Tag Archives: GDXJ

GDXJ: Myth vs. Reality

Many of you have contacted me about the sell-off in GDXJ and upcoming re-balancing that will occur at the end of this week (I think). First of all, thank you for your inquiries and please feel free to email me with questions/ideas. The only “dumb” question regarding gold, silver and mining shares is, “should I own any?”

First I wanted to highlight the difference between fact and “propaganda.” The propaganda has led many to believe that the rebalancing of the GDXJ has exerted undue pressure on the mining stocks as a whole and on the GDXJ components specifically. However, a simple graphic analysis differentiates fact from fiction:

The graph above compares GDXJ, the HUI (green line) and GDX (purple line) since the GDXJ rebalancing was announced to the market on April 17th. As you can see, over the time since the GDXJ rebalance was announced, GDXJ has performed in-line with rest of the sector. I was a bit surprised when I ran that chart. In fact, on a YTD basis, GDXJ’s rate of return is almost identical to that of the HUI and GDX:

So where does this leave us? The entire sector has moved lower since early February. Maybe this was in anticipation of the GDXJ rebalancing “whispers” and maybe not. Often the miners will be hit before a manipulated take-down of the gold price is implemented. That narrative fits the chart above as well.

It’s important to distinguish the difference between the propaganda and truth, because that’s where money can be made in the markets. The truth is that the sector has sold off after a nice move from the mid-December 2016 low. But I also believe that the market is setting up for another big move into the 3rd and 4th quarters. It may take all summer for this to materialize, but the economic, financial and geopolitical fundamentals, as they are unfolding, weigh heavily in favor of big move higher in the precious metals sector.

One other point I would like to make – something that you WILL NOT HEAR from Wall Street or from Rickards or from the financial media: since bottoming in mid-December, the HUI is up 14.7%, GDX up 16.1% and GDXJ up 15.3% vs the S&P 500 which is up 7.7%. The mining stocks, since bottoming in mid-December, have outperformed the S&P 500 over the same time period through today (June 15, 2017).

Several of you have asked for ideas on the stocks in the GDXJ index that are “oversold” due to the rebalancing. As I’ve just demonstrated graphically and with ROR numbers, GDXJ has not really sold off since mid-April anymore than the larger-cap mining stocks in the HUI index and in GDX. Those are the numbers. I can’t make those up. It’s “narratives” that are fabricated.

Having said that, I did present two ideas in the Mining Stock Journal which happen to be in the GDXJ.  One is up 6% since May 4th – and it has a lot higher to move – and the other is up 20% since June 1st, with a lot more left in the move.

A subscriber told me yesterday that a well-known subscription service that costs $1500/year is promoting 3 ideas from GDXJ.  This is probably one of the services that is promoting the idea that the GDXJ has been hit unusually hard. I’ve shown above that idea is a false narrative.  The Mining Stock Journal is $20/month with no minimum commitment.  Subscriber turnover is exceptionally low for a reason.  You can find out more about it here:  MSJ Subscription Info.

Analyzing Gold & Silver Stocks: Avoid Barrick

Lior Gantz of the Wealth Research Group invited me onto this show to review Barrick Gold as an investment.  It was an interesting proposition because I was not given advance notice in order to prepare notes or review Barrick’s financials.  The exercise forced me to focus on an overview of my reservations about the quality of Barrick as an investment and point to the critical financial metrics I review when doing a “drive-by” analysis of a prospective mining stock investment.

Investing in the largest mining companies is like investing in IBM instead of the promising emerging technology stocks during the 1990’s technology revolution. The best geologists at the big companies, after they’ve reached a level of financial security, leave to develop new gold and silver projects that are often overlooked or rejected by the big companies. These are the types of investment opportunities that offer the best upside in the sector and these are the opportunities that present in the Mining Stock Journal. In the last 8 weeks two of the companies presented in the Mining Stock Journal have agreed to be acquired (Exeter Resources and Mariana Resources).

Forget GDXJ – Follow The Real Money Into Gold, Silver And Juniors

Silver Doctors / The News Doctors invited me onto their weekly SD Bullion Metals and Markets show to discuss why both the technicals and fundamentals are setting up for an unexpected rally into the summer in gold, silver and the mining shares, specifically the juniors.

