A Good Start Of The New Portfolio

A new precious metals portfolio for 2018 has been launched. Since the inception (December 20,2017) the portfolio has returned 6.0% while the broad precious metals market, represented by GDX, delivered a mere 2.9%. A good start into the next year, indeed.

My Proposal For 2018

As announced - the 2018 edition of Precious Metals Portfolio and Newsletter is ready. Here are the details of my proposal:
 
Proposal

First of all, I have decided to continue my investing experiment (Precious Metals Portfolio) initiated in December 2015. However, this time I want to offer you something a little bit different. Namely, my service can be divided into two parts: a standard portfolio and a newsletter.

2018 Precious Metals Portfolio

This year I am going to expand my portfolio to maximum ten picks. Generally, I am not a big fan of diversification but, to protect the portfolio against big price swings, I have decided to place between five and ten picks in the portfolio. So, the rule is: minimum five, maximum ten picks.

What is more, I am going to bet on a few picks indirectly related to the precious metals sector, as, for example, streaming or mineral drilling companies. However, do not be afraid because the gold / silver producers will always constitute the main part of the portfolio.

Similarly to the 2017 portfolio, this year’s portfolio will be actively managed. It means that from time to time I will exchange certain picks for new ones (for free). What is more, I am going to be more active this year – you will receive an update once a month at least (but it does not mean that I am going to get crazy and exchange my picks every month…not at all – I am still a long-term investor).

Now, the price. The existing (2017) subscribers are asked to pay $60 (sixty US dollars) for the annual subscription but the new ones (those that have not subscribed to the 2017 portfolio) are asked to pay $75 (seventy five US dollars).

Newsletter

Each newsletter will consist of two parts: “Portfolio” and “Discussion”:

1. Portfolio – simply, it is 2018 Precious Metals Portfolio discussed in the section “2018 Precious Metals Portfolio”
2. Discussion – in each issue of my newsletter I am going to deal with at least one new idea. Very often it will be a BUY, SELL, AVOID or HOLD recommendation but I cannot rule out something different. Apart from that, in this section you may find other issues, as, for example, my comment on the current state of the market, unusual situation I have spotted in the precious metals market etc. However, the main content is definitely a new idea.

Similarly to 2018 Precious Metals Portfolio, you will get at least one issue of Newsletter a month. 

Just to be clear – if you are interested in the portfolio only, do not subscribe to Newsletter (subscribe to 2018 Precious Metals Portfolio in that case). However, if you are interested in the portfolio and new ideas – subscribe to Newsletter (you will find both in Newsletter).

Newsletter’s price is $120 a year for the 2017 subscribers and $150 for new ones.  Why such a price? Let me put it in this way: in the case you are a new subscriber you pay $150 and receive this:

·         2018 Precious Metals Portfolio worth $75 a year

·     "Discussion" worth another $75 a year. Or, using different wording, one new idea worth $6.25 a month (or even less in the case there are additional issues of Newsletter)   

Alright, both services (Portfolio and Newsletter) are ready to dispatch – just go to the appropriate section ("Services – 2017 Subscribers” or "Services - New Subscribers") and then choose “2018 Precious Metals Portfolio” or “Newsletter” buttons and make an appropriate payment. Then, as soon as possible, you will get the report you have ordered.

Last but not least – all fees are non-refundable. The rule is simple - you make one annual payment and I care about the rest until the end of 2018...

Two New Services Incoming

This week I am going to start two new paid services: Portfolio and Newsletter. The details will be announced soon.

Silvercorp - They Are Buying...At Last

Silvercorp (SVM) is repurchasing its shares. At last. Well, I am really touched - the company fulfills its promises and has started its buy-back program.

According to the latest statement, it has repurchased as many as 788 thousand shares since November 23, 2017 (when the program was announced). I have no idea whether a recent jump in Silvercorp share prices is attributable to the buy-back program but...why not? Look at the chart below:

source: Stockcharts.com

Summarizing - since the start of the buy-back program as many as 12.2 million shares of Silvercorp have changed hands at the Toronto Stock Exchange with 6.5% of this turnover being attributable to the program.

It Looks Like Silver Is Bottoming

Commitments of Traders reports are, in my opinion, a very helpful tool to measure the traders' sentiment. Let me take the silver market as an example. Here is the chart documenting historical movements in silver prices, starting from the beginning of 2016:

source: Stockcharts.com
 
Let me analyze two latest legs down during the current bull market cycle in precious metals (please, forgive me for calling this flat market a bull cycle - I am an incurable gold bug).
 
Leg down number 1

The first move is marked with the red arrow. It started in middle April 2017 and ended in early July. During that period (a 16.8% drop in silver prices) the Money Managers (big speculators trading silver futures) increased their gross short positions by 42.9 thousand contracts and cut their gross long positions by 54.5 thousand contracts. As a result, a net long position held by these speculators dropped by a huge amount of 97.4 thousand contracts.
 
