The above are edited excerpts from an article* by Jeb Handwerger (goldstocktrades.com) entitled Why Capital May Be Flowing From Equities to Junior Miners in 2014.
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Handwerger goes on to say in further edited excerpts:
Some of my charts are showing a potential reversal in the precious metals over the next couple of weeks.
GDXJ Reversing Above Its 50-day Moving Average
The junior miner gold ETF, GDXJ, is reversing above the 50 day moving average and breaking above its recent three month downtrend.
…The…cash positions waiting on the sidelines [and/or the]…profits taken…[from] the rising equity market… return to the ignored resource sector the gains could be huge. Already the 2014 volume in GDXJ has jumped considerably, outpacing 2012 and 2013.
S&P 500 Has Been Rising On Low Volume
On the other hand the S&P500 has been rising on light volume which is often a warning sign that the extended rally is getting exhausted. [All of] this indicates to me that possibly the large institutions are accumulating the juniors after all the retail investors jumped ship.
Get ready for an incredible bounce higher in precious metals.
Here are five reasons why:
- Increased M&A in the gold mining space and equity investments in junior miners should tell you where the smart money is headed. Take a look at the recent Osisko deal where Yamana outbid Goldcorp for their Quebec mine as a recent example and a straw in the wind. Look at Gold Resource Corp (GORO) and Hecla’s (HL) increased investments in the junior space.
- Gold and silver are trading way below their three year trailing averages which indicates that the price is way oversold and a major bounce is likely. Furthermore, gold is priced below production putting strain on future supply as miners mothball marginal projects.
- The equity markets are too high reaching extreme overbought and speculative levels similar to 2007 before the crash. A correction in equities sparked by fears of deflation could spark the return to gold and silver as a safe haven as Central Banks may continue to push negative interest rate policies similar to what the ECB recently announced.
- Gold and silver have been basing for three+ years and the junior miners have been in arguably a seven year bear market reaching historic oversold levels.
- If geopolitics tensions escalate (think the Ukrainian-Russian and the Middle East situation in Iraq, Libya, Syria, Iran and Turkey) it could send metals, commodity and oil prices soaring. Do not be surprised to see further chaos and increased violence as the U.S. pulls its troops out of the region…
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://goldstocktrades.com/blog/2014/06/11/why-capital-may-be-flowing-from-equities-to-junior-miners-in-2014/ (© 2014, Gold Stock Trades )
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