Subsequent to our recording, the weekly Commitment of Traders report released Friday showed that the bullion banks continue to cover their net short positions in both gold and silver rather aggressively and the hedge funds are unloading long positions and piling into the short side.  Historically, this has been a set-up for big moves higher in the sector.  The hedge funds chase momentum and they are almost never right in the precious metals sector.  When they pile into short positions, like they are now, it’s always a valid contrarian indicator.  We also discuss why the “summer doldrums” in the precious metals sector is no longer a valid seasonal play.

Another contrarian indicator is the negative sentiment connected to the GDXJ ETF.  Adam Hamilton wrote a non-compelling critique of GDXJ and made the assertion that GDXJ was diverting the flow of capital away from junior companies that deserve to get funding. The problem with this analysis is that retail investor buying of junior mining stocks on the secondary market is not a source of capital for junior mining companies. The secondary trading of stocks is not a source of capital for any stock, for that matter.  ETFs are a “derivative” of the secondary trading market and thus are also not a source of capital for companies.

Junior mining stocks get their capital from new share issuance or from direct investment by strategic investors.  If Hamilton bothered to call on the companies themselves rather than take quarterly filings and throw numbers into a spreadsheet as his primary tool of analysis, he would discover that many junior exploration CEO’s would tell him that they are getting a lot interest from strategic investors. Furthermore, many junior mining companies with investment-worthy stories are having no problem raising capital  through primary share-issuance, notwithstanding the recent turmoil connected to GDXJ. GDXJ is a derivative security. Derivatives are a source of fees for their issuer/sponsors, not a capital raising conduit for companies.

The Mining Stock Journal focuses on the emerging junior exploration mining companies that are seeing an elevated level of investment interest from sophisticated private investment funds and from strategic investors.  These are the stocks that offer the greatest upside-potential in the junior segment of the sector – not the larger-cap, developed companies in the GDXJ Trust.  The latest issue features a company with a potentially prolific gold property that is in negotiations with a strategic investor.  Two juniors featured in the Mining Stock Journal were acquired recently.  Looking at companies one-by-one, not en masse, is how you find the potential home run stocks.  You can learn more about investing in these opportunities here:  Mining Stock Journal information.

Here’s the download for the latest SD Bullion weekly show:  MP3 download  and here’s the podcast:

Phenomenal movement lately with one of your stock picks, Dave, and I have no doubt it’s still in the first inning of what will be a very long game. Superb. Thank you! – subscriber “Mark”

Flash News: Junior Miners Are Not Going To Implode

On Monday IRD published a reply to an article that was posted on Goldseek.com which theorized that capital was going to stop flowing to the junior mining stock sector because of the changes occurring at the GDXJ and JNUG ETF: No, The Junior Mining Stocks Are Not Going To Implode.

In that reply I stated that,  in the course of doing research for the Mining Stock Journal,  that several junior mining stock CEO’s had recently told me that there was an enormous amount of capital coming into the sector from sophisticate pools of institutional investors and strategic players (other mining companies, private equity etc).

This morning the “proof of concept” in my commentary was offered when Sandstorm Gold and Mariana Resources announced a merger deal – this update was sent out to Mining Stock Journal subscribers:

Mariana Resource / Sandstorm Merger Proposal

In the December 22, 2016 issue, I presented Mariana Resources. At the time of publication the stock was at $0.82. (click image to enlarge)

This morning Mariana and Sandstorm Gold (SAND) announced a proposed merger transaction in which Sandstorm acquires MARL in a cash and stock transaction. The value offered based on SAND’s closing price yesterday (April 25th) of $4.04 is $1.41 (MRLDF basis). Mariana shareholders would end up holding 19% of the combined entity.

Currently MRLDF is trading up 67.5% from yesterday’s close at $1.24 (C$1.70, up 67.5%). SAND is trading down 8% at $3.71 (down 33 cents), which is why MRLDF/MARL.V is trading at a discount to the proposed terms at yesterday’s closing price for SAND.

If you want to remain an owner of SAND, the Mining Stock Journal would recommend holding on to MRLDF/MARL. With the drop in SAND’s stock price, I don’t know if Mariana shareholders will be able to coerce a revised to offer in order to bring the value back up to the value as presented in the announcement of the deal. MSJ has not conducted a thorough review of SAND and therefore is not in a position to recommend owning SAND going forward. I will probably issue an opinion in the next issue of MSJ (May 4th).

