Is The Junior Mining Sector About To Implode?

58
Fri, Apr 21, 2017 - 2:43pm

Understand this is just one trading and investing Parrot’s opinion, but I have read numerous interpretations/spins/takes on the GDXJ rebalancing, the JNUG implications, and none of them have seemed to me to honestly get to the core issues or implications of this major event as regards the immediate future of the junior mining sector (and possibly the entire sector as a whole, in the short-term). So in this piece I thought I would lay out, part by part and fact by fact, what I think might be implications that nobody is really talking about, either because they have vested interests in the sector and are afraid of spooking investors, or because they simply haven’t thought through the implications or imagined what may happen if the dominoes fall. Understand that this is speculative, but also understand that to dismiss this thesis, you must factually explain why the ‘cause and effect’ I am about to lay out will not take place. It is not my intention to discourage or frighten people, simply to warn them of a possibility that seems to me to be entirely realistic based on current fact and evidence. If I am wrong or in error, I gratefully welcome different interpretations of the data- the entire point of this is for all of us to do well in the end!

The Summary Case in a Nutshell:

  1. GDXJ, which already is 5% GDX (not juniors) and contains other significant holdings that are not really juniors as well, has now announced a rebalancing June 17th whereby they will be selling a long list of smaller junior miners (and not buying more) and adding larger-cap companies to their index. In short, this “junior mining” ETF is becoming essentially “10% large miners, 50% mid-cap producers, 40% larger juniors” ETF. The juice that used to be provided by the smaller miners is now either gone or at least largely diluted.
  2. This announcement will hit a big list of small mining companies in two ways. First is the obvious disgorging of GDXJ shares (representing 2.6 billion dollars of selling, or about 6-8 trading days-worth of share volume per company, all selling that has to be absorbed the market). The second, however, is the double-whammy this has on each of these companies in that (a) individual investors are/will sell their shares in anticipation of this, and (b) it will discourage future investment in these companies since everyone knows you cannot count on that big flow of GDXJ money ever coming back in to these stocks. This will depress the entire sector as a whole to some degree. Say goodbye to that easy pension, casual investor, and 401k money. From now on, those companies are niche investor targets only. Bad sign.
  3. JNUG, the 3x ETF based on GDXJ, has been the “risky bet” trading vehicle of choice for traders who want high risk/high reward exposure to gold, so much so that JNUG is now a 1.2 billion dollar behemoth. JNUG, however, leaks value vs the underlying GDXJ over time and this is reflected by a forthcoming 1 for 4 reverse split in the shares. It is feared that this split may signal even more leakage, putting traders on edge.
  4. The GDXJ rebalancing away from the juniors means that going forward, JNUG will not offer anywhere near the “juice” to traders it once did in terms of 3x exposure to the potentially fast-moving small junior stocks. Without this additional pop, why trade or hold JNUG? Why be in this leaky vehicle where the underlying GDXJ has torpedoed its underlying portfolio by (a) announcing its sales ahead of time and (b) essentially moving away from the very thing (exposure to the potentially high-flying small companies) that once made it attractive? These things will likely cause traders to move away from an increasingly sluggish JNUG.
  5. If traders leave JNUG, it will be devastating to GDXJ- the swaps and futures that allow JNUG to function represent roughly HALF the market cap of the 5.3 billion dollar GDXJ. If traders decide JNUG is no longer the rocketship it once was and hence is not worth the trouble, and just 20% quit trading JNUG, this is the equivalent of half a billion dollars fleeing GDXJ… if 40% quit trading JNUG, it’s the equivalent of a billion dollars exiting GDXJ. These types of outflows, in a short period of time, could mean serious price carnage in such a small sector.
  6. The thesis of this piece is that this chain of developments has the potential to devastate the junior miners in the short run, coming on top of the effects of the GDXJ rebalancing.

What did they know, and when did they know it?

This decision didn’t happen overnight. The folks who run GDXJ had to have made this choice, and understood the potentially deadly ramifications for the entire sector, quite some time ago. I think I know when.

