Miners Could Reach First Stage Blow Off Targets Soon

I just returned from the well-attended Sprott Symposium, which was held in Vancouver last week. I could hardly believe my ears when I heard the very first speaker tell the audience of over 700 attendees he sold all of his gold miner positions the previous Friday and will not return to the sector for at least three months. He advised everyone there to do the same. I also spoke with many of those attendees and surmised the collective mood as one of cautious optimism. Most retail investors are either still not fully committed to the precious metal miner market, or waiting on the sidelines for a large correction. Many sector analysts and newsletter publications continue to keep their followers and subscribers out of this market as they await the elusive 20-30% correction many have been predicting since March.

Here is just one example of the incredible denial, which remains in the gold subscription newsletter analyst space:

“If we were to get a second cycle inversion and a move up to the $1,450 to $1,500 region in gold by October, then we would likely see the precious metals crash and burn, along with mining companies into early 2017 — and to new record lows.”  (Italics are the authors) This very seasoned long-term gold bull has kept his subscribers out of this entire move!

In January 2013 the mining sector had a trap door open that eventually lead to three consecutive torturous years of losses. The victims included many investors who became millionaires during the 2009 – 2011 miner bull market. I should know, as I was one of them! The bear market was reinforced in April 2013 when Gold lost the $1500 level for good. Since that fateful month the institutional big money short sellers decimated the sector as they made huge profits and chased even the most ardent long-term bulls out of the miners. This culminated in a 6-month capitulation phase ending on January 19 of this year. It created what will likely be seen as one of the best buying opportunities in decades as the sector has already regained 75% of the previous 3-year decline in 6 months. Just think; buying dot-com stocks in the mid-90’s.

However, many do not realize that even though we have seen two spectacular bull market cycles during this new century, precious metal miners have been in a bear market in relation to the price of gold for 20 years! At the end of the last century, gold bottomed in the $250 per ounce range as the XAU large cap miner index was trading around the 45 level. When gold bottomed in December 2015 at the more than four times higher price of $1050, the XAU bottomed at the same 45 level!

Last month, gold made a monthly close above $1350 per ounce which helps to make a strong case for the $1500-1550 level to be seen as we head into a strong seasonal period which includes the unpredictable U.S. Presidential Election in November.

My targets for the miners on this historic first move off the low six months ago are the January 2013 trap door levels of 40-42 in the GDX and 350-375 in the HUI. If this does indeed take place, the vicious three-year miner drubbing would be retraced in just nine months!

The lack of retail involvement coupled with the fact that many sector newsletters remain on the sidelines waiting for a correction, continues to keep me fully invested in this sector. Not only have they remained on the sidelines, some have also advised shorting this move, which has only added fuel to this historic rebound. So, if sideline watchers begin to lose patience and want in at any price, coupled with new shorts being forced to cover, this could very well create the first stage “blow off” move to my aforementioned targets heading into Q4.

By David Erfle Contributor to Kitco News
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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."