Mining Stocks Flash Powerful Signal for Gold and Silver Markets / Commodities / Gold and Silver Stocks 2019
The second half of the year is setting up favorably for theprecious metals sector, which was led in the first half by gold and gold miningstocks.
Of course, the Wall Street-beholden financial media is largelyignoring metals and mining – preferring instead to give celebratory coverage toevery move toward new highs in the Dow and S&P 500.
“The Dow Jones Industrial Average rallied 7.2% this month[June], notching its best June performance since1938,” CNBC reported. “The S&P 500 posted its best first half ofa year since 1997, soaring 17.3% and reaching an all-time high.”
That’s all well and good for conventional index investors.
But they are missing out on much bigger growth potential nowbeing put on display by gold stocks.
For the month of June, the HUI gold miners index advanced 17.7%(more than double the Dow’s performance). The index is up over 30% since itslow point in late May.
It’s not unusual for an annual rally in this volatile sector toproduce a doubling of the majors’ share prices. For the more speculativejuniors, gains can often be measured in multiples of 100%.
When things are going their way, there is no better sector thanmining stocks for spectacular profit potential. When things aren’t, miners willburn investors far worse than any broad market index fund ever will.
Similarly, shares of gold and silver producers tend to amplifyboth the gains and the losses that occur in the underlying physical metals.Even a relatively modest correction in metal prices can translate into a crashin the equities.
Historically, the devastating declines produced during bearmarkets for mining stocks have outweighed the gains of bull markets. Over thepast two decades, buy-and-hold investors have experienced lower risk and higheroverall returns from bullion as compared to shares.
Investors may be surprised to learn that physical gold outperforms miners over the long run. The chart below – a 20-year look at theperformance of the HUI gold miners index relative to spot gold prices – provesit:
Goldequities are suitable for traders and speculators who have a high tolerance forrisk. Gold bullion is better suited for long-term investors andhedgers who seek to guard against risks in the financial system.
During the turbulent market conditions of 2008, gold pricesfinished the year in positive territory. The HUI index lost nearly 30% of itsvalue.
At the end of the day, stocks are financial assets – regardlessof whether they are associated with hard asset producing businesses. A miningbusiness can go bankrupt; its shares can go to zero. A gold or silvercoin will never become worthless.
Precious metals bulls who prefer to stick with physical bullioncan still take some encouragement from periods when the mining sector gets hot.A sharp rise in gold and silver equities (as seen from late May through Junethis year) often precedes a sharp rise in the metals.
We haven’t yet seen silver move strongly to theupside. Prices remain extremely depressed in absolute terms and relative togold and other metals.
Market guru Greg Weldon sees silver’s long, drawn out base asbeing akin to a “launching pad. We're waiting for the countdown, we're waitingfor ignition.”
In a recent interview with Money Metals, Weldon notedthe bullish price action in the major silver mining exchange traded fund (SIL).“When you look at the SIL versus the price of silver, it's flipping right now,where the silver mining shares are beginning to grab the torch of upsideleadership here. So to me, all that bodes very well for silver,” he said.
Silver tends to trade more volatile than gold. During bullmarkets, silver often performs like gold on steroids.
Though lately the white metal seems to have lost its mojo, itwill eventually get it back. The technical setup suggests that could happensooner rather than later (but investors should still be prepared to exercisepatience).
Physical silver is a great choice for investors who want tocapture upside potential similar to that of mining stocks while holding a hardasset that has historically served as money.
Given that the gold:silver ratio trades at a generationalextreme of over 92:1, there may never be better time from a value perspectiveto favor silver. If the signal of the mining sector is accurate, silver is justabout ready to launch.
Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2019 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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