For some reason the stock market hits the stock price of the acquiring company in mining stock deals that involve share issuance. This offer encompasses shares plus cash. If this were a transaction in any other sector of the market, the acquirer’s stock would be up in value this morning.

I do believe that once the price of gold and silver head higher again, the price of SAND’s stock will recover. If that’s the case, there’s an easy 12% left in MRLDF.

The Mining Stock Journal specializes in finding highly undervalued junior mining shares. It’s a bi-monthly, email-delivery based subscription service.  You can find out more about subscribing using this link:  Mining Stock Journal.   Currently I am sending out all back issues to new subscribers.

I purchased one of Dave’s stock recommendations from the Mining Stock Journal and its up 88% over the last 30 days. Crazily, I think that stock is still early in the accumulation phase. I wouldn’t buy junior miners without the Mining Stock Journal. The juniors are just too dangerous to purchase without research, experience, and insight. I think big things are on the horizon for PMs and the right juniors are one way to leverage the move. – recent subscriber testimonial

No, The Junior Mining Stocks Are Not About To Implode

One of my subscribers sent an article to me that  had been linked on Goldseek.com.  The author laid out a case based on the recent events surrounding GDXJ and JNUG that the junior mining sector would likely “implode.”

I get suspicious about an article when the author repeatedly, with much bravado, makes the claim the he is laying out facts and challenges anyone to present challenges to those “facts.”  Typically that style of writing belies a conspicuous absence of facts.

The author bases his premise that the GDXJ rebalancing and the related suspension of JNUG shares would strangle money available to finance junior mining shares.  Nothing could be further from the truth.

To begin with,  investment capital does not flow into the juniors via GDXJ or JNUG.  GDXJ is a quasi-derivative security that buys the stocks it holds on the secondary market.  It is unequivocally not a capital raising mechanism for companies.   Money flows into juniors directly from investors who buy shares issued by the companies.   I’ve chatted with several junior mining stock CEO’s – true juniors – and they have all said one thing in common: there is a lot of money being made available to the junior mining companies by both large institutional investors and strategic investors.  The rebalancing of GDXJ and the share suspension of JNUG will have zero effect on this.

Too be sure, the author presents some interesting theories about what is happening with GDXJ and JNUG using some charts he presents.   But charts only show facts about the directional moves made by stocks.  They don’t explain why those moves occurred.  The author’s views on why the moves occurred are theories, not facts.   To compound the problem, the author uses a 5-day trading period with which  to draw conclusions.

The short term divergences shown in the chart comparing JNUG to the various leveraged miner ETFs is most likely explained by the fact that some hedge funds/traders got ahold of the GDXJ and JNUG news and decided to front-run the market. Any seasoned market veteran knows that you can’t use just 5 or 6 days of chart data to make inferences about what may or may not be going on behind the scenes with capital flows and trade strategies. The ONLY conclusion we can draw from that chart is that JNUG underperformed the other ETFs over a 5 day period. So what? There could be any number of reasons why this occurred. The front-running explanation is the most likely.

Finally, the author noted that the mining shares suspiciously diverged negatively from the price gains in gold and silver during a few days in February.  He claimed it was something he had never witnessed in 15 years of “pouring over gold, silver and mining charts on a near daily basis.”

Well, that’s the problem.  The author has his head buried in graphs.  He can’t see the forest through the trees.  There’s been several periods of time when the direction of the mining shares and gold/silver diverge over the past 16 years since the bull market in the precious metals sector began.   I have had discussions about this quite frequently with my colleagues over the past 16 years.  There’s any number of explanations for this occurrence. Furthermore,  this trading anomaly was occurring before the existence of any of the mining stock ETFs.

Alternatively, I presented an analysis of JNUG and explained why the suspension of share issuance might actually be a bullish signal for the junior miners in the most recent issue of the Mining Stock Journal.   Furthermore, the juniors remain exceedingly undervalued relative to the entire sector and big institutional investors and large-cap mining companies are validating this with ongoing large capital investments into these companies. Of course, this was the case when the bull market began in 2000/2001 as well – before mining stock ETFs were even in the planning stages…

Animal Spirits Are Percolating In The Gold Market

The use of the term “animal spirits” is most commonly attributed to John Maynard Keynes. But it originates from the Latin term, “spiritus animales” in reference to the spirit that drives human thought, feeling and action. We saw animal spirits at work in gold and silver on Tuesday this past week when the Dow dropped 237 points and gold quickly popped up $16. Silver jumped 72 cents, much to Wall Street’s surprise, on March 16th after the FOMC issued its latest monetary policy statement despite an assurance that the Fed would raise rates three more times this year.

