Which assets have the most to rise?
We've all been happy by the action of the last few days. It's niceto see miners rising by 3-5% a day.
Now, assuming this is finally the beginning of a new bull legup --and the false dawns are at last over-- we ask, which part of the PMuniverse has to most to rise?
The easiest way to answer this is to see how far each group isbelow its all-time high. One big reason I am not big on the general stockaverages now is that so many of them are at or still near there record highs.Yes, the S&P and Dow are a few percentages down from their August highs,and this may, repeat may, be the start of a correction. After all, they've beenrising since March of 2009 and we've all gotten a lot older since then.
My short answer is the miners have the most to rise. However, manyof the royalty companies are at or near their highs, so they may not rise asmuch.
Let's look at these royalty companies first:
FNV made a high in July of 2020, and then just barely went above thathigh in July of this year. From there it fell from $161 down to $127. In thelast few sessions, however, it looks like that fall is over. It is nowover $139. Still, this is a long way up from the 2011 highs of the miners ingeneral. At that time, FNV was about $50, more or less.
FNV has thus soared so much from the old miner's highs of 10 yearsago that I'm not sure it will be the biggest riser if we are in a new bullmove. By all means, still hold it. My guess is that "the last shallbe first", and FNV has clearly not been the last, being 200% higher thanit was a decade ago.
On the other hand, RGLD --while it is up tremendously since first recommended all those years ago (canit be nearly 20 years?)-- is only up about 10% from the highs of 2011-12:
RGLD is now down about 30% from its highs. But those highs cameless than one year ago, and not a decade ago, the way the mining ETF's of GDXand GDXJ have done. The jump overall of the past few days have tacked on about7% to it. This is not bad, but remember that FNV has risen about 10% over thesame past few days.
Of course, I would keep it: we long ago snatched our originalinvestment stake out of this. But I wouldn't count on it to soar as much as thePM assets that have truly bombed out.
Now to the newest royalty choice: the smaller Metalla. (Forsimplicity's sake, we'll just use the US-dollar- listed MTA. While nearlydouble its recommended price, MTA isstill, at $7.50, about half its record high of last December:
MTA has soared over 18% (at this writing) since the start ofOctober. This may be too far, too fast. However, of the royalty companies, thisone has the most to gain back, in percentage terms.
Finally, though Sandstorm (SAND) is not a newsletterrecommendation, I know people like it. It is clearly different from the abovethree in that its highs were made long ago, in 2012:
And though SAND has risen over the last few days, it is now justwhere it was one month ago. I don't know how to approach a forecast for this:since its $2.63 low in December of 2015 --when I think the overall PM market made its lows, even though the risesince then overall hasn't been as great as I'd like-- I've noticed one thingabout SAND. That is, it's overall rise with always higher lows wasbroken early last month. It was only broken by 4%, but still.
I know that MTA has been making lower lows since the highs of lastDecember. But --don't ask me why-- I am more willing to be optimistic on astock that has been doing terribly, in hopes that it has become 'bombed out',than I am with one that has broken its bullish pattern after several goodyears. This same goes for RGLD, which has had lower lows for months. Maybe itfinally has gone low enough?
FNV is still experiencing ever higher lows, and is in good shape:the blue-chip of the PM stock universe.
Now, To the Regular Miners
The largest gold miner is Barrick (GOLD). But it has clearly lagged in the past decade, down 63% fromits highs:
GOLD was one of the first miners to recover from its huge droppost-2011. It bottomed at $6.36 inAugust/September of 2015. This was even before gold itself bottomed later thatyear. Of course, at the current nearly $20, and with a nearly 2% annual yield,it has clearly recovered from that 2015 low. But it is still dearly shy of its2011 record high of $53. It would need to double and then nearly double againto break into new highs. I think this will happen if we are indeed in a newbull leg: it is just a matter of time. And you get paid for waiting: I know 2%is not great, but it is more than you can get at the bank these days.
Newmont Gold (NEM), onthe other hand, is more of a mess. It is sobering to realize that 25 years agoNEM was higher than it is today. In March of 1996 it stood at $60; it is now$57.50. And that's of course not accounting for inflation over the past quartercentury.
NEM has a sorry history of making new records only to crash soonafter: 1996 to 1998; September 2011 to September 2015. Since the 2015 lows of$17, it made a new record just this past May 17, at $73.50. But in the weekssince then it fell sharply to a low of $53 at the end of September. Are we infor yet another post-record crash from NEM? Yes, it has jumped 8% since then,but so has nearly everything else. The jury --or at least me-- is still out onNEM.
We're keeping it in the portfolio since we long ago reapedoriginal investment on it. But would I recommend it for new money, at least alarger percent? I'm not sure.
