321gold founder and editor Bob Moriarty is always candid and tells it like he sees it. However, my latest conversation with Bob reached a new level of authenticity and insight; Bob takes no prisoners while dropping several market knowledge bombs throughout what turned out to be a wide-ranging 35 minute conversation.
While Bob owns ample physical silver in addition to silver mining shares he is no fan of the precious metals ‘lunatic fringe’ who subscribe to any number of conspiracy theories. Bob sees gold as expensive relative to other precious metals such as silver and platinum, but that does not mean he believes in a ‘paper futures’ short conspiracy in silver or that gold’s little brother should trade at a 16 to 1 ratio relative to gold – 53 to 1 is the long term historical average and that should work just fine.
Without further ado here is Energy & Gold’s latest conversation with a confident and outspoken Bob Moriarty…
CEO Technician: You came out with a bearish call on gold and the gold stocks about two weeks ago and we’ve seen the sector get hit pretty good since then. Where are we now? Is a buying opportunity close at hand or do you see gold stocks probing much lower levels?
Bob Moriarty: I said before I thought the decline could go into late-June or early July and we’ve seen a small decline so far. The Daily Sentiment Index (DSI) on gold got up to 90 which is quite high and that turned out to mark the top. I’m a contrarian and everybody got bullish all of a sudden so I got bearish. The way I see it is that until we clean out some of those weak long hands in silver we’re going to go down.
CEO Technician: We’ve seen silver drop about $1.30/ounce (~7%) from the highs of a couple weeks ago, and we’ve also seen a volume pick-up during this recent decline. From my estimation there is some important technical support near $17.30. How much more selling is there?
Bob Moriarty: Well here’s the key, I don’t know. You have to wait and see how sentiment adjusts; so far the bullish sentiment on silver is still quite high even as we’ve seen selling pick up. I’m a big believer in two things: 1. Sentiment 2. The CoTs tell you where the weak hands are and how extended they are and when you’ve got a record high open interest and a record number of speculator longs you’ve got a recipe for a big move down.
CEO Technician: What do you look for to let you know that we are near a bottom or at a bottom?
Bob Moriarty: I will be looking for a DSI of 10 or below and I would be looking for net speculative length in silver futures to drop by 40,000-50,000 contracts (currently net spec length is nearly 137,000 contracts which equates to roughly US$12 billion notional).
CEO Technician: That would probably result in a lot of carnage; to see spec length reduced by 50,000 contracts would probably result in silver dropping at least another $2/ounce based upon what we’ve seen before.
Bob Moriarty: If you go back to last July we had silver at $22/ounce yet we had the same amount of bullishness we’ve seen recently. That’s an interesting divergence which I recall you also pointed out. I don’t worry about prices as much; if silver were to get down to $14 or $15 I would be thrilled. I love buying things when they are cheap and selling them when they get expensive
CEO Technician: Silver and gold are two different markets yet they are closely related. You’ve been talking about silver being a sentiment tell for the entire precious metals complex. Does it work that way?
Bob Moriarty: Silver bugs are absolutely insane and when they get crazy bullish that’s near the tail end of any market rally. They don’t listen to any facts whatsoever, they think silver is going to $100/ounce tomorrow. They’re just totally nuts. If you want to measure sentiment in the precious metals, and I’m talking all precious metals, then you want to watch silver. Silver is where the nuts congregate. David Morgan is the only guy who writes about silver who doesn’t wear a tin foil hat when he writes. The rest are totally loco. I mean shit-house rat crazy.
CEO Technician: A couple of questions from the CEO.ca stream. We have a question regarding the situation in the gold miner ETFs, particularly the GDXJ/JNUG fiasco which has certainly weighed on many mid-tier gold producers. What’s your take on the GDXJ rebalance and the decision by JNUG to stop creating new units?
Bob Moriarty: It’s a really interesting situation and a big problem with the juniors we’ve seen literally going all the way back to 2008 is the ease of which people can invest without picking a company. With the GLD and SLV investors could get gold and silver exposure instantly, taking away potential buying from junior miners. Even after junior miner ETFs were created they became too big and were no longer able to invest in the gold juniors.
I have serious concerns about the long term viability of ETFs. I am a believer in real assets and junior & senior gold miners are real assets. Investing in an ETF means that you don’t own Mariana because before the recent takeover it wasn’t large enough to be included in the GDXJ. ETFs will eventually blow sky-high, maybe not tomorrow, maybe not next year, but when the financial system goes it’s going to take every ETF with it.
