Gold: QE To Infinity

JNUG

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Courtesy: TDAmeritrade

We are adding to our position in JNUG. We have seen a massive liquidation. I believe that we are looking at disparity when events like the coronavirus unfold, and throws financial markets out of whack. At the same time, it offers a tremendous opportunity if you are interested in entering the metals markets. We are getting a weekly buy signal at the Buy 1 level close of $1481. That level has been tested over the past few days. The artificial intelligence of the Variable Changing Price Momentum Indicator (VC PMI) strongly suggests that the market will find buyers closing above at this level. Now we already are starting to get the reversion back up toward the 1575 weekly mean.

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We recommend that you go long the gold market. This is a fantastic opportunity. JNUG gives you the volatility of the futures market without the margin calls. They have clobbered these triple X ETFs that they are offering a historic opportunity. JNUG was at $100 at the beginning of the month. Now it's under $4. I believe there are fire sales in gold mining shares.

I'm often asked, why do we seem to have a shortage of physical supplies? You can’t get physical gold or silver without paying a hefty premium. Now you see a massive decline in gold mining shares, which is simply liquidation of these assets that used too much leverage.

I do not want to carry the risk of a futures contract overnight, especially given the recent overnight moves in the metals. That's why I'm buying JNUG. This is an opportunity to average lower and buy into gold at a time when you can buy five times more JNUG or NUGT shares now than you could a few weeks ago. These prices are not going to last. The market is ready for a major rally, which is going to take gold up to about $1570 or $1575, which would put JNUG back up into the thirties. This is a historic opportunity.

We are seeing a lot of support from that $1481 Buy 1 level. The target is $1499, and we are at $1494. From $1483, where we entered, we are already up $1200 in a day trade. I'm using the futures contract for day trading. I'm only trading small multiples, one contract in the futures markets, given the volatility. I'm buying the JNUG ETF with the margin you use to trade futures. You are going to have a tremendous return on your investment. They track the underlying gold mining share indices. They have come down to fire-sale levels. I expect that gold is going to get back up to that average price of $1575.

We have come down to the completion of this correction from $1704 to $1450 in less than 30 days, which is a historic event. I believe that if we saw that volatility in such a short period of time, it will only expand. There's a shift in paradigm in relation to volatility and risk.

Most large money managers are saying that they have billion-dollar portfolios, which is very difficult to liquidate quickly in such a situation. Futures contracts offer a great hedging opportunity to hedge inventories. However, central bankers have used that ability to manipulate the price of precious metals by artificially creating short positions when they do not own the physical underlying asset in gold or silver. Central banks also have no limits in terms of capital. They usually are sellers in precious metals and the financial markets because they are hedging against whatever inventory they have in the physical market. But the number of contracts sold in the paper markets is unrealistic given the actual physical gold and silver production. We do not have that silver or gold available anywhere. They can hold onto such positions until a situation like today, when they have to come in and cover their short positions. Open interest has declined, which is an indication that some shorts have been covered. If not, the risk for central bankers is that the world after this financial mess is going to turn around and people are going to lose trust in the paper markets. The stock market is down 35%. What happens to confidence when that happens?

The decline puts into question what's going to happen in the November election in the US. Trump’s future looks far less rosy than it did last month. We are reaching a capitulation point in the panic, where we should be able to see over the near term some sort of relief rally. The market does seem to be settling down some. Gold, silver and the E-mini are all trading in the blue area, which is an area of demand or buying, according to the VC PMI.

The Bank of England just announced that it's cutting interest rates. There's a global push to lower interest rates to zero. Already Germany, Italy and Japan are basically at zero. I really don’t understand that logic. This policy cannot last long term. It eliminates any income to pension funds and retirees.

Now the markets are giving us a much more solid foundation of where we are going. Technology is required to trade such markets, including artificial intelligence, which we use in the Variable Changing Price Momentum Indicator (VC PMI). Long ago you had to do charts manually. Now the VC PMI and other programs do so much work for you.

Grains

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Buy soybeans and buy wheat. Put some soybean futures contracts in your portfolio. Add some wheat futures contracts in it, too. We are going to have a shortage of food. Soybeans low was about $8.21, and now it’s at $8.45. From $8 to $9 is a $5,000 move. We are breaking out in soybeans and wheat. The grain markets are giving a sign that we are going to have issues with the supply and availability of food on a global scale.

