Few exchange-traded investments have visited more pain on shareholders in recent years than bullion stocks. Even now, amidst a spectacular surge in the broad averages, gold and silver mining shares have done little better than languish, making the pain even more acute for long-term precious-metal bulls. Is it time to bail out of them? We think not, even though it looks like two popular mining vehicles, GDX and GDXJ, may have further to fall before they hit bottom. We’ll explain in a moment, but you can also click here to access a recent interview on the subject that we did with Al Korelin of the Korelin Economic Report. So how much more damage should we expect? GDX, an exchange traded fund (ETF) that tracks a broad portfolio of mining stocks big and small, has already fallen 47% since September 2012, from a high of $67 to a recent low of $35.57. We think it will shed another 15% of its value, dropping to exactly $30.34, before hitting bottom. As for GDXJ, which measures a basket of junior mining issues, it looks primed for a washout to $13.15, representing a 12% decline from the recent bear-market low at $14.95 and a 70% fall from 2010’s summit at $44.86.
If our expectations are borne out, we think the selloff will be worth enduring for two reasons: 1) the respective targets, “Hidden Pivots” identified with our proprietary technical tools, look like back-up-the-truck buying opportunities, and 2) if a bear-market low is indeed nigh, the initial leap from Mindanao depths is going to be breathtaking — so powerful that any further losses suffered between now and then are going to be recouped in mere days. In the meantime, long-term investors may simply want to visualize better times ahead as they prepare to weather what we see as a final squall. The wait can be made not merely endurable, but productive, if you’re willing to consider covered writes, using calls or perhaps straddles, on whatever bullion vehicles you possess. Two-month at-the-money calls on GDXJ, for one, are currently going for around $1, equating to an annualized return of 37.5%. That should suffice to assuage any remorse you might feel if the stock rallies strongly enough to get called away.
Part three in our continuing quest for safety:
I like the PM value buyers here with a long-term horizon, especially physical, as the costs to mine gold soared from $100 to $1000 an ounce. PM PnF targets, a lagging indicator, are still lower and may need to build a bigger longer base before taking off.
DC, Fed and Wall Street media are huffing and puffing this market for all they can get at customer taxpayer expense. Insiders and institutions are dumping IPOs, sales and secondaries. Big bad banks, brokerages and custodians are converting customer assets to their own with impunity like Madoff, MFG, Peregrine, Stanford et al, aided by lack of enforcement from CFTC, Congress, Courts, Executive Branches, State Departments of Corporations, SEC and Exchanges.
So Rick provides a real service for financial survival following markets closely, staying with the trend and cutting the crap. Anyone who subscribes knows how profitable his ideas are.
This chronic deflation inflation argument that rears its head from time to time is really a red herring, as different markets are always deflating and inflating (going down and up), distorted by government interference with wasteful red tape, subsidies and taxes.
As example, CA billionaires and consumers are leaving the Golden state in droves for Nevada, Texas and Washington after CA wiped out five years of capital gains tax benefits for small business formation retroactively and pumped fuel, income and property taxes to the highest in the nation and went after out of state citizens and corporations.
SoCal Monterey Oil Shale bigger than Saudi Arabia is a fantasy according to Chevron. CA has over half a trillion in pension and special fund reserve funds that more than offset billions in deficits growing with fiscal legislative mismanagement by unconstitutional special interest union candidates and courts that ignored the will of the people with multiple Propositions. Consider most legislation does the opposite of its title. Healthcare Relief Act?
John Williams did his homework with 1980 CPI calculations that show 9.3% current CPI and 23% unemployment versus the government revised calcs that lie with statistics to renege on government promises:
http://www.shadowstats.com/alternate_data/unemployment-charts
For what it’s worth, deep discount brokerage managers tell me retail customers are still AWOL despite hot IPOs and new highs…