Back in February I saw something in the charts that truly baffled me, a disconnect of a magnitude that I haven’t seen in 15 years of pouring over gold, silver, and mining charts on a near daily basis. There was a startlingly odd disconnect between the miners and the metals, when from Feb 10- Feb 26 Gold was up 3.6% yet the juniors were down 8%!!!

This bizarre, counterintuitive move was capped off by the big smash in miners on Monday, Feb 27 when GDXJ was hit for an additional 11% in a single day. When gold is flat over ten trading days, yet the juniors and down a whopping 20% over that same time on no news, something is definitely up. What is interesting is a tidbit our fellow Turdite Murphy sent me. In the final 15 minutes of trading that day of the big drop, Monday Feb 27, 775 million dollars of GDXJ shares changed hands... That is equivalent to the entire average daily volume of shares traded in that ETF in just the final 15 minutes of trading. On “no news”.

This is pure speculation, but I think this time period is when this decision was made- in a rising gold market, the juniors fell by 8% and ultimately 20% for no particularly good reason known publicly. This is when big money got out, and left us holding the bag. Sorry, but we are the last to know and that’s how it works.

The rebalanced GDXLCMCPBSM: The GDX Large Cap+ Mid-Cap Producers+ Bigger Small Miners fund

GDXJ already holds GDX. Everyone has seen the new rebalancing lists by now, but if you haven’t, here are the links.

The GDXJ adds: https://themacrotourist.com/images/2017/04/AddsApr1917.png

The GDXJ drops: https://themacrotourist.com/images/2017/04/DeletesApr1917.png

Scotiabank estimates that the 23 new additions will ultimately constitute 63% of GDXJ. https://www.nasdaq.com/article/gold-miner-etf-gdxj-to-undergo-dramatic-change-cm775363#ixzz4euPdSaWl

From the above article, here is the quote that should send chills through every owner of a small mining stock: “The fund will see dramatic offloading of current index components to fund the new additions. Scotiabank estimates that the fund could have to sell .6 billion of fund assets, representing approximately 2.5-8% of each individual existing component.” How is a market as small as the juniors supposed to absorb 2.6 billion in selling without major price disruptions? I think this explains the February sell-off… inside money knew this was coming, and already sold.

Let’s be honest: JNUG is a gambler’s ETF

The reason JNUG has grown into a billion dollar ETF is simple- greedy people like me (and you) look at last Spring’s rise and start doing the math, and say “If gold went from 1048 to 1375, I could have bought GLD and made 30%... but JNUG went from 2 bucks to 32”. We start thinking that we can invest 20k and turn the next rip in gold into a 16 bagger in 4 months, and turn that 20k into 0,000. Honestly, we should admit that is the only reason people buy JNUG, and put up with the decay vs. the underlying over time. With the new changes to GDXJ that simply isn’t going to happen anymore. And when people realize this, it will be a problem. Maybe a billion dollar problem.

Scotiabank also estimated that as much as 50% of the 5.3 billion market cap of GDXJ is due to JNUG, and the complex strata of swaps and futures needed to get that 3x leverage to work. If people leave JNUG because GDXJ has turned itself into a boring, vanilla mid-cap fund, and because they cannot in any way reasonably believe they can replicate that stirring 16 bagger we saw last year, then GDXJ could be in deep trouble. If just 20% of “investors” (gamblers) quit JNUG that is a half-billion dollar outflow from GDXJ, at least. If 50% leave it could reasonably be a 1.1 billion outflow from the junior mining sector… and that is ON TOP of the already massive 2.6 billion dollar outflow from the companies on the GDJX “cut list” mentioned above. You see the potential for carnage yet? This just isn’t a big enough sector. In a period of a month or two it simply cannot absorb such outflows without massive price disruptions.

Proof of Concept?

One of these things is not like the others…

Gee, it's almost as if, sometime around April 11-12, something happened that disconnected JNUG (or more specifically, the underlying GDXJ) from the normal flow of market forces affecting the other 3x instruments- something that was truly specific to that instrument, and made it deeply undesirable to investors, who started to flee it in droves....

