Portfolio – “J-perps”

January 21st, 2018

“The modern mind dislikes gold because it blurts out unpleasant truths.”

— Joseph Schumpeter

Another half year has gone by since my last J-perps update and not a lot has changed with the J-perps.  They’ve gone up exactly 1% which is blowing nobody’s socks off.  They’re still soundly blowing away the Watchlist and the Competitors

Bitoin in the meantime surpassed the $20,000 mark(intraday) for a single coin at one point last month and now sits at a cozy couple hundred bucks under $12K/coin.  I bet you true goldbugs out there are just crying in your beers over that price.  “Those shoulda been our gains!  Why hasn’t gold gone up like Bitcoin?!  Manipulation!  The banks!  WHYYYYYYYYYYYY!”  Shake your fist at the sky.

Fear not precious metals investors.  It does feel like a positive turn could be coming in 2018 but I wouldn’t start counting any profits just yet.

We all know gold and the buck tend to run counter to one another.  It ain’t a perfect relationship, but it’s fairly reliable.  And with all the positive gold sentiment I’ve been seeing across the internets web, the dollar appears ready to add a little rain to the goldbug parade.

The dollar appears to be forming a megaphone that may have a negative impact on precious metals if the pattern plays out.

USD Megaphone Amplitude (Jan. 2018)

Not that I believe in or purely trade on patterns derived from price action any more.  The efficacy of technical analysis has been arbitraged away by the mathematically apt.  That’s the world of trading now and it ain’t ever going back to the way it was.  Sorry.

None the less, for the past three years that support line at the bottom of the megaphone has held.  If it holds here, we could be seeing a multi-month move upwards in the dollar in 2018 and the probable effect on gold prices would be negative.

The USD rose 6% across a 7-month move in 2015.  Then in 2016 we saw a 10% rise across 8 months.  You can see the magnitude of the last two up-moves.  The 2016 move needed to be approximately 60% bigger than the 2015 move to reach the top of the megaphone.  If the USD acts similarly in 2018, a move 60% bigger than 2016 would take the USD up again to the top of the megaphone around 105ish.

It doesn’t seem like a likely move but you have to weigh all probabilities in your analysis.  Following the same logic as above regarding increasing magnitude, a 12% correction in the USD could mark the short-term bottom, which happens to also fit nicely on or just barely under the megaphone support-line.

Another possibility would be a breach of that megaphone support-line before making a run upwards.  The last two major corrections in 2009 and 2010 weakened the dollar by approximately 15%.  That would put the dollar around 86 if the same pattern followed.

Again, blindly allocating gambling money based on patterns you perceive is the same as just giving your money to the quant traders, who possess the true skills in the market.

Potential USD Support (Jan. 2018)

Now if the dollar spends 7 or 8 months climbing upward in 2018, the negatively correlated relationship with gold doesn’t have to be maintained.  Since 2008, there have been several little 2-month windows where they move together.  Hell, in late 2009 and the first half of 2010, gold and the USD spent 7 months rising in lockstep.

Gold and USD Not Always at Odds (Jan. 2018)

Could we see the same in 2018?  Stay tuned.

A rising USD would affect many asset classes, not just gold.  This specific page is about junior precious metals explorers/miners.  I leave the interpretation and the elucidation of the reserve currency’s impact on other asset classes besides gold to better minds.

J-perps have been flat since June.  You can see that Ivanhoe Mines is still the big dog of that portfolio.  I continue to salivate over it’s three primary assets as all three have the potential to be the most profitable mine of their respective metal.  If commodities ever truly get cooking with inflation, the repricing of Ivanhoe’s share price could be fairly spectacular.

The Watchlist made a huge jump from a 14% cumulative gain as of June 2017 to a 41% cumulative gain as of this month.  The gain is owed entirely to the madness in Novo Resources.  It’s been a mad ride for holders of that one as gold fever took over for second regarding Novo’s assets.  We’ll see how that one continues to play out.  Look for the possible round-trip back down to a dollar and a half, though.

The Competitor list might as well be flat with its 7% cumulative gain.  It shouldn’t be an out-performer based on its make-up but the performance of all those equities and ETFs bear watching in the sector.

Please remember, the J-perp portfolio is an experiment in extreme sentiment that could prove to be very interesting over the next 12 to 36 months. If you haven’t already, have a read of my original article for the why and how on J-perps.

Junior Precious Resource Players (“J-perp”):

J-Perps (January 2018)

J-perp Watchlist:

J-Perp Watchlist (January 2018)

J-perp Alternative Investment Options:

J-Perp Competitors (January 2018)

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