At some point the paper control of the gold market is going to fall prey to animal spirits. I think the reaction of the metals after the FOMC policy release and when the Dow plunged are evidence that “animal spirits” are percolating in the precious metals market. (Excerpt from yesterday’s issue of the Mining Stock Journal)

In the latest issue of the Mining Stock Journal I review a junior mining stock that was heavily promoted last summer ahead of a big issuance of stock. Many of you may own it thinking you sitting on junior with close to 20 million ounces of gold in the ground. What I found when I examined the background of management and quality of the alleged mineralization on the company’s properties, with no plans for advancing the properties, might shock you. This stock is down 50% from its highs last summer and insiders were dumping shares in September before the stock sold off. This is a stock you want to avoid and you can find out more about it by subscribing:  Mining Stock Journal subscription info.

When I asked a colleague and subscriber who invests in junior mining stocks and participates in select financings if he had an opinion on the above-mentioned company, this was his partial response: “No, I have never looked at it principally because of the people behind it, who are well-known to front run their own subscribers.”

Stunning Development In Comex June Gold Deliveries

If the Comex were allowed to issue paper contracts representing no more that 10 or 20% of the actual amount of gold held by Comex vaults, what would the price of gold be?

1.176 million ounces of gold have been delivered – or should I say “delivered” – for the June contract six days into the June contract delivery period.  I don’t follow the delivery patterns as closely as I used to, but this is a massive amount of stated deliveries.  Even more interesting is the fact that there’s still 6,683 Juno contracts open representing 668,300 ozs of potential deliveries.   This is a relatively high number of contracts still open this far into the delivery period.

One other interesting point of note is that over the last few months, a couple new “players,”  beyond the standard Comex bullion banks (JP Morgan, HSBC, Scotia) have been participating in the deliveries:  B of A (Merrill), International FCStone Financial, Morgan Stanley and SocGen.   All four of these have been taking an increasing amount of deliveries the past couple of months, primarily on behalf of customers (vs. for their own house account).

I have no idea what would be triggering this sudden increase in delivery activity on the Comex – other than the obvious.   And who knows to what extent the physical gold is actually being moved from the accounts of the delivering parties to segregated accounts of the parties taking delivery.   It would be even more interesting if a lot of this gold was being removed from the Comex, which would reinforce the likelihood that it really exists in unencumbered physical form.

On another note, the stock portfolio portion of the fund I co-manage was up 4.7% today vs. the HUI up .23% and the GDXJ “junior” ETF up 1.7%.  We own highly concentrated positions in true junior exploration stocks.  My point here is that a lot of money is flowing into the highest risk/return segment of the mining stock sector.  In my opinion this is a signal that the “smart” money is expecting a big move in the entire sector.

I publish the Mining Stock Journal, which is a bi-monthly subscription report which features a junior mining stock in every issue.  I try to find lessor known ideas because I want to put my money in good ideas before the wider universe of newsletters begin to discover them.   The next issue out this Thursday will be featuring a very small silver exploration company that appears to have found what could be very large silver (polymetallic) deposit.   You can access the Mining Stock Journal here:   MSJ Subscription Link.   I am sending all-back issues to new subscribers.

Considering the research and content, both the Mining Stock Journal and Short Seller’s  Journal are remarkable bargains.  – from subscriber “Jay”

 

Junior Mining Stocks: A New Bull Market On Steroids

Apparently that imbecilic Goldman Sachs commodities analyst, Jeff Currie, was on CNBC’s Power Lunch urging viewers to short gold.  He’s been wrong since his initial $800 target on gold he set about 2 years ago.   In fact, using Currie as a contrarian indicator for buying gold has become possibly more reliable that the legendary “Cramer” and “Gartman” contrarian indicators.

What you won’t hear discussed on CNBC, or Bloomberg or Fox Biz for that matter, is the powerful move that’s being made in the mining stocks, especially the junior mining stocks. Since hitting a low of 100 on January 19, the HUI is index is up 94% as I write this.  If the SPX or Dow went up 94% in 2 1/2 months, Maria Bartiromo and Liz Clayman would be doing naked cartwheels on tv.