In addition, JNUG and JDST should mirror each other. Instead, they have started to diverge, by a whopping 5% as of Thursday:

Since the infamous April 11-12 GDXJ rebalancing announcement, coming on top of the looming 1 for 4 reverse split already announced for JNUG, the gap between JNUG and it's supposed opposite JDST continues to widen. As of price at the time of my posting this, in just the last five days the difference between the two has grown to 5.28% in just five trading days!!! Note that during that same time, NUGT and DUST are holding their normal inverse relationship quite closely as they should, so it is just these two... all while gold (even expressed in UGLD) is basically flat. People leaving the miners, and FLEEING the juniors:

When Van Eck announced JNUG "suspension of issuance of new shares" and they added that it might mean that it will trade "at a premium to NAV", I posted here at the time that they did this to try and hold the short sellers at bay if they could, and to stem or somewhat manage the carnage they saw coming. The premium to NAV bit was just misdirection to pretty it up. This attempt to artificially prop up JNUG likely accounts for the 5% + difference between JNUG and JDST...

So without the prop of not issuing new shares, only buying back - thus shrinking supply somewhat (which they can only do with cash on hand, till it runs out) then JNUG would be knocking on the door of a 25% drop... Think about that, if JNUG "should have dropped" 23.28% commensurate with JDST's rise, and JNUG swaps and futures represents 50% of the market capitalization of GDXJ, which is 5.3 billion, that is roughly 600 million dollars of market cap flowing out of the junior miners in just the last five days. It hasn't worked it's way through the system yet to truly move price since these are swaps and futures, but it may soon...

Is there a silver (and gold) lining?

Well, if you are a complete optimist you could argue that between the 20% Feb/March drop prior to this becoming public knowledge, and the time since then which has included the above drops in JNUG and GDXJ, that much of this may already be largely priced in. Obviously, I don’t think so, and I believe the effects of the JNUG exodus are yet to be fully felt, but one could make the case that (a) that is overblown and JNUG will keep on trucking because traders don’t care and want their juice, and (b) the GDXJ hit is already largely behind us. So if you are of this mindset, perhaps this is the BTFD moment. Personally, this parrot is not counting on that. Time to batten down the hatches, mateys.

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billhilly
Apr 22, 2017 - 3:15pm

a little more intrigue...

Thanks Pining for your response.

I went to the link from Nasdaq.com and saw that the article is a reprint from a Zacks.com article (no author named) also dated the 18th of April. I then went to the Zacks site and saw that there was a revised article, with the same title, but when I hit the link it says "this article has been removed". The original article was also removed. Very interesting !

So you are saying that since Nasdaq.com has reprinted an article from Zacks that this qualifies as something significant/solid/concrete. I too, on first glance, would give it reasonable credibility, but I now am still reluctant to put too much stock in this "source".

And again, I also am hesitant to put much stock into these lists that are appearing, and which you show a link to.

I have just read a link directly from Van Eck https://www.vaneck.com/etf/equity/gdxj/overview/ where they offer a response to the narrative (hit the red PDF link highlighted). I find it limited in its value but see nowhere that they mention any real specifics regarding reallocations. It has also been reprinted by Yahoo finance.

My instincts still draw me towards caution in accepting the current narrative so I will continue to be watchful for further developments. I will post any additional insights or information here as I come across them.

QUESTION THE NARRATIVE ???? ALWAYS !!!!!!

mike97
Apr 22, 2017 - 1:36pm

What stocks to pick?

So I have already sold some GDXJ shares and I am going to sell the rest. Now do I simply invest in GDX or do I invest in more miners? Should I sell my junior miners on the reduce list and add to medium cap miners on the add list? My miners on the reduce list include: KL, SSO, OR, FVI, MAG, SVM, EDR, WDO, FF, GPR. My miners on the medium cap add list include: PAAS, FR and PVG.