It is a big miner of long standing, so it should be poised to gainin any new bull market. But from 2015's lows to last May it soared 333% (andadding the 4% annual yield, even more).
I own NEM, but I'm going to be watching it closely... in hopes itwon't be up to its old tricks.
?EUR
We move now to the smaller individual companies and the ETFs. Inno particular order, here is Pan American Silver's chart (PAAS)
If we can show the chart from 1995, at first glance it lookslike a series of highs followed by sharp falls. It did so very well from 2001to 2008, then fell along with the rest of the stock market, but recovered muchsooner, and then made a double high in 2011. From there it fell 80% to theDecember, 2015 low of under $6.30.
From there it soared to a high of nearly $38 in August of 2020:the exact time we thought the rise in the overall PM universe had gone too far,too fast, and urged people to expect a correction (one that I dearly hope isnow over).
That 2015 to 2020 rise was over 200%, counting the 1.6% annualyield. But from that 2020 high, PAAS corrected by over 40%. It reached a low of$22.50 just a week ago. Since then --overjust the past few days-- it has risen 13%. Of course, I'm hoping the correctionis over.
But at the same time, a chart like PAAS's gives you perspectivethat we have come a long way up, in many cases, from the December/2015 toJanuary/2016 lows. Yes, we've had a correction since August last year. But ithas been a correction within a larger bull market.
And no two bull markets are alike. The one that began in 2001 hadover 20 years of bear market to start making up for. So the assets just roseand rose and rose for nearly all of the next decade. At that top, ten yearsago, the next four or five years were a monster correction. But still, to myview, a correction within the overall bull market that began with this newcentury over twenty years ago.
More recently, we've had a mini-correction since August, 2020(though I can understand that people who got in at the top back then would notuse the term "mini" for it).
We are, in real terms, about half the 2011 peak value for PAASnow. If silver breaks above $30, we can expect an ultimate double for PAAS, atthe very least.
Staying with silver stocks, SSRM is still under book value (0.93). (PAAS is 1.89.)
SSRM is a stock that reached its record way back in October of2007, just a few weeks before I issued that "everyone out of the stockmarket" alert. Well, it would have been a good time to get out of thissilver stock as well: from the $42.60 top (in 2007 dollars, at that), itplunged to a low of $4.36 in January of 2016, when I think the newest major legup bull market began again. At the current $16.20, it may be a big jump fromearly 2016, but it has a long way to go to reach its old 2007 highs: maybe asmuch as 300% in real terms.
When there is a lot of great action, as there has been over thelast couple weeks, I always like to see if any asset is being left behind in anappreciable way. You can't say that about SSRM, since it has jumped by 14%since October began. And very importantly, while it is still trading below bookvalue, the fact that it sports a 1.3% annual yield is a great sign that SSRM isa going concern. Forecasts can be wrong, but if a company pays out a cashyield, that says a lot.Thus, I think that any purchase of SSRM at current prices will make theirowners happy.
The largest single holding of the global silver miner ETF, symbolSIL, is our recent addition of Wheaton (WPM).SIL has nearly 25% of its holding in WPM alone, so by buying SIL you areholding WPM indirectly. However, I choose to single it out for specificrecommendation because I (apparently like SIL's managers) think we could seebig things for it.
WPM reached its record high back in those wonderful days of earlyAugust, 2020.From there until this past March, it corrected by 35%. But sincethat low WPM has been making high lows, and in the last ten trading days it isup by over 12%. Certainly, I have high hopes that the lows are in for WPM, andfor the stock in general. Remember, it has a yield of 1.5%.
We should end this section with both SIL and silver itself. For SIL, while it has nearly 25% just inWPM, nearly 10% is in PAAS and nearly 5% in SSRM. Thus, if you own these threestocks, you own nearly 40% of SIL. So most of its holdings are of companies youmay not own, like Polymetal International (12%), Hecla, First Majestic,Fresnillo, Korea Zinc, and our old friend CDE. And those are just some of thetop ten holdings: SIL holds smaller amounts of many other smaller silverminers.
At the current $39, SIL is less than half of its peak in April of2011, when I heard strangers tell me that silver (at nearly $50) could only goup more. This fact was only one of the reasons for my Alert to lighten up ofApril 25 of that year.
By the way, when I say "lighten up" it does not mean thesame for everyone. For those who boughtat $4, they could just hold. But for those who got in closer to the top, or whowere holding leveraged products like futures or options, 'lighten up' means toget rid of those, or at least cut way back. The next time I say "lightenup", I'll repeat this.
In any case, it is much harder to make clear forecasts for an ETFlike SIL, because you can't be sure what mix the managers will choose in thefuture. But it would have to go over100% in price to match its 2011, especially in real terms.