There are ETFs on ETFs now. They appear to be a good thing but they are becoming increasingly dangerous due to their sheer size. Everything is an ETF now and we are getting too much of a good thing.
CEO Technician: What do you think about the theory that despite the recent hiccups, the large inflows into the GDXJ, JNUG, etc. are actually a very bullish phenomenon for the gold sector longer term because it demonstrates how disproportionately fund flows affect the sector due to its relatively small size?
Bob Moriarty: Let me tell you what is going to happen. I was in the market in 1970 and I sold a week early in January 1980. I am very proud of that because you always want to sell early. I’ve been through this and I’ve seen a silver/gold mania. If people think the Nasdaq in 2000 or US real estate in 2005/2006 was a bubble they haven’t seen anything. When the market really wakes up we’re going to see a bubble like no other in the junior mining sector. You will see the biggest piece of crap juniors run by ex-taxi drivers go up 50x.
CEO Technician: Turning away from the market we’ve seen a lot happen in the first 100 days of the Trump Administration. What are your thoughts?
Bob Moriarty: Here’s what we’ve got. Trump has threatened Russia, he’s threatened Iran, he’s threatened North Korea, he’s threatened China, he’s threatened Canada, and he’s threatened Mexico. He’s making enemies out of everybody. If you recall playing in the sandbox as a kid the one absolute rule was that you didn’t piss everybody off because they would gang up on you and they would always defeat you. I’m totally baffled. Russia was the good guy when he was a candidate, and China was the bad guy. And all of a sudden Russia is the bad guy and China is a good guy.
Are we really going to get into a trade war with Canada? Nobody gets into trade wars with Canada.
CEO Technician: Do you see any endgame in the situation with North Korea? Is there anything the US can do? Trump invited the entire Senate to the White House last week to discuss North Korea – what is he trying to do?
Bob Moriarty: When you view yourself as a hammer, every problem looks like a nail. Unfortunately you have someone who is nuclear armed who could destroy Seoul, South Korea in less than a day. Every war game they ever ran on a conflict in North Korea resulted in nuclear war. This nonsense of regularly threatening to use military force is exceptionally dangerous and if Trump does use force against North Korea we will regret it.
CEO Technician: Do you think Trump is posturing or do you think he’s crazy enough to actually do something?
Bob Moriarty: He’s crazy enough. He’s batshit crazy.
CEO Technician: Turning to Syria the US and France are talking like they are convinced it was a chemical attack by the Syrian regime.
Bob Moriarty: France and the US have used weasel words to describe what happened. Several key bits of information were left out; the chemical weapons were on the ground and they know they were on the ground. They’re trying to make Assad the bad guy so they’re using weasel words to try to confuse people. The Syrian regime dropped conventional bombs on a legitimate military target where chemical weapons were being manufactured by terrorists. It would be totally insane for Assad to attack his own people with chemical weapons when his troops are winning all over the place. This was a false flag operation.
Another bit of information you don’t hear anything about in the western media. The airbase which the US tomahawked in Syria was supposedly the one from which this chemical bombing attack was launched. Why would the US bomb a chemical weapons storage facility? Especially one which had Russian pilots and planes. It makes no sense.
If there were chemical weapons at that airbase you wouldn’t want to attack it because it could create a toxic situation for the surrounding villages and other civilian areas. It would be totally insane to launch missiles at a facility that housed chemical weapons.
The bombing of the Syrian airbase was a macho attack by a President who has a tiny weenie and who was seeing his approval ratings drop below 35%. The MOAB dropped in Afghanistan was the same thing. It was for show and had zero military rationale. The United States has now not only lost every war since World War Two, we’re now in the business of sending messages by huff and puff.
CEO Technician: Do you have any insights on the trade wars that Trump appears to be starting? Last week we saw tariffs put into place on Canadian lumber and dairy products, and then Trump talked about scrapping the trade deal with South Korea that has been in place for five years.
Bob Moriarty: The Great Depression was caused by tariffs and a trade war. Nobody wins in any trade war and Trump is pulling the pin on a financial hand grenade.
CEO Technician: What was the last stock you bought? Do you have any interesting stock ideas here?
Bob Moriarty: There is a company called A.I.S. Resources (TSX-V:AIS.H) and they have lithium brines in Argentina. A.I.S. is going into limited production and they are going to do some test processing. The stock is down ~50% in the last 3 months and I think it’s time to buy.