1. Do I sell all my reduce list miners and buy back in after June 17th?

2. Or do I sell my junior miners and buy into the medium cap add list?

3. Or do I sell my junior miners and to my large list of micro and junior miners that aren't on either list?

I haven't a clue. Thanks for the great post Pining!

tommy
Apr 22, 2017 - 12:40pm

help each other out with individual stock picks

Sure it is probable this whole thing has been orchestrated to relieve the small players of cash (including the holders of GDXJ, JNUG etc.). The precious metal space is fraught with corruption and from a monetary perspective, if we get 'the big reset' these companies would in effect become banks. This means TPTB would want control over these companies in order to be able to still control the money supply (as the 'robber barons' did in the 19th century). Likely they control the big companies and this rebalancing would raise share prices of bigger players relative to smaller once so taking over these juniors would become cheaper. Being active in this sector makes one quite paranoid, eh..

Anyway, a lot of damage has been done to investor confidence regarding the junior mining space, but he value of a company still depends on the silver/gold prices, their mining costs and their reserves (and management etc.). Maybe it's a wake up call for us here, don't rely to much on ETF's. Help each other out with stock picks etc. I think this should be a big part of the discussion on this site. Share news, views, opinions on individual stocks. Just my 2 cents:)

p.s. If you want leverage, buy options on individual shares...

Apr 22, 2017 - 11:56am

@Billhilly

The list has been published by NASDAQ.com among many others in pretty mainstream financial press, so I'm considering it legit until something indicates otherwise. Your questions regarding "why choose to sell" are the real crux here. I think there are two answers, the official one and the real one. The official one was given in the cnbc article originally posted in the 3x ETF forum "what happens when an ETF gets too big". They said that not only are they running up against the 20% rule in Canada, there have been periods then they've been in violation of the IRS standards for fund type here in the US as well... so I bet THEY would say "We are divesting ourselves of companies whose size threatens to create ongoing compliance problems etc etc". They would portray it as as "washing our hands of ongoing tax/legal/compliance problems to set ourselves up for cleaner operations going forward."

But I think that they could simply have chosen not to buy more, or divest just a little to remove those issues... in other words, to do it far less disruptively. But then there would not be the opportunity to front-run the massive reallocation disruptions, ala the February moves I point out in my article. Ka-Ching! Just sayin'...

billhilly
Apr 22, 2017 - 12:21am

and now for...

...a little tin-foil-hat angle (not to be confused with my earlier questions).

So if one questions the legitimacy of this whole reorganization/reallocation story going around, it would have to be asked, who profits ???

Let us consider, what if this whole story is not as it seems and has been planted by the bankers and fed to the media ? So far, the preponderance of the "links" seem to be coming from Scotia Bank and TD. Could there be a monetary motivation that underlies an attempt to bring selling of Junior miners en masse ? Who would benefit ? ...these very same banks if they were snatching them up at reduced prices !

Could it be that they know of a coming collapse and are trying to figure a way to gather good miners at cheap prices ? What better way than make the masses think their Junior holdings are going to get bashed. How to do it ??? Answer, PLANT A STORY ! Has it ever been done before ? You betchya !

I am not trying to persuade anyone that this theory is valid or probable, just that it is possible. I cannot get beyond the many vagaries of the "evidence", or lack thereof, that seems to be the foundation of this story. I continue to look skeptically at this and am awaiting further evidence that this is indeed true.

I am currently a holder of JNUG and have taken a beating in the past week. Indeed the price action warrants concern and caution but I am not convinced that all is as it is said-to-be. This could be a bad investment decision but I see no formal reason why I should let-go my shares at the present time. Until I can see more conclusive/solid evidence I am holding firm.

And as Newager says above, price fixes everything.

..simply for your consideration

Newager23
Apr 21, 2017 - 10:50pm

My 2 Cents

Excellent article Pining. I agree with you that there is significant potential for downward selling pressure in all junior gold and silver mining stocks, including JNUG, between now and June 16th. The key is going to be gold and silver prices. If they both rise, then demand will soak up most the shares that get dumped by GDXJ.

However, if gold and silver prices trend down between now and June 16th, it could be a near-term bloodbath for juniors. I'm optimistic that gold and silver prices are going to rise in May. For this reason, I'm not too concerned for my GDXJ holdings to underperform significantly.

As the saying goes, price fixes everything. Once gold and silver prices spike, the miners will spike with them. In other words, any stock that get's hurt in this re-balance, should rebound. The two stocks that could get hurt the most are GDXJ and JNUG. We will have to compare them to GDX after the re-balance is completed to find out how much they were hurt.