Silver itself hit a panic low on the last day of September: as low as$21.45 basis futures. As of this writing, it is $23.50, so silver has jumped by9.3% over the last ten sessions. The current silver to gold ratio is 76.5:1.That's up --meaning silver has weakened vs gold-- from the 64:1 ratio of thispast March.
I think that since silver has been much harder hit than gold, andis much farther away from its record highs, that we can expect silver to nowstart rising faster than gold. I want to see the current ratio go back to 64,and then ideally decline further from there (meaning that the lower the ratio,the more silver is valued compared to gold).
In the back of my mind, I had been waiting for silver to make apanic low before it could recover. Maybe it is wishful thinking, but to me theaction of September 30 was that panic low, pushing below silver's old low of$22. Of course, in the mini "Covid" crash of March, 2020, silverplunged below its 2015 lows of $15, to under $12. But that was an aberration.Still, it has nearly doubled from there. That's not enough, however. I want tosee silver finally break above $30. I still believe that ultimately, it will befar, far, higher. But as it is, it has to more than double to get close to itsold highs.
?EUR
It has been pointed out that on some charts, gold is tracing a'cup and handle' formation. This is a bullish technical sign.
The central point, to me, about gold is how close it is to itsrecord high. At $1800, it needs only arise of less than 15% to make a new high.But it may well be that being so close to the old record may limitgold's upside action, compared to silver and the miners ETFs.
To see a truly still bombed-out sector, right in the midst of aDow and S&P at near record highs, turn to GDX and GDXJ.
The major gold miners ETF, GDX,made its record highs in 2011 at about $63.It then plunged to a $13.70low in late 2015, a loss of nearly 80% in less than four years. From there, themajor correction was over, and GDX got as high as $43 (a 215% jump from thoselows of four to five years before). Still, in real terms far below the 2011highs. Since August, 2020, GDX has fallen from $43 to the $28.89 low of just afew days ago, on that black day late last month. In the days since then, GDXjumped 14% to its current levels.
Just as I thought that August of 2020 were interim highs, I thinkthat late September of 2021 saw the correction lows. The trading and sentimenta couple of weeks ago had all the aspects of severe bearishness: the kind ofatmosphere conducive to having everyone who is going to bail out indeed bailout. When there is no one left to sell, then the buyers take over.
Adjusting for inflation (and if you can't use gold miners as amark of inflation what can you use?) GDX would have to more than double fromthese levels to reach the old 2011 highs. It is only a matter of time. To me,it is a better bet that GDX and GDXJ will double before gold doubles to$3600.(But of course, gold is not subject to the crashing plunges thatthe miners are.)
So now to the worst ETF of all: the junior miner GDXJ. From a high of $171.88 reached intradayof April 8, 2011 (now almost exactly 10 and a half years ago) GDX thenproceeded to plunge to $17.06 on January 26, 2015. That's a loss of over 90%.
Clearly, GDXJ has recovered from that 2016 low. It got as high as$65.43 on August 8, 2020. Yes, that was a nice 284% jump in just over fouryears. But still nowhere near the old highs. And then came the correction. Itwas probably inevitable, since the prior rise from January, 2016 to August,2020 was nearly 300%.
Since those 2020 highs, GDXJ fell to a low of $37.31. Thathappened on --surprise!-- September 29, or two weeks ago. So GDXJ fell bynearly half over that eleven months.
Again, I hope this was the panic low. In the days since then, GDXJis up by a large 17.8%. That's why I say that 'the last shall be first': thatETF most hit during the bad times can normally be counted on to rise the most--or among the most-- during the good times. And to repeat, I hope and believethat those good times have finally begun. If it goes (rather say 'when' itgoes) back to its nominal 2011 record high, just in nominal terms it would haveto rise by 292% from today's price. In real terms, it would have to be evenhigher.
Thus, the more I am convinced that we are finally turning thecorner, the more I will want to put into GDXJ. Just as GDXJ dramatically underperformedgold since 2011, I believe it will dramatically outperform it over the nexttime period. I hate to use that overworked phrase "going forward"; ifI have to guess how long the next bull leg up will last, I will only say"the next few years". The last one lasted from January 2016 to August2020, or 4 1/2 years.But if I see that things are going up too far, toofast, like I did in August 2020, I will advise tactical lightening up on theleveraged products.
?EUR
EQX hit a record high in August, 2020, at $13.13. It hit a lowfrom that this past August at $5.90. On the 14th (today, as I write), it gotabove $8. Thus, it fulfilled my initial target when we recommended it a fewweeks ago. But while EQX may have jumpedover 25% since then, and may have indeed come too far, too fast, I think we cansee this best the $13.13 highs of last year. At least, that's how I aminvested.
Again, I can only repeat what I think about the future fortunesfor this entire area: it is a mere matter of time.
By Christopher WeberContributing tokitco.com
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