Gold in Brief:
We’ve been on hiatus for some time now. The last thing we did was make a call that gold was headed to $1700.
In fact, one of our writers, Vince Lanci, stated in a kitco interview with Daniela Cambone that the trade was to short BTC futures and buy gold on a dollar neutral basis. That has worked out well. So we circled back with him for some insight:
SK: Did you buy Gold and short BTC futures as you said in your mid December interview?
VBL: I had already been long gold as a long term physical trade and did add to the position above $1300 for a shorter term trade. I never had the nerve to short BTC personally, and that is my loss.
SK: you reiterated your call for gold to go to $1700 after we had posted to that effect here a little earlier. But you also said to Dani that you were holding back. What is your real target?
VBL : over $1900.. but it is dangerous to make crazy calls. There are lots of guys who do that for attention, they bank on the short term memory loss of people when they are wrong. I’m not a fan of sensationalism. So I’m happy with $1700 in next 9 months.There are no fundamentals for gold that matter when trading. It is emotion and money management.
SK: where did this projection come from?
VBL: it was based on a volatility system that is directionally agnostic.That system said in late October that Gold would not be in its then current range in 90 days.
GOLD- Out of the Range as predicted, But is it out of the woods?
SK: the VBS system?
VBL: yes. Volatility was cycling to a long term low. The system said that any trade below $1150 I think, or above $1305 ish should not be faded. That these prices signaled breakouts. Measured moves for trend continuation are then calculated. But, reversals are quite common in a violent way. The point of it all was that it would likely happen in the next 90 days, and it did
SK: But why higher? You called the low in mid December I think, and we were not touching your VBS buy levels. What made you bullish in the $1250 area when your own system hadn't triggered a signal yet.
VBL: In our interview with Daniela, I saw a “non-confirmation” of sorts in the $1250 area. That gave me comfort and I said as much that it was probably the catalyst to go higher. That could have been undone, but it gave a nearly indication for those who wanted to take more risk. And it did rally.. quicker than we thought actually.
[SKG EDIT- Here is to what Vince was referring from our dec 17 repost of a Street interview. Note the change in open interest during the 3 days corresponding to the white box in this daily chart of February Gold.
First, the action on the 3 days in question:
Here is the accompanying writing discussing the OI:
"On Tuesday we had a short covering rally. And Wednesday there was a 10,000 contract increase in December - that's very unusual, that is an over 2.3% increase in open interest," Lanci explained. The point Lanci stresses is that gold is now back in a "safe area" between $1,250-$1,275 an ounce. "The $1,700 call I believe in is going to come to fruition- [if gold gets] above $1,275 I will double down on a momentum bet."
SK: so Gold did rally nicely.. where to now?
Vbl: yesterday’s activity was option expiration and Trump jawboning. The macro trend is higher. If we can stay above $1330, then there will be little resistance between $1375 and $1400 or so.
Sources tell me there is a bunch of buying building up in the $1330 area. This is money that is chasing the market but lagging behind the price hoping for a dip. That money is the leading candidate to determine the next $50 move.
If this is true, 1 of 2 things will happen. Either they get impatient and go to market.. which will give us the spike to $1400 or so; or they get filled at $1330. If they get filled at $1330, you’d have to wait and see if the area gets penetrated on a weekly basis. If it does, Sellers will start to come in.
I guess the play here is to start selling if you are long on a $1400 print. Conversely, expect profit taking as well on a penetration of $1330 on a weekly basis. That is what the bigger funds that are trading the market are likely to do.
Sk: and what of $1700?
VBL: I just laid out the next week or so from my point of view. If we break $1330 then I’d expect $1300 will be catalyst for more sell stops. Then you play from the short side a little or wait until another non confirmation type event happens and get long for the bigger rally.
Remember I'm talking about $1700 in 9-12 months. A lot can happen in between..
SK: and Silver?
VBL: late to the party as you can see. That always worried me when silver doesn’t lead a rally. It’s a sign that people are buying it now relative to gold because “it’s cheap” and that never works. It’s also frequently that allocators are running out of money and are buying silver instead of gold. Like an overbought thing. That doesn’t mean the 2 metals couldn’t take turns rallying.
But for me to take notice of silver as a leader it would have to get above that $1850 area where producers hedge. It has failed 2x there in last couple years. We’ve discussed and called that correctly in this blog. That is, if people have the patience to look back at the considerable work you and the other guys have put into this market giving insights. I’m just one of several.
SK: thanks. Will you be contributing again for our group soon? We miss you and can only write about Trump so much..
VBL: yes and I apologize. Have been working on a couple projects. One involves a new fund I’ve been asked to manage. Specifically, an actively managed short term gold and silver trading vehicle. Have a couple commitments and am sure we will be profitable. But we need to re-establish my track record before launching for bigger money..<laughs> despite 30 years success in Gold and Silver.. ironically my biggest successes have been in energy. In 2007 my group generated something like $90mm for an investor off a $10mm investment. But that wont happen again. So the investment world wants to see some fresh metals traction now, as they should.
SK: What is the concept behind it?
VBL:This is going to be a very short term trading project that capitalizes on the false volatility that algorithms create. We will be in cash at end of the day. Algos are in trouble and now feed off each other front running themselves. We will capitalize on that.
This fund will use volatility to generate short term directional trades with low correlation to down moves, and basically capture the first $20 of $50 moves higher. It is intended to compliment the physical holders who want something that captures the short term explosive moves without worrying about overnight tweet or macro risk related retracements. Basically use macro bias to generate short term trades and be 100% cash daily to start. Let's face it, ETFs have destroyed passive metals funds reason to exist. But just buying and holding Gold is not as good as using simple risk management systems to mitigate downside risk. That's what we are doing, trying to anyway. Give passive holders something that adds value to their returns without just writing calls as the industry wants them to do.
SK: so what you discuss with us but with real money! Cool. . Will we still get insights?
Vbl: absolutely! I can’t walk away from the caustic writings of my fellow “sh -t stirrers”. And many of my calls in this blog are backed by trades in my family fund. May be limited by cftc rules but no position we hold will benefit from discussing an opinion. Big managers do that to create exits for their massive positions. Basically they lie to create their exits a lot. Maybe a newsletter to investors would solve the problem.
VBL: a website has approached me about writing for them on metals. I’d consider it if it didn’t get in the way of the fund project. But the site has a couple smart people running it and Gold is just one piece of their business. They’ll be writing about the second amendment, politics and other stuff. But it is going to do well. Kind of like a site for the middle class with a libertarian leaning. But they have money for exposure. And I’d still be able to write for you guys and at zerohedge. So that’s a plus.
Original post calling for $1700 here
SK: Final thoughts?
VBL: if you are thinking of buying here keep $1330 and $1410 as your stop and targets. If you are long physical looking to boost your returns, don’t sell calls, but consider specing long if we get below $1275 again with a tight stop. Finally, as long as the market is above the yellow line in the included chart here, long biased funds will defend their positions. Below that line and it’s time for them to sell. And note when a big player sells into strength, like Soros or Druckenmiller. That is a sign to bail. Next $10 may be higher, but more often than not, next $50 is lower when they sell into strength.
VBL: My pleasure
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