I'm not worried about junior miners. As much money as there is in this sector, it's small versus it's potential. When you look at the percentage of investment dollars in this sector, it is a tiny percentage versus the overall stock markets and bond markets (less than $1 trillion versus $100 trillion).

I like the fact that GDXJ is very popular and dominates the mid-tier sector. I don't expect this to change. I also like that fact that they are going to add several silver producers. Since there are very few silver producers, they are likely going to push these stocks higher in the future.

Since JNUG is largely based on the GDXJ index, I expect it to weather this storm and go on as a popular ETF. I think Pining is correct to point out that this storm is brewing, but the outcome is still unknown. If we get higher gold and silver prices in May, this storm may be much weaker than we expect.

Markedtofuture
Apr 21, 2017 - 9:22pm

L. H. - Gold Manipulation

Posted @ Lemetropolecafe.com

Dear Mr. Powell,

I was listening to your conversation this morning on goldseek.com radio with the host Chris Waltzek. I am an individual that has studied, analyzed and invested the precious metals on a private basis for a few decades now. I have my own database for the precious metals and currency markets from 1970 to date.

In my professional career I have been involved in the forex market twice as long as my involvement with precious metals. I have always considered the precious metals as part of the forex market and approached the precious metals from a forex perspective from the beginning of my private interest.

I really do not want to waste your time or mine so I will in the shortest verbiage possible summarize my finds that may be of interest to you. I would be more than happy to provide you with more facts, by way of charts, in order to support my finds if you are interested. The following is a very simplified summary of my findings.

-There is a major divergence that exist today in the forex market (as mentioned above I include the precious metals in this market) that started in 2011. This divergence is the gold/silver ratio. Simply put, given the current set-up the currency market this ratio should in a range of 30 to 40. This gives you two choice, either gold needs to be 720 to 540 range or silver needs to be 43 to 32 range (this just using round numbers of 1280 gold and 18 silver)

-My work would suggest that only real option is the price of silver, not gold as gold has already confirmed a major plateau shift has occurred. The 720 to 540 range will most likely never be seen again.

-My calculation would suggest that the “MARKET” could end this manipulation rather fast, IF, anyone wishing to buy precious metals bought only silver. I would suggest that the powers to be would lose completely the control of the market and even if no one bought gold the price would follow the silver rocket upwards as they attempt to hold on to control of the market. They would have no choice in this matter, if the market would take over silver pricing. It would most likely also bring the US dollar reign to an end.

As you do not know me and you may not like opening an attached, I have copied below some addition verbiage from a word document that I have prepared previously as follows. I do not know if the charts will be of any use to.

Please let me know if you would be interested in any of my work.

Thank you in advance.
Best regards,
L. H.

SOLUTION TO THE PRECIOUS METALS MANIPULATION

This is not intended to be a long winded argument for manipulation, but a short and concise statement of the facts that we can see glaring at us at this point in time. It is intended to present my observations of the forex markets from the 1970’s to the present day, from a different point of view. Along with the bottom line observations on gold and silver market pricing from the same time frame and the clear linkage that one can observer from the linkage of the two, forex market and gold and silver pricing. These observations will be presented by way of bullet points and accompanied with a chart that may be the best guild that points us to the solution of breaking the manipulation in this market. With this said let’s get started

Gold’s 200 month MA (moving average) is currently 880.81 as of December 2016(the monthly average of 1,150.07). The peak of the 200 month MA ending the 1979/1980 blow off was 400.12. If you project forward with no change in the monthly average price from December 2016 the 200 MA will peak in November 1226 at 1,240.72. This is a clear Plateau Shift confirmed.

Silver’s 200 month MA is currently 14.88 as of December 2016(with the monthly average of 16.33). The 200 month MA peak ending the 1979/1980 blow off was 7.66. If you project forward with no change in the monthly average price from December 2016 the 200 MA will peak in June 2026 at 19.79.

