Junior Miners: Gold And Silver Are Ready To Rumble

Massive one-shot selling of non-physical gold on Tuesday, October 4th, appeared to be typical of gold-price-depressing market interventions seen repeatedly in recent years. Those interventions have been orchestrated regularly by central banks…Post-election, the Fed likely will face economic and liquidity circumstance more conducive to expanded quantitative easing, than to meaningful rate hikes. Reverting now to obvious market manipulation of the price of gold could be a leading indicator of pending central-bank policy otherwise shifting towards intensified U.S. dollar debasement.  – John Williams, Shadowstats.com

The Fed was overtly aggressive in its attack on gold and silver during the past few weeks.  As John Williams observes in the quote above, it’s probable that the Fed has made every effort to suppress the price of gold ahead of the implementation of more QE in some form (dollar debasement).

Several analysts have been offering up theories with regard to the performance of gold based on the winner of the presidential election.  But the truth is, gold and silver will do well for the foreseeable future regardless of which candidate wins.   Perhaps this chart created by Twitter @thingtankcharts, with my edits, will explain my view:

The graphic above shows the three massive bubbles blown by the Fed, the last two of which hit exhaustion and were followed by a collapse in the stock market.  The third bubble is by far the biggest and will likely be followed by a stunning stock market collapse unless the Fed blows even harder with a bigger QE program than was implemented in 2008.  Either way, gold and silver will soar.

Right now, of course, India and China have stepped up ot their seasonal gold feeding trough with healthy appetites. Jewelers in India see a 10-20% rise in demand for this year’s festival season – Economic Times.

Away from the activity in the physical gold market, another indicator has perked up:  the junior mining stocks.  Not necessarily the junior segment as a whole, but the smaller cap juniors which potentially have high-payoff deposits and the cash to fund exploration.

The fund I co-manage owns several of these so I happened to notice that trading volumes in these stocks began to spike up in mid-late December, around the time that gold and silver began to move higher but in advance of the universe of mining stocks.   As an examples, volumes on the TSX listing for Rye Patch Gold, Alamadex Minerals, Barkerville Gold, Arizona Mining and Treasury Metals spiked up considerably this week.  This is just a few examples.

The junior exploration stocks tend to be largely off the radar screen of most mining stock investors.  But I also believe that the smartest hedge funds who play in the mining stock sandbox are well aware that the smallest juniors have the most upside leverage to rising gold and silver prices.   In other words, “really smart money” smells another moving coming the precious metals – likely in anticipation of further dollar devaluation policies implemented by the Fed and Government.

We know that whoever is the next President will ramp up Government spending in an attempt to revive an economy that is on the verge of depression.  The only way this can be enabled, in light of the fact that China and other major Central Banks are dumping Treasuries, is for the Fed to step up and monetize the debt that will have to be issued by the Government to fund even more fiscal spending.

The number one and two priorities will be a Federal bailout of Obamacare and a move to prop up the largest State and Federal retirement funds, including Social Security, all of which are badly underfunded and will collapse if the Government does not intervene.  The money printing that is coming will drive the precious metals and miners a lot higher from here.

You can subscribe to the Mining Stock Journal by clicking on this LINK or by clicking on the graphic below.  For now, I am distributing the previous two issues (March 4th was the debut issue) published.  Each bi-monthly issue contains what I believe to be unique commentary and analysis on the gold/silver market plus a thoroughly researched mining stock idea – mostly juniors but I’ll present an occasional large cap idea, especially if I believe it presents a good short term trading opportunity.

• “You’ve got a great journal for an amazing price.” – James

Here’s an excerpt from the last issue:

For me, the best indicators that the worst is over are: 1) India and China are transitioning into their largest seasonal period of physical gold buying; 2) the “excess” Comex open interest appears to have substantially liquidated; 3) the stock charts are extremely oversold and some technical indicators are turning up.

In this issue I presented a couple of large cap ideas that have been extremely oversold, including some ideas for using options. I also updated some of my recent junior picks based on recent events that could drive these stocks higher.