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Why it’s Still Buying Season for Gold and Silver Mining Stocks
Every Precious Metals investor knows about the typical summer doldrums that usually afflicts the Gold & Silver sector as summers are typically poor performance months. However, this summer we were hit with a steep downfall earlier than in most years in April and early May, so there is a distinct possibility that despite gold and silver mining stocks normally waiting until late August to put in a bottom, that the bottom may already be in. I expect the second half of 2011 to produce a very significant rally in PM stocks, given the ongoing disaster that is the EU, the ongoing US debt problems, and the development of new PM futures markets in Hong Kong and Shanghai. If you look at the chart below, you will see that just a couple of weeks ago, on June 16th, the HUI Gold Bugs Index fell to a level comparable to the levels that existed on October 20, 2010 and January 25, 2011. On those respective days, gold was trading at about USD $1,324 a troy oz and USD $1,339 a troy oz. On June 16, 2011, gold was trading about 15% higher than its price level as of October 20th, yet the HUI Gold Bugs mining stocks were trading at a price level that was no higher.
Given the history of gold mining stocks’ performance being leveraged to the upside, many a commercial industry analyst declared mining stocks dead at this point, although at SmartKnowledgeU, we declared them severely undervalued, specifically because we believed Western banking interests were manipulating the PM stocks downward at this point and because fundamentally the best gold and silver mining stocks were still very sound. See our article here called The Surprising Truth About the Volatility of Gold & Silver Mining Stocks for some further analysis about the volatility of gold and silver stocks. In the below chart, you can see that we guided our CIO investment newsletter members to use this volatility for profitability as we instructed them to sell out of the gold mining stocks near a short-term high in early April and then guided them to buy back more shares of the same mining stocks at a lesser price in mid-May.
I’ve written many times in the past about the low utility of technical analysis when analyzing gold and silver assets if one does not also take into consideration Western banker manipulation of these assets. To understand this truth further, please refer to this article I wrote earlier this year called “Technical and Fundamental Analysis Fall Woefully Short When Assessing Manipulated Markets”.
If you look at the same simplified, clean chart of the HUI Gold Bugs index again below, you can see that a technical “death cross” sell signal originated around June 24th last month. In response to the “death cross” sell technical signal, this is a portion of a detailed commentary I sent to my Platinum members on June 24, 2011. The death cross, “in many the mind of a chartist, is supposed to trigger an immediate steep decline in said stock or index. I've written many times before that understanding the fraudulent activity in mining stocks is much more important to predicting the immediate price behavior of mining stocks than technical analysis.” Thus, I told my Platinum members to disregard the death cross event because it was of little significance. Then on June 27th, when the fear was palpable of a larger sell-off in the mining stocks because of the one-day plummet in the HUI that accompanied the death-cross event (indicated in the above chart), I told my Platinum Members that instead of panic-selling, to get ready for a significant rebound. I told them “I believe that since we re-tested the most recent lows, and that level held, that the short-term bottom for mining stocks should be in.”
Back then my view was the contrarian view among technical analysts and not the consensus. Back then, many analysts spoke off impending doom in gold, silver and PM stocks, with some even stating that gold and silver were ready to "fall off a cliff". Despite the fact that serious gold and silver investors knew the "fall off the cliff" prediction was very unlikely, the average investor that has never invested in gold/silver assets was likely to be fooled by this mainstream commentary. Even with the recent very strong recent performance of gold and silver mining stocks, we believe that this is just the beginning of what will be very significant returns in PM stocks over the next 6-9 months. We also believe that the many Commercial Investment industry analysts that declared the upside leverage of PM stocks as dead as of mid-June to be 100% wrong. We believe that the upside leverage of PM stocks to the underlying commodities of gold and silver will manifest itself very strongly again in the near future.
