Silver Breaks Downtrend, Junior Miners Outperforming Majors

On January 3, 2012 I wrote to my readers that silver would begin outperforming gold similar to what we saw in 2010.  On Friday we saw a major gain in silver of close to 5%, breaking the 50 day moving average for the first time since the Operation Twist decline in September.  This was an attempt by the Federal Reserve to manipulate commodity prices lower while artificially inflating U.S. dollars and bonds.  It appears that this temporary fix may be reversing to the benefit of undervalued junior miners of both precious and industrial metals.

On January 3rd, 2012 Barron's wrote an article based on the premium report I sent to subscribers.

"Silver has corrected by roughly 50% from its highs, while gold has fallen less than 20%, Gold Stock Trades’ Jeb Handwerger reminded clients on Tuesday. He traced much of the previous downward move in precious metals to the fluctuations in the U.S. dollar. An index comparing the greenback to a basket of other major currencies was at last glance down 0.7% on the day at a 79.63 valuation. The ICE U.S. Dollar Index touched its lowest level since Dec. 21.

“The U.S. dollar is reaching key resistance at 81, while gold, silver and the miners test support at oversold conditions indicative of a major rebound move,” Handwerger said in an interview. “In addition, silver — which up to now has been an orphaned child — is making up for lost time outpacing gold and equities.”

Big end-of-year bets against gold and silver by speculators are likely to start reversing as managers try to cover their short positions, he believes. That should fuel an even more expansive run, says Handwerger, who has been cautious on silver since April and gold since September.

He changed his tone considerably Tuesday:

“We could be setting up for the biggest move in precious metals and miners during this 10-year bull market run.”

Handwerger is now viewing silver — with duel roles as an industrial and precious metal — as especially well-positioned for an upturn as manufacturing demand picks up.

“Silver has a much bigger upside than gold at this point in the cycle,” Handwerger said. He added:

“This market looks to be setting up a lot like what we saw between August 2010 and April 2011 when spot silver prices jumped 177% an ounce, strongly surpassing gold’s 58% rise in that same period.”

Silver, which has more industrial uses than gold, jumped Tuesday on stronger manufacturing data from India and China, which are leading consumers of precious metals. Silver for March delivery rose 5.9% to settle at $29.57 an ounce, continuing a rebound after futures last week touched their lowest levels in 13 months. February gold, the most active contract on the Comex, rose 2.2% to settle at $1,600.50 an ounce.

Meanwhile, Handwerger figures that the so-called January Effect — in which stocks get a boost from investors and managers refreshing their portfolios at the start of a new year — could be another underlying factor fueling miners. He noted that small-caps in particular seem to get a bump during this time of year (averaging around 4.4% over the past 32 years), which could bode well for GDXJ.

“Today, the junior miners are off to the races, outperforming the larger gold miners and moreover surpassing bullion,” Handwerger observed."

Read the full article at Barron's by clicking here...

On another note, the Euro is sinking into new lows, which has benefitted the dollar momentarily.  Paradoxically, a cheap Euro attracts foreign capital seeking to acquire European natural resource assets inexpensively.  We have witnessed the acquisition by Eldorado Gold (EGO) of the Greek European Goldfields as well as the recent $150 million merger between Astur Gold and Gold Ore Resources.  This indicates that European mining is gaining attention and moving in the right direction.

One company we have featured is sitting on a very attractive asset in mining friendly Spain, which is desperate for jobs and mines.  We believe that 2012 may be a significant year for this company which is only valued at $30 million!  As they advance a full feasibility on the project, major miners may gain interest to enter an undervalued European mining asset as Eldorado did in Greece.

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