The significant move in gold and silver from 2000 onwards, was the base for the Plateau shift that has occurred in both metals. For gold 3.1 times the 200 month MA peak and for silver 2.3 times the 200 month MA peak. This move ran into a very serious obstacle in 2011, being the breakdown of the forex band agreement that must exist with the powers to be. 2011 was a paradigm shift, whether man-made or not, in the gold and silver move.

During the 1970/1980 the gold peak monthly average was 675.30 January 1980 with silver posting 39.28 for the same month. These were the high points for the 1970/1980 move. In the current move gold took-out this 1980 peak in April 2007 with a monthly average of 679.62, then pulled back to 667.59 in May, 655.40 June, 665.62 July, 665.93 August 2007, before blowing past and never looking back with a 713.55 monthly average for September 2007. While silver on the other hand did not top its peak until the 43.08 monthly average posted in April 2011, then only to fall back to 36.83 in May, 35.76 June, 38.11 in July 2011, with one last pop above with a 40.35 monthly average in August 2011, before turning down since then.

Now let’s go summarize the forex band mentioned in point 3 above. There could be a long book written here, which is not the goal, let us do our best to explain in the briefest possible way. Therefore, let us look at this following chart, which covers the daily closing prices from January 1971 to December 2016, for gold and silver in a number of currencies. They are included in a proprietary formula. (NOTE: As I have my system set up, the closing price for the last day input will carry forward in time, which is why you see the chart continues until 2018. I like to see how the long term moving average reacts to latest closing prices.)

The two trends can be simplified in the following way, the bottom trend, chf-euro gold-$-euro gold – chf-euro silver - $-euro silver x 30, reflects the health of the US dollar while the top trend, gold over under valuation, best imitates the gold / silver ratio. I have isolated the 1971 to 1990 period, number 6 following, and the period from 2000 to present, in number 7 below. However, before leaving the complete chart kindly let’s make a few observations. 1. The two periods covered in 6 and 7 are both periods were the US dollar is under significant stress. In the first period covered, the stress was from the beginning of closing of the gold window where the latter period starting about the LEHMAN MOMENT. 2. The two trends basic move in the same direction, except the very clear and only time in 45 years that this charts covers, they diverged starting in 2011 to now. Clearly the main goal is to keep the dollar trend from breaking the zero barrier as it did in 1979/1980. Both of these trends were on the verge of doing just that in April 2011. THIS A VERY BIG KEY TO THE SOLUTION.

The 200 month MA are moving together during this time frame. Both trends are pounding away at the zero line during the entire 70’s until the clear breakdown last half 1979 to first half 1980. This 1979/1980 breakdown being a tipping/turning point in the US dollar turn around. The consequences that followed got the forex market so convinced that the US Dollar was a “perpetual motion” currency. That leading right into the need for the Plaza accord and then the Louvre agreement, as the power that be knew the range they wished to establish, to guild the forex market to their band. It would appear that the band they wanted established was zero to 100 and with amounts outside this range as the extremes, this primarily for the Forex trend. Since the mid 1990’s when the forex trend moved back under the 100 mark it has not returned above it, and most likely will not until a collapse below the zero line occurs similar to the 1979/1980 breakdown that leads to another set of circumstances that would most likely be the bring about of a new monetary system.

It may be suggested here that the gold/silver ratio is their primary means of controlling the Forex trend. This leads us to the next isolated timeframe from 2000 to present date in the point 7 below.

The 200 month MAs are moving together during the first few years, afterwards the gold/silver 200 month MA continues up for a few more years. Then in 2004 the gold/silver 200 month MA turned down and reestablished mirroring the Forex 200 month MA. This continued until 2011 when a MAJOR breakdown occurred from the previous 40 year history of this two trends mirroring each other more or less. As of this writing these two trends have not reconnected. This leads me to the heading of this paper, a possible solution to the precious metals manipulation.

But before we get to this, let’s outline where we are at this point in time. Make no doubt about it, the powers to be are still 100% in control, 2011 stands as verifiable fact, that they are going to do anything to stay in power and control over the Forex market. However, they have already allowed a very clear Plateau Shift in the gold market, this to me is confirmed. This is very telling show of their hand. As long as the status-quo continues, they can carry on this game for a long time to come.

