Triple-Digit Gains Coming for JNUG Stock?
It has, in fact, been barely five months since I first put forward my longshot pick of Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEARCA:JNUG) stock for our readers, but the return to date (based on its closing price on Friday, June 17) is the sort of return you would be happy to get even after five years.
Here is the update:
1. Based on a simulated model where the January 2016 purchase of JNUG stock for the longshot pick at around $23.55 per share, the potential gain to date, as of last Friday’s close, is 603%.
2. I am not recommending closing the position. In fact, things are just getting interesting. Since the Direxion Daily Jr Gold Miners Bull 3X ETF is a leveraged play on the mining sector as a whole, I looked at several non-leveraged (1:1) indices of the miners and saw no major resistance ahead until a price level about 50% higher than the current level. Given the leverage inherent in JNUG stock, this means potentially major future gains ahead for our pick. When, and only when, the miners are 50% higher than they are now, generally, I would consider profit-taking.
3. The key to the performance of a mining play like the Direxion Daily Jr Gold Miners Bull 3X ETF is, of course, the price of gold itself. In the May update, one month ago, I mentioned the topic of the so-called “commercial signal.” This is based on the interpretation of the relevant Commitment of Traders (COT) report wherein the so-called “commercials” (i.e., anyone who trades in paper gold or gold futures) reveal their positions.
At that specific time, in May, gold was nudging $1,300 an ounce. Now, you might expect, and reasonably so, that such bullish technical activity back in May would have encouraged new long positions. But reasonableness is not a term often associated with this market. In fact, we now know what happened is that the so-called large commercials (“bullion banks”) not only decided to pile on paper shorts (shorts based on non-existent, imaginary gold), but also did so to a multiple of 300% of their usual monthly shorting activity. (Source: “Bullion Banks Increase Shorts 300%,” Silver Doctors, June 14, 2016.)
In other words, to simplify, first they created literally tonnes of imaginary gold in paper form (the so-called open interest), then they dumped it onto the bid stack, more or less all at once. This maneuver in May smashed gold from $1,300 to $1,200 (approximately) in very short order. It was a brutal and epic beat-down. Even scarier—we are now seeing about one of these happen once per month.
This sort of in-your-face gold smash is, of course, the raw material upon which many so-called gold manipulation conspiracies are born. Oops. Sorry, I should not have used the word “conspiracy.” That’s not because the word is unjustified. On the contrary, following the recent public confession by Deutsche Bank that it was a part of a larger worldwide gold suppression scheme, there really is no longer any doubt about such a conspiracy. (Except, possibly, to the regulators in charge of keeping the gold pits honest. To them, it seems, this entire topic is an ongoing source of confusion and mystery.)
I should simply have referred to this as what it really is—a tolerated form of illegal and immoral activity which is clandestinely fostered by Western governments in the fervent belief that a lower gold price makes the world a safer place for their unbacked paper fiat currencies. (Source: “Deutsche Bank Admits Gold Rigging,” Zero Hedge, April 14, 2016.)
4. Nor can we say the action in May was even unusual within the greater context of these ongoing and unceasing battles. Late last week, for example, gold moved above $1,300, accompanied by superb bullish technical indicators. Nonetheless, within hours, on the Comex, the “gold whacks” began all over again. If the Star Wars franchise ever exhausts itself, Disney might want to consider a script I am working on called Gold Wars. There is just as much action as in the space saga, but the characters are considerably more brutal and totally lacking in any form of moral compass.
Gold mining guru Eric Sprott recently commented in an interview:
“The Cabal still has the power…the take-down in May and the recent one (in June) both show the same pattern…steady hour after hour selling on a concerted basis by a group acting in unison…and the reasons given by the media are simply hollow….and ultimately prove to be either incorrect or plain nonsense…the only thing real about these take-downs is that gold always gets hit.” (Source: “Eric Sprott Interview,” Silver Doctors, June 17, 2016.)
5. Denial, as we all know, is not a river in Egypt. In addition to those jovial columnists who even now continue to deny that the price of gold is rigged in the West, there is yet another group insisting that the price of gold is really all about its relationship with the buck and little else. I believe both groups, in fact, are equally misinformed and confused.
Gold, in fact, has not always moved with the buck. However, in the current market environment—heavily controlled by computers and algos and the “instant money” created by agents of the Fed to work their collective will—the programming for the last year or two has been clearly to treat gold and the buck as a “pair trade.” The dollar goes up and bang, gold instantly goes down and vice versa. This not only gives the agents of the Fed (which itself often acts as an agent of the U.S. Treasury) an excuse to bang gold on the slightest sign of dollar strength, but it also has the added benefit of “conditioning” traders to believe the two really are joined at the hip.
But they are not. As I have written before, there is a massive “psy-op” component to the gold price suppression cartel. Look no further than Canada, where in the very same period that the government smugly boasted of selling its very last ounce of gold on the open market, the country’s oldest bank (BMO) proudly launched a new bullion fund at the retail level…? (Where, oddly, the prospectus emphasized, holdings will be backed by identifiable, allocated bullion—leaving open to discussion the notion that other name-brand bullion funds possibly do not always take such pro-active steps to protect their investors…? (Source: “BMO Warns Against Other Banks in the Gold Business,” GATA, June 6, 2016.)
