Forget GDXJ – Follow The Real Money Into Gold, Silver, & Juniors

The weekly Commitment of Traders report released Friday showed that the bullion banks continue to cover their net short positions in both gold and silver rather aggressively and the hedge funds are unloading long positions and piling into the short side.  
Historically, this has been a set-up for big moves higher in the sector.
From PM Fund Manager Dave Kranzler:

Silver Doctors invited me onto their weekly SD Bullion Metals and Markets show to discuss why both the technicals and fundamentals are setting up for an unexpected rally into the summer in gold, silver and the mining shares, specifically the juniors.

Subsequent to our recording, the weekly Commitment of Traders report released Friday showed that the bullion banks continue to cover their net short positions in both gold and silver rather aggressively and the hedge funds are unloading long positions and piling into the short side.  Historically, this has been a set-up for big moves higher in the sector.  The hedge funds chase momentum and they are almost never right in the precious metals sector.  When they pile into short positions, like they are now, it’s always a valid contrarian indicator.  We also discuss why the “summer doldrums” in the precious metals sector is no longer a valid seasonal play.

Another contrarian indicator is the negative sentiment connected to the GDXJ ETF.  Adam Hamilton wrote a non-compelling critique of GDXJ and made the assertion that GDXJ was diverting the flow of capital away from junior companies that deserve to get funding. The problem with this analysis is that retail investor buying of junior mining stocks on the secondary market is not a source of capital for junior mining companies. The secondary trading of stocks is not a source of capital for any stock, for that matter.  ETFs are a “derivative” of the secondary trading market and thus are also not a source of capital for companies.

Junior mining stocks get their capital from new share issuance or from direct investment by strategic investors.  If Hamilton bothered to call on the companies themselves rather than take quarterly filings and throw numbers into a spreadsheet as his primary tool of analysis, he would discover that many junior exploration CEO’s would tell him that they are getting a lot interest from strategic investors. Furthermore, many junior mining companies with investment-worthy stories are having no problem raising capital  through primary share-issuance, notwithstanding the recent turmoil connected to GDXJ. GDXJ is a derivative security. Derivatives are a source of fees for their issuer/sponsors, not a capital raising conduit for companies.

The Mining Stock Journal focuses on the emerging junior exploration mining companies that are seeing an elevated level of investment interest from sophisticated private investment funds and from strategic investors.  These are the stocks that offer the greatest upside-potential in the junior segment of the sector – not the larger-cap, developed companies in the GDXJ Trust.  The latest issue features a company with a potentially prolific gold property that is in negotiations with a strategic investor.  Two juniors featured in the Mining Stock Journal were acquired recently.  Looking at companies one-by-one, not en masse, is how you find the potential home run stocks.  You can learn more about investing in these opportunities here:  Mining Stock Journal information.

Here’s the download for the latest SD Bullion weekly show:  MP3 download  and here’s the podcast:

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