Summary
- Despite post Labor Day sell-off in precious metals, junior miners maintain
uptrend.
- The junior miners are usually a leading indicator. Is this outperformance
forecasting an inflection point for the precious metals?
- Going into the overbought US equity, bond dollar and real estate market
is dangerous, while precious metal stocks are trading at pennies on the dollar.
- Major generalist funds may soon enter the precious metals market as QE
ends. A large cash position is waiting on the sidelines.
- US dollar rally may not last as QE expires. Inflationary pressures could
pick up.
This past week I have had to cut back on my publishing due to my travels to
the Precious Metals Summit where
I had back to back meetings with some of the top fund managers, investors and
over 30 of the highest quality junior miners. I was able to get updates in
person of current and past holdings as well as potential new first class opportunities
with huge catalysts ahead.
The Post Labor Day rally in precious metals I expected has turned into the
Post Labor Day sell-off for precious metals and many mining stocks. Many investors
came back from Labor Day and sold their gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV)
in favor of the U.S. dollar (NYSEARCA:UUP). This could be the worst possible
trade right now. This could be the shakeout before the breakout in the precious
metals. Generally this is a seasonally strong time for gold and silver. We
may bounce off new lows below $1200.
Despite gold testing new lows, the junior miners (NYSEARCA:GDXJ) are still
in an uptrend since December of 2013. Is the outperformance of the junior miners
indicating that gold may bottom here around $1200?
There is no doubt about it we are in the midst of a major low in gold and
silver after one of the longest bear markets since Bre X. Gold and silver are
testing lows at $1200 gold and $18.50 silver. It has been extremely painful
bear market with many of these junior miners which were trading at $10 are
now worth $.10.
However, the major funds and miners were well represented in Denver meeting
with the juniors and have not given up. Merger and acquisitions are increasing
with many recent deals at attractive valuations. Remember the producers are
under pressure as they have to cut back on high cost production and are looking
for lower cash cost resources in the junior mining sector.
Recent valuations of M&A transactions gives us a benchmark in analyzing
future investment opportunities. Remember Cayden was very early stage and did
not have a resource. They just had exceptional drill results. That is why I
do not ignore early stage explorers trading at less than 1/10th of recent M&A
valuations.
I will be carefully digesting some of those ideas I gathered in Denver both
on the markets and the miners and share the findings with my premium
subscribers over the next few days and weeks.
The time to buy and research the highest quality assets are during these sell-offs
when the gold and silver charts get aborted and as support is violated. A break
into new lows may set off a margin call where the price could move down rapidly.
At that time some of these companies should be bought and not sold into the
panic. Capitulation and when the sentiment is extremely negative is when the
best buys can be found. Look for major capital to come into these situations
after the weak hands are shaken out.
Investors expectations about the US recovery may be overblown. The US dollar
is strong now because Europe is very weak now as they are in a major conflict
with Russia over Ukraine. The US Dollar is being bought as a purported safe
haven temporarily as investors expect the ending of QE.
Capital should eventually transfer from overbought equity and bond markets
into commodities and precious metals. This has not been seen yet and I may
be a little early, but history is on my side that hyper-inflations follow deflations.
Better early than seconds too late.
Most of the investors and companies at this conference were the high quality
survivors during the bear market that are still able to raise capital despite
gold correcting more than 30% over the past couple of years. These winners
tend to be the biggest winners in the coming bull market. These discounted
valuations in the juniors have not been seen in the history of the junior markets.
The smart funds, major miners and high net worth individuals attended as the
strategy may be finding the best stories that will not only survive but come
out stronger after the final low in precious metals is formed.
The precious metals are in the longest bear market since Bre X. The US dollar
and S&P500 are irrationally overbought. Gold and silver may once again
test the 3 year lows at $1200 gold and may break that support causing a panic
sell-off which ends in capitulation.
A flush out could be coming to mark the extreme bottom and turning point in
the precious metals bear market. This is the best time to have a roster of
high quality juniors with strong treasuries, excellent assets, management with
track records and clean share structures.
Don't panic as this is when some of the smart contrarian money will buy these
real assets for even more pennies on the dollar then what they are trading
at now. Look at 2009 after the credit crisis when so many people walked away
from their homes only to try to buy back in at much higher levels. Don't get
sucked into the US Equity and Dollar euphoria as investors forget about the
risks of all the printing of this money. Don't sell out your junior miners
for pennies on the dollar at possibly the worst time.
Remember this is the longest bear market in the juniors since the Post Bre
X 1997-2001 debacle. The sentiment may be at the point of extreme capitulation
causing a panic sell-off. That is why the smart money may be ready to pounce
on capitulation into the highest quality juniors. The extreme negativity when
there are only sellers usually marks the bear market bottom.