Silver

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Many of the markets run by central bankers, such as gold and silver, have been massively distorted because they have manipulated the price away from the mean. Silver is one of the most undervalued commodities out there. Silver is not going to go away. The gold market is not going to go away. All these developments are only making the argument for gold and silver even stronger.

Silver is following the same signals as gold. It has activated a bullish trend momentum because it's trading above the average of $12.11. We are looking for the market to close above $12.33, which will activate a Buy 2 signal on a weekly basis, which is a strong signal. The market is completely oversold on a weekly basis. I have silver. We are buying SILJ, which is an ETF trust in silver. It's a more conservative way of capturing the market and a way to build a position.

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E-mini 500 S&P

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Businesses are going to have to take a hard look at how they do business. They are going to have to embrace technology far more. In trading, using artificial intelligence and algorithms has become crucial to trading profitably. I believe that the equity markets are looking for a relief rally. We have been buying. Last night the E-mini activated a buy signal from 2280, with the target being met almost right away. We went long a second time last night, and the target was met once again very rapidly. This morning, the E-mini came down again, triggering a weekly buy signal by closing above 2407. The target is 2657. A close above 2657 would activate the weekly Sell 1 level of 2771, and then the Sell 2 level of 3184. Both Sell levels could be active again if we get a close above 2657.

One of the key aspects of the VC PMI is to identify when the daily and weekly prices are in harmony. The daily average is 2383 and the Buy 1 level is 2407. When the price trades above the average, in this case 2383, it activates a bullish trend momentum. Below, it’s a bearish trend momentum. The VC PMI advises not to trade around the mean, but to wait for the highest probability trades from the extremes above or below the mean. The market appears to be building a market consolidation into the area where the VC PMI tells you there is a high probability of a reversion to occur from 2407. A close above 2407 would be a conservative trade to go long.

The alignment of the daily and weekly numbers at almost the same price gives us an extremely high probability that a reversion is going to occur back up to the mean. There are more buyers down here than sellers. That's reflected in the consolidation after the market made the low of 2262, which coincides with the daily Buy 1 level of 2280. Conservative traders can go long from there on the 15-minute bar close, with a stop below. Aggressive traders can choose between a close below, a dollar stop suited to your financial profile, or you can allow the position to trade in this area where there appears to be support.

The monthly mean for the E-mini is 3067. The Buy 1 level is 2736 and the Buy 2 level is 2522. The Sell 1 level is 3281 and the Sell 2 level is 3612. Even on the monthly numbers, the market is extremely oversold. The mean is like a magnet that pulls the prices to the extreme level below the mean. When the price breaks the Buy 2 level, there's a 95% probability of the market reverting back to the mean.

We are trading right around the daily average of 2383. The daily Buy 1 is 2280 and the Buy 2 level is 2159. The market rallying above 2383 daily, activates the bullish trend momentum, which puts into play the target of 2504.

QE To Infinity!

We trade the metals. They are a general indicator of the health of the economy, and also a currency, especially when paper fiat money collapses, as is occurring today. The Fed is now going to print as much money as the market needs to save the economy. We are talking about a staggering level of quantitative easing. The Fed extended the purchase of securities from $40 billion to $75 billion on repos, and extended dollar-swap lines to nine more central banks, which are in trouble. There are going to be a lot of casualties, primarily small banks and corporations that are highly leveraged. The Feds really have to ramp up the printing of money to accommodate the tremendous amount of dollar demand we have recently, since people are using the dollar as a safe haven. It's debatable whether the US dollar, given US record debt, is still a safe haven. How many more trillions of debt are we going to add? We are from 10% to 15% of GDP as additional debt. It's staggering. I'm desperate to find a light at the end of the tunnel. The opportunity today is definitely in the precious metals. The debt, printing of money and the panic in equities all bode very well for demand for precious metals. Gold rallied to $1900 after the 2008 crisis, and I expect something similar today.

Summary

Equities have come down to what appears to be a level of support. They are stabilizing. We are looking for a relief rally based on some major government action to take us back up to the 2500 to 2600 levels on the daily numbers for the E-mini. On the weekly numbers we are looking at 2900 to 3184 levels for the E-mini. The metals are skewed, with $1575 as the average price for gold. It's oversold and is activating a weekly buy signal with a target of $1499 and a weekly target of $1575. For silver, it's neutral right now. It's in an area of demand. A close above $12.33 would activate the weekly Buy 2 level with the targets above of $13.31 to $15.52 on a weekly basis.

Disclosure: I am/we are long JNUG. I wrote this article myself, and it expresses my own opinions.

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