Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The gold (GLD) and silver (SLV) price may be reversing over the next couple of weeks. The junior miner gold ETF (GDXJ) is reversing above the 50 day moving average and breaking above its recent three month downtrend.
When the huge cash positions waiting on the sidelines or taking profits in the equity market rising on low volume return to the ignored resource sector the gains could be huge. Already the volume in GDXJ in 2014, has jumped outpacing 2012 and 2013. On the other hand the S&P500 has been rising on light volume which is often a warning sign that the extended rally is getting exhausted.
This indicates to me that possibly the large institutions are accumulating the juniors after all the retail investors jumped ship. Prices could jump rapidly in the Toronto Venture Exchange where most of the legit junior miners are traded. These small cap juniors could gap higher as the major institutions are hardly exposed to the mining sector at all.
It appears that some of my charts are showing a potential reversal in the precious metals. Get ready for an incredible bounce higher in precious metals. Here are five reasons why.
1)Increased M&A in the gold mining space and equity investments in junior miners should tell you where the smart money is headed. Take a look at the recent Osisko deal where Yamana outbid Goldcorp for their Quebec mine as a recent example and a straw in the wind. Look at Gold Resource Corp (GORO) and Hecla’s (HL) increased investments in the junior space.
2)Gold and silver are trading way below their three year trailing averages which indicates that the price is way oversold and a major bounce is likely. Furthermore, gold is priced below production putting strain on future supply as miners mothball marginal projects.
3)The equity markets are too high reaching extreme overbought and speculative levels similar to 2007 before the crash. A correction in equities sparked by fears of deflation could spark the return to gold and silver as a safe haven as Central Banks may continue to push negative interest rate policies similar to what the ECB recently announced.
4)Gold and silver have been basing for three+ years and the junior miners have been in arguably a seven year bear market reaching historic oversold levels.
5)Watch geopolitics especially the Ukrainian-Russian and the Middle East situation in Iraq, Libya, Syria, Iran and Turkey. If tensions escalate it could send metals, commodity and oil prices soaring. Do not be surprised to see further chaos and increased violence as the U.S. pulls its troops out of the region.
Disclosure: I own physical gold and silver and many junior mining stocks which are not mentioned in this article.