Leg down number 2
 
The second move (blue arrow) dragged silver prices from $18.2 to $15.7 per ounce (a drop of 13.7%) but this time the shorts (Money Managers holding gross short positions in silver futures) increased their short bets by 17.7 thousand contracts and the longs (Money Managers holding gross long positions in silver futures) cut their exposure by 13.1 thousand contracts. As a result, a net long position held by Money Managers went down by 30.8 thousand contracts.

Thesis: the latest leg down in silver was accompanied by significantly lower selling pressure among big speculators trading silver futures. So, if I am correct, we may be ahead of another strong move up in silver prices. What is more, now Money Managers hold a net long position of 21.6 thousand contracts. It means that this group of players is less pessimistic than during the bottom established in the beginning of July (a net short position of 6.4 thousand contracts). Lower pessimism at similar prices may be an indication of an ending bear cycle.


Last but not least. Here is the chart documenting this year's silver flows reported by the iShares Silver Trust (SLV):

source: Simple Digressions

Note that in December up-to-now as many as 9.6 million ounces of silver were added to SLV vaults. Well, it is not a common pattern. Usually, SLV reports silver inflows during bull cycles. Most often (but it is not a strict rule) during bear cycles the silver goes out of SLV so...this time is a little bit different.

Look What They Have Done To Gold

According to the Commitments of Traders report, during the week that ended on December 5, 2017, Money Managers (big speculators trading gold futures) totally changed their attitude to gold. Look at the chart below:

As the chart shows, a net long position held in gold futures by Money Managers was reduced by 64 thousand contracts in just one week!

What is more, it was the highest reduction in a net long position in history. Simply put, suddenly the gold traders threw in the towel. In my opinion, it looks like a panic and, as usually, panics create buying opportunities.

The red rectangle points to other sudden and big reductions in net long positions held by Money Managers. Each time there was such a drop the prices of gold were recovering.

Last week this change was the highest in history (the blue circle) so the chances for a short move up are relatively high.

I have not written about gold on this blog for quite a long time but believe me - I was not optimistic about the yellow metal. Now I am getting optimistic, at least in the short term.

And The Chinese Are Still Buying Gold

The Chinese demand for gold is still strong. Look at the charts below:

In November the Chinese withdrew 189 tons of gold. By the way, more gold was withdrawn only in September (214 tons) and March (192 tons):

source: SGE and Simple Digressions

As a result, since the beginning of 2017 the Chinese investors withdrew 1,845 tons of gold (an increase of 4%, compared to the same period of 2016):

source: SGE and Simple Digressions

Once again the Chinese, spotting relatively low prices, invested in gold.

Last but not least - the average annual gold production stands at around 3,000 tons and the Chinese absorb around two thirds of annual production. Year by year...

Wesdome Gold - An Unlucky Miner

Wesdome Gold (WDO.TO) is an unlucky miner. The company owns an excellent mine, Eagle River, but it also has a big shareholder, Resolute Funds, that some time ago has decided that Wesdome is not a decent investment. As a result, since the end of 2016 Resolute Funds has been selling the company's stocks dragging them down to US$1.4 a share. The charts below document this process:  

source: Simple Digressions

Note that initially Resolute was a typical contrarian - the fund was purchasing Wesdome shares when nobody wanted them (until middle of 2013).

Then, after a period of strong accumulation, Wesdome shares started a vicious bull cycle. At that time (middle 2013 - beginning of 2016) these shares were going in the opposite direction than the entire precious metals market.

The start of a bull market in precious metals  (December 2015 / January 2016) made this bull cycle even stronger. In between (2016) there was a proxy battle between the company and Resolute Funds which resulted in another strong bull wave.

Then, in 1Q 2017 the shares topped and entered a bear cycle. This cycle is still intact and it looks like it is fuelled by Resolute selling Wesdome shares.

Summarizing - Wesdome is a decent miner (I particularly like its Eagle River mine which is located in an established gold camp in Canada) but as long as Resolute is throwing the company's shares in the towel it is hard to expect an end of the current bear cycle.

Another Mineral Drilling Company Reports Decent Quarterly Figures

Another mineral drilling company, Major Drilling (MDI:TO; MJDLF:OTC Markets), delivered decent 3Q 2017 results. For example, cash flow from operations (excluding working capital issues and taxes) was the highest since 3Q 2015:

source: Simple Digressions

Another sector measure, ARPOR (average revenue per operating rig), also went up:

source: Simple Digressions

The green rectangles depict boom times while the red ellipses are attributed to poor business conditions.

The yellow rectangle points to the period 2016 - 2017, which, in my opinion, is another boom time.