Bargain Opportunities In Undervalued Junior Mining Stocks
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Published on Dec 28, 2012
In 2009 and 2010, the mining equities outperformed bullion and the general equities by a wide margin due to the expansion of the Fed balance sheet to boost an economic recovery. Going into the expiration of QE2 the resource market may have gotten ahead of itself. Policy makers may have been concerned about the speculative fervor in hard assets and a less inflationary Operation Twist was announced in 2011. However, recently Bernanke has had to expand the balance sheet once again for the first time since QE2 in the summer of 2010. Just as QE sparked a risk on rally in hard assets in 2009 and 2010, we expect something similar in 2013 as year end tax loss selling ends. The only action by a policy maker to deal with the soaring US debt before the holidays was Bernanke. Boehner and Obama were not able to get it done, which is not surprising to our readers. Inflating out of debt is the easy choice politicians are making rather than making the tough moves to cut entitlements or raise taxes. Larger entitlements is what the people are choosing. The general equity markets are moving higher despite the gridlock in DC.
Maybe the equity markets are factoring in inflation. The U.S. dollar looks like it is forming a head and shoulders pattern. A break below 79 on the index could spark a rally in the undervalued miners and gold/silver bullion. Copper is forming a bullish coil as China and Japan look like they are on their way to growth. Japan elected a pro nuclear party which industry is cheering as the Japanese have been dealing with skyrocketing electricity costs and power outages. China's new leadership is also boosting growth. A recovery in Asia could spark the demand for raw materials. Remember the Asians are concerned about their large holdings in declining dollars and dangerous US debt. They are looking to diversify their holdings into wealth in the earth metals and energy.
Do not be concerned about the pullback in gold and silver. The correction is quite healthy and prices have pulled back to strong support. It is characteristic for there to be shakeouts during lightly traded, end of the year tax loss season. We expect a rebound in precious metals as the US dollar breaks down. Look for a breakout in 2013 for gold at $1800 and for silver at $35.
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