Rocks & Stocks: The Time is NOW to Buy Mining Shares
The time to buy shares of mining companies is now, meaning the first half of December. This is bargain-hunting season.
Every year, in late November and early December, share prices consolidate. Many company valuations find a year-end floor.
As I’ll explain in a moment, this is your opportunity to pick up great names at a discount.
In 2021 I expect a January rally for precious metals, supplemented over the year by a general rise in the value of gold, silver and other hard assets.
This is all but cooked into the macro-picture for gold and silver, probably platinum group metals too. Meanwhile, copper and several other base metals should do well.
Plus, we’ll see great moves for technology metals, which may be a new term to you. It means elements that are critical to batteries, electric cars, electronics, complex defense equipment, aerospace and such.
The point is that there are big moves coming for stocks that deal with rocks. And definitely, you want to position yourself.
Let’s dig in…
First, let’s look what’s “cooked in” for gold, silver, etc., as I mentioned above.
Look back at broad market indices over the past month or so since election day.
In general, the dollar index ($USD) slid, as did the price of gold ($GOLD). Meanwhile the Nasdaq ($COMPQ) and Dow Jones average ($INDU) rose. Here’s the chart.
Dollar, gold, Nasdaq and Dow, via StockCharts.com.
I won’t get into the technical weeds. But suffice to say that broadly, stocks rallied post-election.
Perhaps it’s the market expressing a sense that political risk is reduced (if not resolved), despite President Trump’s ongoing challenges to the vote count in half a dozen states.
Then again, many sectors are up on news relating to COVID, and/or a vaccine against COVID. For example, biotech, Big Pharma, even energy have seen nice moves.
At the same time, though, the dollar index fell. That is, individuals, funds, institutions and even entire nations have moved away from dollars.
And curiously, gold moved down in the past month, too.
Usually, a weaker dollar is good for gold. That is, gold usually trades inverse to the strength of the buck: dollar down, gold up.
But not in the past month. So I asked my colleague Dan Amoss about this.
In a long, thorough reply, Dan said, “The fundamentals behind gold haven’t changed. The closest macro driver of gold in the short term are Treasury Inflation Protected Securities (TIPS). If we were to see a sharp crash in TIPS, as in late 2008, and early 2013, I’d be more concerned. But we’re not.”
In Dan’s view, gold’s summer 2020 upwards move outran TIPS. And the recent correction just brought things more back in line.
The gold pullback is more of a reset, in preparation for bigger moves ahead.
Dan believes that U.S. Treasuries — the “paper” so to speak that finances the government — have lost most of their portfolio hedging benefits because current yields are near zero percent.
According to Dan, “Institutions will be forced to consider TIPS and gold as superior risk/reward alternatives. Ultimately, I see most of the no-interest, no-upside, high-downside Treasury market as being held by the Fed, and by financially repressed U.S. banks, which will look more and more like government utilities.”
In other words, low interest rates on Treasuries have killed investment returns across an entire whack of traditional parking spots for big volumes of money.
The Fed and big banks are obliged to hold Treasuries, out of the necessity of being so closely tied to the U.S. government. They have no choice.
But for many other investors and institutions, Treasuries are a hard sell anymore. There’s no meaningful return and considerable downside risk.
Hence, per Dan, quite a bit of investment money will begin moving to TIPS.
On the more speculative side, a large amount of money will likely move to gold and related mining shares.
It makes perfect sense… We’re setting up to see large amounts of investment money move towards TIPS, as well as gold, and by extension to royalty plays, big miners, intermediates and juniors.
Now, permit me to give a plug to Dan’s newsletter. He works with colleague Jim Rickards on the Gold Speculator newsletter, which I used to edit.
(Note: I left Gold Speculator about a year and a half ago for personal reasons, to move to the Whiskey & Gunpowder scene. But I’m still plugged into the junior mining space, focused on gold, silver, etc.)
Jim Rickards takes a macro-approach to gold, while Dan Amoss fills the investment angles with ideas ranging from large and intermediate cap mining companies, to promising junior miners.
You can find more information on the Gold Speculator newsletter here, along with subscription information.
As I mentioned, the macro-setup for gold, etc. is shaping up. But we’re also in the year-end doldrums for a long list of mining plays.
A big reason for these doldrums is called “tax loss selling.” It happens every year…
Obviously, mining company shares go up and down.
Then traditionally, about late November/early December, many holders sell winners to book gains.
Meanwhile, many of those same players — people/institutions/etc. — sell shares in other companies to book losses and balance against the gains.
The idea is to lock in profits towards the end of the year. Plus, do some housekeeping that moves losers out of the portfolio before the New Year. (And often as not, buy them back in January.)
So every November/December, many well-run companies experience a share price selloff, simply because people are locking in gains and taking money off the table.
At the same time, in many cases there’s nothing wrong with the company. It’s just that some shareholders want to move to cash.
And this holds opportunity for you… You can buy some excellent companies and funds at relatively lower prices.
Of course, some companies that sell down deserve it. Perhaps they just aren’t all that good, in terms of the geology, management team or development process. They’re not going anywhere.
But the idea here is to find companies that are sold down yet have great assets in terms of geology. And strong management teams.
And indeed, companies may have delivered excellent results as the year unfolded.
But “life isn’t fair,” as former President Jimmy Carter once noted.
And the junior mining space is fickle, which can translate into opportunity for investors.
As I’ve said before, Whiskey is not a portfolio newsletter. We don’t make formal investment recommendations or track names here. There’s no ongoing buy-sell commentary. That’s for the paid newsletters.
But I can give you a few ideas…
First, if you’re not familiar with the mining space — let alone the junior mining space — I assure you that it can be a rollercoaster ride.
Next, if you don’t want to get into stock-picking, I like two professionally managed funds that track the gold/silver space.
Both are run by Sprott of Toronto, which has been in the precious metals business for many years.
For exposure to the large cap side of the gold space, look at the Sprott Gold Miners ETF, which trades on Nasdaq under the symbol SGDM.
As the name implies, SGDM deals with big names like Barrick, Newmont and more.
For exposure to a well-run group of junior mining plays — much smaller companies than the above-mentioned Barrick, Newmont, etc. — I like the Sprott Junior Gold Miners ETF, on Nasdaq at SGDJ.
SGDJ holds a collection of junior players with less familiar names, but the Sprott team is there to keep an eye on things for you.
In a rising gold/silver market, both of these Sprott ETFs should do well. In fact, I’d add, any good stretch for the juniors will actually well-outperform the large cap guys.
Either way, though — with one or both of them — you will be in the proverbial boat that rises with the golden tide.
I have other small cap ideas as well. But as I said, Whiskey isn’t a portfolio letter.
If you’re interested in a collection of high-quality, small cap names though, let me refer you back to my presentation at the Sprott Conference in July.
That presentation contains a link to a video on You Tube, or just go straight to it, right here.
Skip the introductory commentary if you wish… Jump to 21:15 where I scrub a list of small cap ideas.
Again, I won’t track these plays here at the Whiskey bar, but I have covered them closely and I continue to follow them.
The names on that list are companies that have what I like… Great geology, great management teams, and promising exploration or development models.
As I’ve mentioned in other Whiskey notes, I expect that the dollar is doomed, sooner or later.
Gold will preserve wealth over time, and mining plays are derivative of straight-up gold.
On that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Managing Editor, Whiskey & Gunpowder
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