The commodity equities are selling off as The Fed halts QE3. However, we are
reaching oversold levels and support areas where short covering could soon
begin. Commodities, metals and the junior miners are hitting multi year lows
and falling below 2008 credit crisis levels. This crash is not based on fundamentals
only on an artificially inflated dollar due to Yen and Euro weakness.
This is not a time to panic but continue to accumulate as the bear market
may be reaching the final capitulation stage. This decline may be a sign that
the quantitative easing may have lifted stock market indices, but it did little
to improve demand and growth in the economy reflected by demand for energy
and metals.
For weeks, I have been expecting a major long term bottom in the precious
metals after major capitulation. The liquidation may have occurred this week
as investors sold out of panic and fear rather than take a look at the long
term fundamentals. Across the board many of the weak hands had to sell quality
assets for pennies on the dollar.
Smart resource investors expecting capitulation have had some of their bids
filled at ridiculously low prices. Fortunes are made by the brave who pick
up real assets when the majority is not interested in them. I expect a major
bounce at 2008 credit crisis lows and the 2003 breakout on the HUI Gold Bugs
Index at $150.
I just returned from the New Orleans Conference which was headlined by Alan
Greenspan the former Federal Reserve Chairman from 1987 to 2006. It is interesting
to note that Greenspan has become bullish on gold. He believes that quantitative
easing did not accomplish what it was designed to do. It helped lift the stock
market and stabilize the real estate market, however it fell short as the US
economy is not really recovering like it should have. Gold is the best hedge
against this uncertainty.
I happen to agree with him. Real estate values have jumped from overseas demand
and stock market indices are hitting new highs. Only a small fraction of the
US have gotten wealthier as the real economy continues to struggle. First time
home buying is at a record low.
Greenspan is continuing to warn about the Fed's exit from quantitative easing,
which I am quite concerned about as well. Look at the recent volatility in
the US dollar and treasuries. How long can this dollar rally last before creating
the next financial crisis? When the US dollar is moving parabolically higher
like a dot com stock I exercise caution as this could have drastic effects
on foreign exchange markets and international trade. The US economy is already
slowing drastically due to this rise in the dollar. The mining and oil/gas
sector have slowed down drastically and real estate sales are waning. The next
round of economic numbers including unemployment may be awful and QE may have
to be restarted.
The best way to hedge against this volatility is precious metals and commodities.
Accumulate during a bear market when these real assets are on sale. A turnaround
and V shaped reversal could be right around the corner.
Contrarian value investors should be looking at emerging junior producers
and explorers that are still trading for pennies on the dollar. Keep a close
eye on nuclear.
The uranium spot price has made a dramatic move higher as Japan begins turning
back on nuclear reactors and large producers such as Cameco announce production
declines. There is a lot of buying in the spot market and it should be soon
reflected in the performance of the junior uranium miners (URA). Look for a
breakout past $37 on the U3O8 spot price.
A town in southwest Japan approved the restart of a nuclear power station.
This is a sign that if Japan who suffered greatly from the Fukushima disaster
can turn back on reactors then the rest of the world should continue to build
newer and safer next generation nuclear reactors. Japan turned off the nuclear
reactors following Fukushima in March of 2011. However, nuclear reactors may
start coming back online in 2015. Japan's economy can no longer handle importing
expensive oil and gas. Nuclear is vital to Japan's economy and used to supply
close to one-third of their overall energy needs.
Don't forget that he US is the largest consumer of nuclear power yet produces
less than 10% of what it demands every year. For decades, America relied on
Russia to supply cheap uranium in the megatons to megawatts program. This deal
concluded at the end of 2013 and Russia could continue tightening its control
on uranium as a bargaining chip against economic sanctions from the West.
Smart money is buying small emerging junior uranium producers in the US where
demand far outpaces supply. There are very few conventional uranium mills in
the US. I am continuing to search for beaten down uranium assets in the Southwest
United States that have been ignored because of the artificially low spot price.
If the uranium price rebounds this area could become quite valuable. Right
now a little money goes a long way and large historical producing properties
can be bought for pennies on the dollar. In the previous uranium boom, the
value of these assets soared. This region could be a major supplier of uranium
to US utilities and help with the current supply shortfall in the United States.
Despite this painful market selloff due to the parabolic move in the US dollar,
some junior miners are breaking out of downtrends and breaking out on relative
strength charts versus its peers in the Junior Gold Miner ETF (GDXJ) or compared
to the TSX Venture.
I have found for my premium subscribers companies
with a lot of insider buying with smart billionaire investors. These are the
type of companies who can quickly change the landscape either through exploration
or M&A growth.
The junior gold miners have all been hit hard for the past two months as investors
fear the end of Quantitative Easing will bring about deflation. This irrational
panic combined with tax loss selling may mark a major bottom over the next
6-8 weeks. We may see a bounce off these levels after the panic gaps down.
Watch 150 on the HUI and 750 on TSX Venture. I feel we may be near a major
turning point in the entire resource sector. When you see some of the smartest
value investors buying stock in a junior gold miner, it makes one question
the record short position on the sector. Stay tuned by subscribing
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