If you refer to the first chart above, even with the very strong recent move higher this week in PM stocks, you can see that the HUI Gold Bugs Index closed at 565.11 yesterday, a level comparable to where it stood on December 10th, 2010. On December 10th, gold traded at $1375.25 a troy oz. Yesterday, gold closed at $1583.60 a troy oz, a 15%+ premium to its price on December 10th, when the HUI Gold Bugs Index was trading at the same level. Thus, even with the strong recent move higher, one can still make a strong argument that that gold (and silver) mining stocks are still greatly undervalued even as of today. We’re not saying that the PM stocks may not take a breather shortly with its recent strong move higher, but we are confident that the upside for the rest of the year for the best in class gold and silver mining stocks is still very significant.
For more expert insight into gold and silver markets and specific gold and silver stocks, please come visit us at SmartKnowledgeU
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About the author: JS Kim is the Managing Director of SmartKnowledgeU Research, a fiercely independent investment research & consulting company that offers a subscription Crisis Investment Opportunities newsletter that is now available for the first time on a monthly as well as an annual membership basis. To learn how to download a couple sample Crisis Investment Opportunities newsletters for free, please click on the above link. Just click these links to follow SmartKnowledgeU on Twitter and to "Like" us on Facebook.
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Gold and silver mining is a tough and risky business. Environmentalists stall and halt US mining projects continually. Foreign governments welcome mining companies with open arms then 'nationalize' their mines the moment they begin producing.
I bought Sterling Mining nearly 30 years ago for a song because they had mothballed their Idaho mines. The price of silver was too low to keep them open. I thought it would be a temporary condition, but I saw the price of silver go as low as $4/oz and stay low for decades. Sterling Mining was still a viable stock, however, until silver recovered to more than $20/oz. They went bankrupt just as silver started soaring. I still don't know how that's possible.
So much for silver miners...
The problem was/is the strategy of buy and hold.
Its gone now - the banksters have seen to that.
i'm going underweight in my gold stocks and waiting for the right time to move that wad into physical.
As martin armstrong says ... somethings up.
I was going to dive straight in ... not just yet.
Very interesting take-and the trade I took the opposite on, today.
It is going to be very interesting to see some of the silver miners' earnings reports for the last quarter....I expect blow out numbers from one that I own. Another one actually has a negative number for its cost of silver due to the bi-metals produced and sold with the silver.
Thanks, nice analysis.
If 2011 is a repeat of 2010 as Tyler likes to say, the PM mining stocks should catch up to the physical metals this Winter.
I'd look to September, and any October scares in equities to usher in massive QE3 by any other name than QE, which will also lift PM's and stocks.
Seems that most PM bulls think that as soon as $1600 is taken out that $2000 will follow immediately. They fail to realize that Bernanke is STILL in control. He's going to end the Ponzi scheme at some point but not quite yet.
I also find it interesting that as soon as gold hit its new high my inbox was filled with soliciting emails from bullion dealers saying, "Gold almost to $1600 buy now!!!"
Don't you buy on weakness?
Once the debt ceiling deal is agreed upon, the poor economic data and decrease in inflation will take the wind out of the sails of PMs. Like ZH has pointed out on a number of occasions, equities, commodities AND PMs will trade down leading up to QE3. Simple point is they have to. With the Eurozone falling apart, investors will have [temporarily] renewed confidence in treasuries. A strong[er] dollar with the threat of deflation will have Wall Street and Washington begging for QE3.
There will be one FINAL dip in PMs. Once QE3 is announced we go all in on physical and PM miners.
i agree on the QE3 dip! buy, Buy!, BUY!!
Gold and Mining stocks NEVER PAY! Never is an over exaggeration.. but they dont.. the monies earned by which ever miner are bled off at the Corporate Bonus Level.. or in some new purchase of land that was a flip from the Chairman of the boards nephew.
Mining stock suck! and if the government needs for some reason to start providing money that is not Paper.. then you are screwed in long term litigation going forward for an amount that will not be anywhere near market value.
So, they suck and they suck and did I mention? that they fucking suck!
