VRA Update: Something Big is Brewing in Precious Metals and Miners

My love affair with gold and silver...precious metals...goes back to when I was about 16. I listened in on a meeting with my father and a financial advisor as the advisor convinced my father to buy gold at $800/ounce. As you can see in the chart below, gold then proceeded to drop to $290/ounce over just the next couple of years.  

While serving as bad financial news for the Herriage family, the life experience was important for me. One, my love affair with gold was born and two, I was introduced to the importance of being an investment contrarian. When everyone is head over hills in love with an investment, as they loved gold back in 1980, that's almost always the time to consider selling that investment. 

Today, gold is rarely talked about, certainly not on Wall Street. The manipulators have suppressed the price of gold, while at the same time, global governments have printed money and issued debt like they were Weimer, Germany. From 1921 - 1924 (following the devastation of WWI), the German economy experienced a level of hyperinflation that the modern world had never seen. Before it was over, one gold mark would buy you 1 billion paper marks. By the end of 1923, $1 USD would buy you 4,210,500,000,000 German marks.  

And here's what it meant for gold investors in Germany. By November 1923, it took $87 trillion German marks to buy a single ounce of gold. #hyperinflation 

No...we're nowhere near this level of financial inanity/insolvency today. But then again, in 1919, how many Germans thought this could possibly be their future? Much less, within just 4 short years...?

The fear of the financial unknown...this is why we must own gold and silver today. Gold has served as the ultimate store of value for the last 5000 years. Gold remains as the only true currency on the planet. A planet that, historically speaking, has never seen a single fiat currency that has remained standing. Today, 1 ounce of gold will buy you the same high quality, tailored mens suit/womens dress that it would have purchased you 100 years ago. Since the creation of the Federal Reserve in 1913, the US dollar has lost 97% of its purchasing power, while gold has soared in value (most certainly after it was removed from the dollar peg in 1971. Thanks again Nixon).

But precious metals are more than just gold & silver. I believe that we must own the shares of the companies that produce them as well...the gold/silver miners. Remember, during the Great Depression, the single best stock to own was Homestake Mines. During the 1930's, $1000 invested into Homestake would have turned into $6,760 (by 1938), a return of roughly 600% (close to 800% with dividends)...as the rest of the stock market plunged in value. 

It's with this historical backdrop that I make the case again for mining stocks, particularly after the events and results we've just witnessed. I believe they are forecasting a most significant breakout that's just around the corner. This week, two global mining stock leaders, Freeport McMoran and Newmont Mines, reported earnings. Yes, their earnings reports were solid...but as always, it's the markets "reaction to the news" that I believe we should be paying the most serious attention to.   

First up, Freeport-McMoran (FCX). FCX was up a huge 15% on their earnings beat. Again, their earnings might have surprised Wall Street, but anytime a stock surges 15% it tells us that something else is likely going on. As the chart below makes clear, this ramp took FCX convincingly back above both its 50 & 200 dma and a clear break of the bearish downtrend line. This kind of one day move is rarely a one-off, particularly when it comes on the heaviest volume in more than 6 months. In gamblers parlance, this kind of move is a "big tell". I believe its telling us that the bull market for the miners is back.    

But FCX was not alone....Newmont Mines (NEM) ramped a big 7% as well. NEM is the worlds largest miner and as a market leader, their earnings and stock action are followed very closely. We see very similar chart action to the move in FCX, with a clear break of a bearish trend line and a breakout of both its 50/200 dma. Again, I see this as highly bullish for the entire sector. 

Finally for now, lets take a fresh look at GDX (miner ETF). This is where the move MUST play out for us to officially become wildly bullish again. GDX may have been up less than 1% (.91%), but gold was down .41%, making GDX's gain more impressive. 

What must we see? I want to see GDX close convincingly above both its 50/200 dma. But again, I said "convincingly", meaning that I want to see GDX close above $23/share...and yes, I prefer that it happens on strong volume (as we saw in both NEM and FCX). 

I believe that it's very possible that we get a big move higher for GDX. I can tell you that LOTS of traders are watching for exactly this. 

I first recommended gold and silver in my second-ever VRA Update (in 2003). Gold was trading at less than $400/ounce and silver was just under $5. Combined, VRA PM & mining stock related profits have topped 3000%, since inception. 

It's my belief that the coming bull market in PM's and miners will be nothing short of extraordinary. We'll soon know if the rest of the investing world feels the same way... 

Until then, thanks again for reading...

Kip