GDXJ 1yrThe junior miners as represented by the GDXJ ETF since January 19th is also up 94%.  But the GDXJ is not a true junior mining stock index.  Many exploration stocks are up 300-400% YTD.  And they are still substantially below the highs they reached in 2010 and early 2011.  I pointed out earlier this year that the HUI index doubled from late October 2008 to December 31, 2008 – and then it more than doubled again over the next 2 1/2 years.  I suggested that not only could it do that again, but this time around the move would be even more more powerful and produce an even bigger rate or return ultimately.

Why?  Over the last 4 1/2 years the valuation of mining stock sector relative to price of goldHUI reached its lowest point in history.  I don’t time to dig up the graphs illustrating this that have been published recently, but the HUI graph on the right somewhat demonstrates this point.  The HUI index closed on April 7 at 186 with gold around $1230.   As the graph shows, the HUI hit 186 in early 2003 with gold at $350.  In other words, in the early years of the emerging secular gold bull market, in relation to the price of gold the larger cap mining stocks were valued at nearly 3 1/2 times greater than their current level of valuation.

The beat down in the junior miners over the last four-plus years was even worse.  Many of them with proved gold/silver in the ground were trading at valuations below the amount of cash they held on their balance sheet.   The good quality exploration juniors had become insanely cheap.

The current trading action in the miners, especially the juniors, reminds me of the 2002-2003 period, when the sector was largely ignored by the entire market other than a contingent of crazy “goldbugs.”  Back then – like now – stocks would take turns jumping up 20-30% in one day, often on no event news.   I likened the action to that of watching popcorn pop:  you didn’t know when an individual kernel might pop but you knew that at some point almost all of them would.

The market action currently is quite similar to back then.  The juniors have been beaten down to the point at which no one except hardcore precious metals participants are GDXJweeklybuying them and idiots like Jeff Currie are running around advising everyone to short the sector.  The graph of GDXJ on the left (click to enlarge)shows how minor the recent move has been relative to the upside potential.  The move in the juniors has barely started. We have a stock in our fund that was up 37% yesterday on no news (Almaden Minerals).  It’s up another 17% today.  I spoke to management, who attributed the action to a U.S.-based newsletter but noted that the stock is playing “catch up” to comparable companies with $200-million market caps.  AAU’s market cap even with today’s move is still around $85 million.

I will be explaining to the subscribers of my Mining Stock Journal in the upcoming issue (next Wed or Thurs) why AAU is worth at least as much as its comparable companies.  I’ll also be presenting another mining stock that has moved up almost 500% from its 52 week low and is still 300-400% undervalued just in the context of the current prices of mining-stock-journal-bannergold/silver. This company has a hidden asset that is not even contemplated by the market right now.  In the current issue I presented a junior gold stock that has been almost completely ignored by investors.  This particular stock is one of the best risk/return ideas I’ve come across in 15 years of focusing on this sector.  You can subscribe to the Mining Stock Journal by clicking on the graphic to the right or by clicking here:   Mining Stock Journal.

 

Two Low-Risk/High Return Mining Stock Ideas

On the assumption that gold and silver have bottomed and are headed higher from here, the stocks below are my favorite risk/return ideas.  My last one Silver Crest, was acquired by First Majestic.  I believe these companies are potentially “on deck” to be acquired.

These reports are available individually or in a two-report special price package ($30 each or $40 for two).

Note:  Many of you have already purchased these reports.  If you are not sure, please check with me.

This company year-to-date has outperformed both the S&P 500 and the GDXJ junior mining stock ETF. Also, it recently raised just under $30 million and a major mining company bought 44% of the deal  – click image to enlarge:

BlogGraph

You can access this report here – Click on image:
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Or here:   MINING STOCK REPORTS

 

This company has outperformed the GDXJ ETF over the last 52 weeks and recently released 43-101 resource report on a massive copper-gold project in Russia in which this Company owns  a controlling stake. They are in negotiations to transfer its stake in the project with a one of the largest Chinese mining companies for an all-cash price that is more than double the Company’s current market cap:

You can access this report here – click on image:
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You can buy both reports at discount to buying either individually here:

BOTH MINING REPORTS FOR A 33% DISCOUNT

When gold and silver prices finally reflect reality, the gold and silver shares will have represented one of the greatest buying opportunities in the history of finance.  – John Embry on King World News