Investors Need To Be In Precious Metals As S&P Marks Historic Bull Run
Image by:Pavel Ignatov / Shutterstock.com
(Kitco News) - The S&P 500 Index has reached a historical milestone: Wednesday marked the longest bull market run in history and one market analyst said that this is the time that investors need to move into precious metals and mining stocks.
Fred Hickey, creator of the investment newsletter The High-Tech Strategist
In an exclusive interview with Kitco News, Fred Hickey, creator of the investment newsletter The High-Tech Strategist, said that the precious metal sector is on the cusp of a new paradigm shift as sentiment in the marketplace is extremely negative.
On the flipside, the tech-sector market specialist explained that valuations in equity markets are overvalued and are unstainable at current levels.
“As of today we have the longest bull market in history and on some levels we have the most expensive markets in history,” he said. “I need to be in precious metals because this market is overbought and coming down.”
Hickey added that the impending correction could be a lot worse than some are expecting as the U.S. economy is not as strong as it appears. He noted that growing debt is going to be a significant weight on economic growth going forward.
“We have been growing the deficit during an economic recovery, what is going to happen when a recession hits? This is going to be the best environment for gold,” he said. “I think the bottom hit at $1,050 in 2015 and I think we are going to see a 20-year bull market for gold.”
Gold Is Holding Up Well Despite The Selling Pressure
While gold has struggled to find momentum as prices have dropped more than 10% in the last four months, Hickey said that he sees relative strength in the marketplace, and the impact of short-selling is weakening.
He noted that speculative bearish positions are at historic levels. The latest trade data from the Commodity Futures Trading Commission shows that money managers are net-short gold by 83,324 contracts. He compared current trading data to the 2015 lows when money managers were net short by 20,566 contracts.
“We are four times higher than when we were at the lows three years ago. We see off-the-chart short positions and yet the short-sellers have only been able to get the price down to $1,200,” he said. “We are just waiting for the match to light the fuse that will propel gold prices higher."
U.S. Political Turmoil Could Be The Flame
Hickey said that recent court drama could be the key that pushes equity markets down and gold prices higher. Tuesday the Trump administration was dealt two significant blows as President Donald Trump’s personal lawyer plead guilty to a variety of charges including campaign finance violations, which he said in court were “in coordination and at the direction of a candidate for federal office.”
At almost the same time a jury found former Trump campaign manager Paul Manafort was found guilty on tax and bank fraud charges.
Hickey said that he doesn’t think the legal developments will bring Trump’s presidency down, but they are problematic for the Republican Party that is trying to hold control of the House and Senate in November’s mid-term elections.
“I don’t think the market will like all this political uncertainty and that will be good for gold,” he said.
He also noted that the S&P’s historic run could also be its biggest weakness and could lead to a more significant correction than some analysts are expecting. He said that half of the money managers in the marketplace have never experienced bear market conditions.
Hickey’s Top Three Mining Picks
As to what mining stocks investors should be looking at, Hickey said that he invests in companies that have projects in well-developed jurisdictions, with established rules of law.
He added that his three top picks are Agnico Eagle, Kirkland Lake Gold and Prentium Resources.
While Agnico released disappointing second-quarter earnings last month as its net income fell, Hickey said that the company is in a transition period as it looks to open new mines in Canada.
“Agnico’s new mines are going to be low cost and higher grades,” he said. “I think the company is going to see a significant increase in its cash flow next year. This is the time to buy before people understand what is going to happen.”
Hickey added that he likes Kirkland Lake Gold and Pretium Resources because both companies have been able to increase their cash flows significantly. Kirkland Lake reported record cash in the second quarter.
Meanwhile, Pretium saw its balance sheet increase by more than $72 million in the second quarter to $142.5 million.