NEM - Silver and Gold: The Winning Bet | Benzinga
Source: Michael Ballanger 04/08/2024
Michael Ballanger of GGM Advisory Inc. shares his thoughts on the current state of the gold and silver market, as well as a few junior stocks he believes are worth looking into.
Before I begin with my weekly assessment of market conditions, I have a story that needs to be told because as I glided around the blogosphere and Twitterverse and saturated world of ever-repeating podcasts, there was a distinct mixture of elation, excitement, and greed inundating the precious metals space with a particular pungency for silver and the PM miners.
A few decades ago, I had a brilliant, highly successful client who luxuriated in the practice of correcting me whenever I would offer him investment ideas. Be they my grammatical errors or factual oversights, no conversation went uncritiqued by this self-anointed wonderchild of intellectual superiority as interruption upon interruption became the order of the day whenever I dared make the call.
One particular conversation in February of 2020 involved gold and how I believed that it was a suitable place for investment capital given the ludicrous extremes to which the leaders of the Free World would devolve in order to protect their citizens from certain ruin and "death by microbe" after news of a strange new strain of virus was emerging from central China.
After multiple stops and starts, my esteemed client punctuated the conversation by embarking upon a lecture in which he dismissed the notion of gold being the "asset of choice" and opined that if I was worth the fees he paid me, I would know that the better place to be was silver.
No bull market in gold can ever survive without the company of its little sister, silver.
Now, it wasn't that I didn't know about silver. I played silver early in my career when it made the first Hunt brothers-driven assault on a $50 an ounce, only to be soundly and violently repelled by a massive collusion by the government, Wall Street, the CFTC, SEC, and DOJ.
After barely escaping that margin-calling hurricane that befell commodity traders the world over, I decided that despite the fact that nothing is more fun for me than "playing the ponies" at Woodbine on a sunny summer afternoon, silver would be far too "risky" for clients. However, given that this client had an IQ somewhat larger than his considerably inflated ego, it became apparent that by the end of my pitch, he had already mapped out his own strategy for taming the inflationary beast being conjured up by the central-planning pandemic battlers.
A few days later, I was instructed to deposit $100,000 into his futures account and initiate a position in July silver while taking on an equally notional short position in June gold. The idea was that if gold was to move higher, silver would obviously outperform it as it had done in every major bull market in precious metals since the Dawn of Margin Calls. In effect, he was shorting the Gold-to-Silver ratio (the "GSR") at around 90 because, as he so forcefully insisted, "the historic ratio for gold to silver is 15, and if you had done your homework, you would know that."
As you can guess, the rest, as they say, is history.
I cautioned my gifted client with the super-enlarged forehead that there was an inherent risk in assuming that silver would immediately scream ahead of gold because even in the 1970s, there was a "lag effect" where silver played catch-up to gold before it actually took the lead.
As I had suggested in February, the central banks and governments around the world hit the panic button when cases of COVID-19 arrived in Europe and North America, delivered handily by busloads of curious tourists from all over China all collectively spewing out infected microbes as they snapped photos of the Louvre, the Washington Monument, and Niagara Falls.
Gold responded with vigor and leaped to the fore, rising sharply of its own volition and, unfortunately for my client, without the merry accompaniment of silver. The first margin call came four days later, to which more funds were transferred, with the second a week later, after which the client demanded a "meeting" to discuss why he was losing his shirt on "my" recommendation.
Well, I turned to the notes I had written in my journal as he was instructing me like a constipated school marm to enter his orders and reminded him that it gold that was "my recommendation" and that being short, the GSR was a brilliant idea, but a very risky one, despite his obvious intellectual advantage over a plebe like me. By the middle of March, after one of the briefest ownership periods in futures trading history, the trade was liquidated with a sizable loss of both equity and self-esteem, once again proving the time-tested truism that says that when one is trading the silver market, expect the unexpected and never let a loss get out of control because silver, it is said, is a very cruel and unforgiving mistress.
The client survived, and after a few months of therapy and extensive rehab, he returned to the markets, preferring to invest in bonds and utility stocks. He called me to report his jubilation every time a coupon or dividend was paid. Pax tibi! ("Peace be with you.")
Since the very early months of 2023, I have been of the opinion that there would be only two metals that had any chance of dodging the ...