It's Old Turkey Time For Precious Metal Miner Investors

When I first started to invest in the stock market over 15 years ago, I did everything I could to be the best investor I could be. I watched CNBC daily, read Barron’s and countless other mainstream paraphernalia…….and promptly lost over 50% of my capital in 2 years. That, my friends, is lesson number one if you want to be a successful investor. Lose a large sum of money so you can learn from your mistakes. After a few all night drinking binges I decided to do some contrarian research and came upon a legendary newsletter entitled Dow Theory Letters and the living legend that ran it, Richard Russell. Sadly, in 2015, Mr. Russell left us after an incredible 91-year lifetime while helping countless investors reap fortunes in the stock market. I don’t know whether to thank the old master, or condemn him for introducing me to the most fascinating, frustrating, and volatile sector on the planet that is the precious metals miner market.

There are countless lessons that I learned from him and one of the best was to find an unloved and completely decimated sector that has made a solid bottom. Then, overweight your portfolio into that sector and hold on until it matures. This is the best way to make big money in the market. Heading into 2016, the gold mining sector was totally unloved, completely decimated and rife with opportunity for seasoned and amateur speculators. A few months later, the gold mining sector appears to have made a major turn.

Enter Mr. Russell’s words of wisdom “hold on until the sector matures” which harken back to a character known as “Old Turkey” from whom famed trader Jesse Livermore learned so much. In Edwin Lefevre’s “Reminiscences of a Stock Operator”, Livermore recounts the lesson from Old Turkey: 

“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this  It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

The last few weeks our sector has been bombarded by pundits calling for a miner “crash” because of the alleged bearish construction of the CoT’s. They want you to “take your profit” and actually short the sector, which is only a few months removed from the worst bear market in 90 years. One even posted a picture of sheep implying miner investors were about to get “fleeced” by the commercial hedgers who are currently net short. The Old Turkey in me sat back and said “be right, sit tight” as the sector continued to trend higher and quickly erase any losses.

Here are my 3 reasons for the bottom call in the miners:

1. The big shorts have cleaned up and left the sector. The major sector leaders ABX, AEM, and NEM have all had huge short covering moves and also now have solid bottoms. Bull markets ALWAYS begin with big institutional short covering.
2. The big institutional money is now buying and they want your shares. They are buying value and they could care less about CoT readings here as weakness is bought.
3. The GDX, GDXJ, HUI, and XAU action is implying that the 1180-1200 level is now a floor in gold as the yellow metal has just ended it’s best quarter in nearly 30 years. Quality miners make nice profits above this level. Shares always lead the metal and miners started topping a year before gold hit the high of $1920 in September 2011. The large miners bottomed last summer and the entire sector continues to show strength and stability even as gold consolidates in the mid $1200s.

If you are already fully invested in the sector, then just think of Old Turkey when the sector is experiencing a correction. If you are still accumulating, then buy weakness in quality miners and hold fast! I have been waiting for “Old Turkey Time” in this sector for 5 years so I will be holding my diversified miner portfolio until this new bull market starts to mature and I suggest you do the same.

By David Erfle
newsfeedback@kitco.com

David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."