SD reader FW discusses today’s positive action in the mining sector, and shares our sentiments that the downside in gold and silver from here is minimal compared to the blast-off that will come with an official QE3 announcement later in 2012.

Mining Stocks Bounce Indicating a Bottom?

The mining stocks are catching a pretty strong bid right now.  They have been leading the bounce-back in today’s PM spot prices.  Silver bell-wheathers like Silver Wheaton are strong today, and mid-sized producers are getting a re-look as Endeavour Silver reported some nice Q1 results yesterday.  Heck, even the bloated HUI index is up.

Even though it sounds like a broken record, and even though we have drifted down still further from last week, the mining stocks have now joined the already positive signals coming from technical signals like the divergence of the advance-decline line, and the anecdotal indication of active bottom-fishing on reversal spikes we’ve seen in the last two weeks.

Markets frequently bottom with cascade washouts of capitulation.  But one of the artifacts of a massively manipulated market that is increasingly understood as such is the fact that if there’s enough capital looking for a home and safe harbor (i.e., BRIC+MidEast Central Banks, Asian money in general), that capital is willing to jump the gun and bottom-fish.  This is all the more probable when the counter-party risks to financial system exposure is rocketing higher.

As painful as the current correction is proving to be – especially for those holding PM sector equities over the last 2 months – today’s trading looks healthyI continue to see the downside in silver and gold from here as being tiny compared to the blast-off that will be upon us later this year.  More QE will be out in the open and the hoards of hedge fund zombies will be back, pushing the sector higher.  But after their arrival, I’m expecting the start of the next round of institutional buying and the start of the main part of “phase II” of the PM bull market, when the institutions start to enter the sector in mass.  To draw an analogy, it would be like 1995 for the tech boom of yesteryear, when the institutional money flows just began to ratchet higher.  This will all play out later this year.

Many in our camp have felt like up-chucking by now.  That’s normal.  But when fundamentals have only IMPROVED during this entire down move, it is indeed wise to be right and sit tight.  This pain is almost over.

  1. I should also note that the miners are especially useful to examine as a sentiment barometer for the entire PM sector.  The miners have fallen faster and farther in percentage terms than bullion.  The miners traditionally reflect intermediate- and long-term investor sentiment.  The despondency in the PM sector as indicated by the miners reached a level in the past week that was on par with the worst of 2008. 

  2. What are folk’s thoughts on owning some shares here as a way to “round out” a portfolio?  I’m a bit skittish about what money I DO have tied up in stocks in general, only because “who knows” what’s gonna happen with the markets overall when things start finally crashing out badly… in theory the stronger of these companies should remain, and assuming we eventually move to some kind of gold or bimetal standard for currency, they’ll be in a GREAT position, right?    Just curious what the thinking is on owning mining stocks vs phyzz (I’m all over the phyzz at this point) 🙂

  3. aragornsos, if you search through my previous posts, I’ve covered this subject a few times.  My view is the minority on the site.  I see mining shares as important to own for diversification sake so long as the investor in question has already established a healthy level of physical PM holdings.

    At some point I’ll write a formal report on the subject to share here.

  4. With the current market being shorted & manipulated with HFT

    i wouldnt trust going into paper ( stocks at this time )

    BUY phizzzzzzzzz stack

    with the hope that 2-3 years out prices will be MUCH better

    why invest in the miners ( when they dont care about their share holders)

    untill the miner CEO’s grow a pair

    BUY phizzzzzzzzzzzz

    their paper you can wipe yer A$$ with

    untill that changes

    BUY phizzzzzzzzzzzzzzz



  5. I am positioned in phys
    I also trade mining shares
    I usually buy after a big smack down, as soon as I get my 12% I sell.
    I take 20% of my profits and buy physical on the next smack down, and again I buy mining shares.

    I have to pay short term Capital Gains Tax on my profits which is like 50%, but it has been working very well for 3 times this year so far.
    I believe eventually it will all fall down, but in the mean time….

    I love this site, smart people here.
    I don’t see any trolls here.

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