AIS.V (January – April 2017)
I own shares and they are advertisers. I also have a bid in today (Wednesday April 26, 2017) and I bought shares yesterday.
CEO Technician: Any other individual stocks you’d like to mention here?
Bob Moriarty: Based upon your work Ceylon Graphite (TSX-V:CYL) really looks compelling. I don’t own any yet and they are not a sponsor but i’ve been impressed with your work on the story and if CYL is able to achieve the 25,000 tonnes of premium graphite production per annum target the stock should do very well.
CYL.V (Daily)
CEO Technician: Thank you, Ceylon commenced drilling at one of their most attractive graphite targets last week. Do you have any thoughts on other metals aside from gold and silver?
Bob Moriarty: The highest beta precious metal is rhodium. Rhodium went to $10,000/ounce in 2008 and it could easily do it again. Platinum and palladium are both very cheap right now relative to gold. I should also mention that the gold/silver ratio has risen above 72 to 1 which has historically signaled that all is not well in the global economy.
Gold/Silver ratio (5-Year)
The silver bugs are totally nuts. They’re convinced we are running out of silver and that silver will independently go to $50 or $100 an ounce. There is more bad, misleading information put out about silver than any other metal. Platinum and palladium are both very cheap now relative to gold; gold is the most expensive of the precious metals by far right now.
CEO Technician: There is a large group of precious metals bugs, particularly silver bugs, who believe there is a conspiracy to suppress metals prices. What are your thoughts on this?
Bob Moriarty: You can believe in conspiracies or you can believe in supply & demand but you cannot believe in both. Either everything is run as a part of a conspiracy or supply & demand really do work. For 50 of the last 100 years there have been no controls on silver, and for 50 of those years silver was a monetary metal (until 1964). In 1964 the silver to gold ratio was 17 to 1; this ratio has been as low as 16 to 1 and it has been as high as 100 to 1, however it has averaged 53 to 1.
The question is does 53 to 1 reflect an average based upon supply & demand or have we had 100 years of manipulation? Anyone who thinks we have had 100 years of manipulation is truly nuts.
CEO Technician: There is quite a crowd out there who believe all sorts of things including that there is a ‘paper short position’ in precious metals futures.
Bob Moriarty: If you believe that you should get all of your money together in $100 bills and douse it with gasoline and light it on fire. There are a whole slew of charlatans out there who are trying to get people to believe them about all sorts of conspiracy theories. These people are going to end up costing people a lot of money. Commodities markets have been in existence for over 6,000 years. Futures are a zero-sum game, for every buyer there is a seller with every contract. And in fact, in precious metals futures the sellers are often producers who are hedging production.
There’s no such thing as manipulation over the long term. In the short term there are certainly games played, for example with the “London Fix” price we found out there was fiddling to get the price to where some traders wanted it. However, supply & demand has the real weight over metals prices in the long term.
Commodities always have violent crashes after parabolic rises due to overzealous bulls, not due to short selling. Do you recall silver in April 2011?
CEO Technician: Absolutely! I was short 3 of the big 5,000 ounce silver contracts at the top when it nearly tagged $50/ounce. At the top I was down about $25,000 on the short position in silver and I ended up covering for a $45,000 profit the next day. Of course I covered way too early but that was an epic reversal of fortune.
Bob Moriarty: I called the top in silver in 2011 almost to the day. There is no faster way to make money in commodities than to time a top right in silver.
Silver (January-May 2011)
CEO Technician: When will we have a clue that the correction in precious metals is over? What do we need to see from a sentiment perspective?
Bob Moriarty: I’m a contrarian so I would like to see the DSI in gold fall to 10 and a much wider capitulation among newsletter writers. Precious metals need to become out of favor again and as I wrote a couple weeks ago I see the next major low coming in June or July.
Thank you for your time and your thoughtful insights Bob. I see May shaping up to be a very important month for the junior resource sector as multiple forces coincide during what has historically been a volatile month for the sector. I look forward to our next conversation which will hopefully be when you tell us that it’s time to get aboard the train before it leaves the station for good!
Disclaimer:
The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. A.I.S. Resources (TSX-V:AIS.H) and Ceylon Graphite (TSX-V:CYL) are high-risk venture stocks and not suitable for most investors. Consult the companies’ SEDAR profile for important risk disclosures.
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