Now as a possible solution to the precious metals manipulation, which to me is clearly linked to the Forex market management, this solution may be best expressed by a phrase such as FORGET THE GOLD BUY SILVER or SELL GOLD BUY SILVER. The first implying not to buy gold, or if you do, be more inclined to go more 50 / 50 from now onwards. While the second too clearly sell gold, current owners, and buy silver. The second option would most likely be the fastest and the first not as fast but pretty much the same results in the end just taking longer. SILVER is the key to the precious metals manipulation. The powers to be focus on it because it is the cheapest cost, period. The market should do the same thing and focus on it because it is the cheapest and 100 % sure bet to break the back of the powers to be. In first option, gold may go down a bit at first, but when the powers to be see what was going on, they would let gold loose very quickly to follow the silver rocket, which they would lose total control of.

In concluding, there is a mountain of facts and statements that could be made about the precious metals manipulation. But, I do not believe a book is necessary. It would however be better to suggest anyone who touts gold without recommending a minimum of 25% purchase of silver, of the total value intended for precious metals at the same time, is doing everyone a disservice. Also, these same touts should stop brother with outrageous predictions without doing the same for silver. This metals manipulation will not end until the market focus on the SILVER market. FORGET THE GOLD, it will follow the silver, guaranteed. THE POWERS TO BE KNOW THIS, AS THEY HAVE NO CHOICE IN MATTER. That is why they focus on silver themselves. If silver get away from them this game is over. FORGET THE GOLD.

***

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

billhilly
Apr 21, 2017 - 8:56pm

My questions...

Pining,

Thanks for putting this together. Here are a few questions.

1. Where is the source for Van Eck making this announcement ? I have searched high and low and cannot find "Their" announcement.

2. If they have so announced this then why have THEY not also offered forth these lists of changes ? Again, these lists that show up are NOT from Van Eck (that I can see). The "lists" are from third party sources who are "estimating/guessing" the names and quantities. Is this reliable ???

3. If the issue is too much money flowing into the fund, why would they need to sell shares of the Juniors to make room for Mid/Large caps ?

4. It is my understanding from reading the articles listed, and others, that the main issue for them is that they are bumping up against the 20% ownership limit in many of the Juniors they already own. In Canada this brings into play other regulatory concerns. So they need to not ADD to anymore of their positions in these particular companies (keeping their ownership % under the threshold) but why would they need to SELL ?

5. If my understanding is correct, the "Authorized Participants", AP's, can bring money into the fund in two ways (maybe more); 1. Cash, 2. shares of the miners themselves. Why would they not mandate that the only shares eligible to be introduces by AP's be shares of the "ADD" list ?

6. The biggie, if true, why would this get "leaked" before the apparent June reorganization ???? If this has been leaked then they have just set themselves up for huge liability, I would think.

I am having trouble with the line of speculative thinking that has been presented out in the media. So far, it is just a few speculative source articles (not direct from the company themselves, Van Eck and/or Direxion) that leave me questioning the truth of the entire path being laid out.

Not trying to be a pain here, just questioning the narrative . Thanks for the great effort, and any response(s) you might share.

djr66
Apr 21, 2017 - 8:30pm

My Theory...

I think you may be overestimating the impact of this rebalance on the total demand for junior mining shares. People invested in GDXJ because they wanted exposure to this sector which is highly leveraged to the Price of Gold. If they cannot get this exposure no longer from GDXJ, they will look for alternatives. Smaller pure play funds will likely see a significant increase in inflows. But I think when it comes to instutional money this may largely be a wash. Let me explain.

My theory is that say you are an institution and you hold $1 Million in GDX and $1 Million in GDXJ. You will still want to have the same exposure to the junior miners after the rebalance as you did before for diversification purposes. So the solution would be to sell maybe half of your GDX and put that money into GDXJ. At the end of the day it would give you roughly the same exposure to the underlying components as you had before. Therefore I wouldn't be surprised if GDXJ gets a significant increase in AUM at the expense of GDX.

el_duderino7885
Apr 21, 2017 - 7:29pm

GDX??

Does this mean the GDX is safe for now?

if so wouldn't there be a rush of GDXJ investors moving in to the GDX?

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