theory,” remember that it was only recently that headlines all over the world were trumpeting the news that, as part of a “deal” it wanted to cut with prosecutors, Deutsche Bank offered to “spill the beans” on a multi-decade conspiracy to which it had been privy, all designed to suppress the price of gold. (Source: “Deutsche Bank Admits It Rigged Gold Prices, Agrees To Expose Other Manipulators,” Zero Hedge, April 14, 2016.)
Well, a funny thing happened on the way to revealing to the world the truth about the gold complex. The story disappeared. It just plain vanished after the initial headline. Which, since you raised the issue of conspiracies (I didn’t raise it; you raised it) makes one wonder which is the real conspiracy—the one Deutsche Bank referred to or the fact that the story itself disappeared into the ether before the facts came out…?
One thing that is not a conspiracy, at least on the surface, is the way the price of gold is set. The price of gold is predominantly set by the trading that takes place daily in London and New York. Both are effectively “paper exchanges”—that is, about one ounce of actual metals changes hands for (approximately) every 500 ounces of paper or imaginary metal that is traded.
This is, for example, reflected in the so-called open interest on the Comex. When the Comex bullion banks (five or six specific banks that control some 95% of all the gold trading on the exchange) wish to short sell gold which does not exist, they first create the “interest” out of thin air, then dump all this newly-created digital (imaginary) gold on the bid stack (sell short), wait for prices to swoon some $10.00 to $50.00 depending, and then finally cover the trade at a massive profit.
They do not have to actually possess the gold they sell. They do not have to justify or explain their actions to anyone (such as why they are always selling and never buying, even when gold is in an upswing; in fact, especially when gold is in an upswing!) because the regulators on the Comex (and their counterparts in London) have time and again made it clear they have no desire to interfere with, or investigate, any action that tends to limit or suppress the gold price. (It’s an attitude mirrored at the very highest levels in Washington and London. Both countries operate via fiat or unbacked currency, and both countries agree that a rapidly rising gold price is harmful to the collective mass hallucination we know as “the economy.”)
So, now that you understand the mechanics, I will note that on Friday, July 8, the bullion banks appeared to dump billions of dollars of paper gold on the bid stack and, predictably, prices swooned. However—and traders the world over were watching this—buyers came into the gold pits and bid back the price so that the damage done by this typical “bankster raid” reversed within minutes. This event was historical. But, within days, “the empire struck back…”
Thinking that, for the first time since 2011, gold was finally escaping the clutches of the paper exchanges, traders bid up the price of gold and silver early in the week of July 11. (This was the point at which JNUG stock hit an all-time high.)
However, with hindsight, celebrations were premature. The banksters did what they always do (since they operate with infinite money and no oversight of any kind)—they doubled down and kept selling paper gold steadily through that week. For gold, this was “like getting pecked to death by ducks.”
(London-based gold guru Andrew Maguire did an interview over the weekend in which he not only agreed with the above analysis but noted specifically how the manipulators were unable to bend the silver price with the same success as the gold price—he attributes this to the fact that industrial supply issues are finally ending the reign of terror the manipulators have directed at silver. When silver escapes, it is only a matter of time before gold follows. [Source: “Andrew Maguire – We Almost Witnessed A Commercial Signal Failure In The Gold Market,” King World News, July 15, 2016.])
Apologists for the gold manipulators (a category which includes most of the mainstream media!) will tell you that no conspiracy was at work, that the market was simply disappointed with the lack of easing action by the Bank of England and felt the “good” payroll numbers from the U.S. were buck-positive and therefore, gold-negative.
So, as the story goes, everyone sold gold in keeping with the usual relationships between the currencies. To which I respond, balderdash and horse feathers. If you took the time to watch the PM complex trade last week in real time, 24/7, you would have seen multiple instances in which gold was mysteriously sold down while the buck itself was dropping too, entirely contrary to the narrative the central banks have worked so hard to indoctrinate us with—namely that a rising buck means falling gold and vice versa. In other words, recent gold action was all smoke and mirrors as the bullion banks stepped in to keep gold below $1,350 an ounce—at all costs.
This Is Where Gold Prices Are Going Next
OK, that was where we have been. Where are we going?
As I have explained before, I did not initially recommend this trade simply to profit on dollar weakness. To the contrary, I picked the trade because my research suggests that, one way or the other, gold is coming back into the world economy. (See, for example, the recent and startling statements by none other than Sir Alan Greenspan who, commenting on the Brexit results, said that markets would be better off if gold had not been removed from the world stage in 1913…? [Source: “Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard,” Zerohedge, June 28, 2016.]
Nor is Sir Alan [who almost assuredly represents the wishes of the Fed, the IMF, and the BIS] the only one with this agenda. As I have pointed out in prior essays, both Russia and China have on multiple occasions expressed the exact same sentiment.)
I do not have an exact timeline for this coming seachange. Between now and 2019 is my guess. I do note also that because the so-called “speculators” have been wildly bullish on the yellow metal this year, being long gold is now a “crowded trade” and a reversal of any kind could gain scary short-term momentum to the downside until the froth is removed from the top of the beer mug. So, be prepared for volatility ahead—in both directions! The trend should hold, though.
Also, let’s spend a moment on the fuss being made by the so-called top callers in the PM matrix. Basically, these guys are crying wolf because traditional technical indicators suggest the mining sector is overbought…and that is bearish.
My response to these fellows is this:
- Technical analysis in a manipulated sector is always suspect;
- Given the incredibly small footprint of the mining sector relative to other groups, even a small amount of aggressive bidding can cause temporary distortions; and
- Hey buddy, where were YOU during the 2011 to 2015 gold bear—why weren’t YOU screaming then that the sector was oversold and urging buying?
Could it be that, like the brainwashed mass media, your views on gold have become a bit lopsided over the years?
Actually, I answered some of the above questions myself. Not only is the average person, the average investor, out of touch with the gold market, but the average person has of late lost touch with the basic principles of economics.
I have a friend I have known for 50 years who operates in the real estate commercial market, is incredibly successful, and is incredibly bright.
He called me the other day to announce that he was going to retire and was looking to place his lifetime earnings in the bond market, but why were most countries at negative rates and charging lenders for the “privilege” of taking their toilet-paper bonds? To which I replied that the only reason government and central banks can get away with their special brand of insanity is because of voters just like him…people who pay close attention to their own business, but “assume” their leaders actually know what they are doing and have the best interests of the citizenry at heart…?
Triple-Digit Upside for JNUG Stock?
Finally, here is an odd indicator to watch. JNUG stock is managed by Direxion Investments, a firm I consider quite shrewd. If you do the research (and I did) you will see that during the 2011–2015 gold bear, Direxion systematically executed “reverse splits” on its gold-bull funds to prevent the price per share from dropping to troublesome levels.
Yet in the current, nascent gold bull, I have been waiting to see Direxion split these same exchange-traded funds (now that they are gaining to the upside) but so far, nothing. This tells me that not even the fund company managing these stocks is fully convinced that gold has broken free…yet.
So, here is my tip: watch for an announcement from Direxion that it is splitting the shares. This would indicate that the manager of the JNUG stock is finally comfortable the gold breakout is real and could be, I think, a strong bull indicator.