Selecting Precious Metal Miners and Explorers

Searching for excellence

Precious metal explorers as investment vehicles have a long standing track record of extreme volatility. As Rick Rule of Sprot Asset Mgt. USA uses to formulate it: “We have known both the thrill of victory and the agony of defeat”.

It is obvious that the success of precious metal explorers goes together with both the exploration talent of a small team of geologists and with their broader management skills. Add just a grain of luck in picking among the promising geological anomalies the successful drilling locations. To end this introduction with another quote of Rick Rule: “Profitable miners ultimately will see their share price reflect increased cash flows from mining operations, but you can’t count on a gold bull market to bail you out of a dumb decision on an explorer investment.”

Prospectors & Developers Association of Canada (PDAC)

• What should we remember from the PDAC 2018?
• Why didn't I come up with this any sooner?

Ever heard of the PDAC curse? Quite often, mining stocks plunge right after the annual PDAC meeting mid March. The seasonal pattern of the gold price is not very favorable in that particular period of the year. Right after the Chinese new year in February, physical gold demand tends to slump.  You often hear Frank Holmes talk about gold in terms of 'The Love Trade'. Especially in the big Asian emerging economies, gold is appreciated as a wedding gift. This tradition is firmly underpinned by weak currencies and above average inflation. Early summer is when the interest in physical gold should return. Moreover the 2018 Ramadan ends mid June, sparking also demand in the Arab world.

Miners boosted

American stock markets rallied towards the Friday close, the late recovery however didn't make up for prior losses culminating in the Thursday slide.

Van kwaad naar erger met de zilvermijnen.

Het achterblijven van zilvermijnen bij de explosieve stijging van de zilverprijs
Gemeten naar de verhouding tussen de koers van de GlobalX zilvermijnen ETF SIL en de zilverprijs, zakken zilvermijnen steeds verder weg. Dit proces zet zich door bij een versnelde stijging van de zilverprijs! Dit is hoogst ongewoon. Sinds het begin van de goud/zilver bull markt in 2000, gaf bijna elke rally van de edelmetalen aanleiding tot met een hefboom stijgende goud- en zilvermijnen. De weinige uitzonderingen komen op conto van een dalende aandelenmarkt bij stijgende goud- en zilverprijzen. De correlatie van edelmetaalmijnen met de S&P500, kan in dat geval roet in het eten gooien. Hiervan is momenteel echter evenmin sprake. 

Headwinds for silver miners

Precious metals posted steady gains throughout the day, with gold fractionally above its previous ATH closing at $1475.8 up 1.25% and silver at a new 31year high at $42.18, up a stunning 3.7%.

On our GoldMinersPulse list, gains outnumber losses by 7:3. The gold miners index is up 1.6% to 994, yet silver miners are down 0.75% to 1313!

Dramatic reversal

Silver started the week higher in Sydney and on Asian trading, while gold was hovering at Friday’s ATH. Clouds started packing at the opening in Europe and we could kiss the highs goodbye. All ended worse as gold lost over $12 at $1463 by 4 pm, while silver dropped from its $42 intraday high to below $40 shortly before 4 pm to get back to $40.15, a 80ct or 2% loss since Friday.

Miners follow precious metals up

Miners follow precious metals up

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Gold is up $17 or over 1% to a fresh ATH of $1475 and silver made a 3% quantum leap of $1.28 not only passing the $40 mark but leaving it behind.
Miners follow the precious metals up, in spite of general stock market weakness with crude soaring against a continuous retreat of the greenback.
Gains outnumber losses by 5:2 on our GoldMinerPulse (GMP) miners list, which means that we have a considerable number of drop-outs not at the party!

Silver miners underperforming silver bullion?

As is demonstrated in several articles (1), gold mining majors don’t offer any leverage over gold bullion. Outperformance during gold rallies is largely undone by major swoons during gold retreats. The return for your bravery when investing in gold mining majors is merely additional volatility and underperformance over the long haul. But what about silver miners? Do we observe something similar?