6. Following such a line of reasoning, this writer has suggested on multiple occasions that any future bullish action in gold will not be based on a weak dollar (which may likely happen anyway) but on the re-entry of gold into a world economy that will have imploded and is desperately in need of a reboot.
Look, for example, at the recent super-bullish action in bitcoins, the original crypto-currency that operates entirely in cyberspace and is fully immune from even the government’s fat fingers. In the last few weeks, many writers worldwide have shaken their heads in confusion and asked aloud, “Why is bitcoin soaring yet gold remains constrained?” That one is easy! Bitcoin is literally the least manipulated currency on the planet. And gold is the most manipulated currency. (Source: “Bitcoin at 28 Month Highs,” Zero Hedge, June 16, 2016.)
(The billions of dollars from China that have taken the Canadian real estate market to “Mad Magazine levels” is yet another mechanism, besides bitcoin, by which money is leaving Asia to find a safe haven. The worst-kept secret in the financial arena is that, ultimately, China will have to devalue the yuan, either slowly or all at once. Wealthy Chinese, therefore, would rather have an empty mansion in upscale Toronto with seven-foot weeds on the front lawn than cash on deposit in their local bank when this finally, and inevitably, happens.)
7. This writer was one of the first to observe that, if not for China, the gold whackers would already have taken gold much lower. But gold has a good friend in China. The timing is far from clear, but the ultimate result is clear. It is not the buck and gold that are joined at the hip; it is China and gold that are dancing together at the ball and will continue to do so for decades to come.
(Every gold writer and gold investor on the planet has so far been disappointed with the lack of trend-setting by the Chinese since the “physical-only” Shanghai Gold Fix was first launched in April of this year. While it is crystal clear that the SGE [Shanghai Gold Exchange] could set any gold price they wished—and the resulting physical arbitrage would force the rest of the world’s gold bourses to tow the line—to date, they have chosen to merely follow the market, not actually lead it. The most likely explanation for this reticence is that China, while aware that a major reset is due—more on this below—does not want history to record that it was directly responsible for the chaos that is coming. In other words, they are content merely to be loading up on fire extinguishers while the rest of the world is still playing with matches. At least for now.)
8. While all this is going on, the silver market has itself become an object of awe and wonder. The problem is that, while gold is mainly an investment metal, and easy to control on the paper bourses (which is essentially every bourse on the planet except Shanghai), silver is used industrially and—heavens to Murgatroyd!—is actually in tight supply. (If solar panel development moves to the next level, supplies will get even tighter than they are now.) This has caused many writers to opine that, in the coming precious metals bull, silver will outperform on a direct ratio. I agree.
9. It is customary to end these updates with a bold prediction, so here we go: China is facing a hard landing after years of growth mainly achieved by investing in production. And not just any production, mind you, but production of sophisticated finished goods clearly intended for export since China’s own people cannot afford them.
This creates a brand new paradox, because as the world at large teeters into a recession (at the very least, though some writers have gone further and actually used the “D” word—depression) there is no longer any external demand for these goods.
This in turn creates a vicious circle. Since Chinese demand for the raw materials to make these goods benefits the economies of the rest of the world they buy from, then, correspondingly, a lack of demand for China’s finished products will curtail China’s demand for these same raw materials—which will worsen the worldwide recession and further curtail demand—and so on, and so on.
The solution? At some point, led by China, I think the entire world economy is going to reboot. And I think gold will become part of that reboot, especially in the case of China, the gold component in the Chinese yuan (whether direct or indirect) will be used by the Chinese to stabilize China’s currency (post-reboot) and limit further speculation.
This is really all China ever wanted in the first place—a stable, respected currency that is not tied to any other country. That is China’s dream, and I think they are very close to achieving it.
Although there is no sign that the anti-gold cartel is abandoning its post any time soon—I once again see historic short positions by the bashers going into the end of June—recent comments from London gold guru Andrew Maguire suggest that the internal dynamic of the gold market is changing in a way that will ultimately force the bashers out of the picture:
“Synthetic (paper, unallocated) gold buyers willing to settle in cash are gradually being replaced by buyers of physical or allocated gold. The paper buyers routinely protect their positions with stop (sell) orders which makes them fair game for the suppressors, and facilitates the monthly wash/rinse gold-bashing cycle. Buyers of physical gold are in it for the longterm, however, and do not use protective stops. Most technical traders have completely missed this point, which limits the power of the sellers, and denotes a true paradigm shift in the gold market.” (Source: “Maguire: Paradigm Shift in Gold,” King World News, June 18, 2016.)
I don’t have a timeframe for all this. But it should resolve sooner, not later. My minimum target for gold when this resolution arrives is $3,500 per ounce.
Therefore, Direxion Daily Jr Gold Miners Bull 3X ETF or JNUG stock, in spite of astounding gains and the never-ending skirmishes in the Gold Wars, is still very much in play.