Sometimes miners outperform Gold and sometimes they don't. If you cannot determine if a miner is undervalued then yes - buy the metal since you are too stupid to learn. However if you have half a brain, play both. Raise your miner exposure when they are undervalued and sell them to a neutral position when they are fully valued. Same for metals. Right now, miners are way undervalued and eventually they mean revert. I will always hold both, but right now I am adding miners over metals.
Is OpEx week an abbreviation for mining stocks=Opportunity Extravaganza?
It's that time of the month again when you should all be asking your favoured gold digger "What's your call/put ratio?"
The 16th! Are you expecting some sell offs so that a lot of people's options contracts tank, or expire worthless? Wouldn't be the first time, right?
...somethings never last.
"Are you expecting some sell offs so that a lot of people's options contracts tank, or expire worthless?"
Must be a recurring coincidence; 1<ratio<1?
Buy all the Gold and Silver miners you can now. The short miner/long PM trade broker down about three weeks ago. Usually, the miners then play catch-up for several months. Best time to buy was a year ago, and then last month but there is still a lot of room for these to go up. I like being 50% in physical and 50% in the miners. Silver miners are especially attractive right now. SLW is a great miner, but I also like CDE. CDE is extremely undervalued and they invested heavily in new production that is now all "online". Their production and capacity may end up eclipsing the others because they spent on new fields when Silver was in the tank a few years ago. At the time, it killed the stock but soon investors will realize that the payoff for all that investment was well timed.
"Thus, even with the strong recent move higher, one can still make a strong argument that that gold (and silver) mining stocks are still greatly undervalued even as of today."
Or, that gold and silver mining stocks are always in the crosshairs of the same bankers who have suppressed them all along and have a great interest in bleeding suckers who buy them dry? Not saying I know, just wondering.
More paper, please.
Here is a good one -
http://stockcharts.com/h-sc/ui?s=KAM.V
The leader in the New Klondike Gold Rush...
Please, I would like a Platinum Member
Prepare to pay a lot.
Dont we all?
I've noticed that in the actual PM markets that when the MACD crosses to the negative, that day is usually the bottom, and if not, it comes closely in its heels. This time around it ran out another week or so for a major head fake, but I stuck and it came back,... in spades.
The MM can manipulate things around for awhile, but not for long much less forever.
PLad, happy to see you and the girls.
We thank you - and fuck the junkers!
How true. I wish more people understood this.
Your statement applies equally well to all assets. It is not a market on that chart of yours, it's a game designed to get you to grab ahold of one end of the rope, and then drag you through the mud.
Technical analysis is important, because it is our eyes and ears, something which measures reality. We make decisions with our brains, not our eyes. Technical analysis cannot make trading decisions for us. You have to know the scam before you take a trade, and technical analysis won't teach you the scam.
All your work is very impressive. Keep it up
I plan to put funds to work in the PM stock, hopefully to capture a run similar to the '70's when shares increased by 1000's of % - but my fear is what will happen to them when we get a major market correction?
Thoughts please on waiting until after the correction to buy in.
I would respectfully suggest that it might be a mistake to think you--or anyone else--can can call a bottom or top consistently. I know it's not sexy (did I really say that to you?), but it might be better to have some money in these shares now if you don't want to miss any major moves to the upside.
Ancient Chinese proverb say...
'Man who try to pick bottom... get smelly finger.
Ah so'
Research some companies, make a buy list, and wait for market sell-offs. Bullion Bulls Canada has some good articles "How to make money on the miners parts I II III" is a good place to begin. BTW: the manipulation of the shares is a good thing as it means you can buy stocks as if the metals were trading at pre-2007 prices in many cases.
They get you to trade on emotion. So whatever emotion you are feeling, it is usually the wrong one. If you are exuberant on NFLX then its probably time to sell your shares.
If you are worried about your $1b gold exploration company (Seabridge)'s stock plummeting from $34 to $24 it is probably time to buy call options. The stock is now at $29 something, and I made a respectable 70% in three weeks.
Seabridge, yuck.