In 2011, equities were cheap compared to the overvalued gold miners. Now two year later the cycle is the reverse, gold miners are cheap compared to equities. Investors are going into debt to buy blue chip stocks and short junior gold miners. Now is the time to pick up the mining shares on the cheap when the masses are borrowing money to short the miners and buy the overvalued equities. This trade of short miners/long blue chips may be coming to a painful end.
We know these margin fed rallies usually end with a lot of pain. Don’t forget the dot com bubble of 1999 or the subprime crisis in 2007.
With regards to gold and silver, I believe we are very near a bottom as the short position reaches a record level. I see the downside risk for gold as maybe $50 and the potential upside of thousands of dollars. The time to buy is when funds are facing redemption and marginal players face capitulation. We may have seen that at the end of 2013.
Experienced players have never seen the shares at such bargain prices and are continuing to accumulate. The majors are already beginning to make major changes, selling assets and cutting expenses. We may be near a major bottom that comes around maybe once in a lifetime. That is why we are seeing an uptick in M&A activity such as Goldcorp’s (GG) offer for Osisko (OSKFF) and Primero’s purchase of Brigus.
I never thought we would see this buying opportunity happen again in my lifetime but the media, who are owned by the banks who have shorted this sector to oblivion, have wiped the marginal investor out and forced them to sell assets for pennies on the dollar.
This is the law of the casino. Many go home empty handed, while only a patient few who can withstand losses eventually come out winners. I believe the selling capitulation now is giving value investors a major gift who may soon enter this beaten down sector big time.
Look for savvy investors come swooping in to pick up shares in early 2014 as they may see unbelievable opportunities in this space. Smart investors are on the lookout for assets trading at significant discounts to what major investors paid recently.
For instance, one company which I have just recently bought and plan to buy more of is Canamex Resources (CSQ.V or CNMXF). Hecla paid $.18 back in 2012 before amazing discoveries. Now Canamex can be bought at around 1/3rd of that value despite hitting unbelievable results in 2013. Some of the best I have actually seen from Nevada. Canamex controls the Bruner Gold Project in mining friendly Nye County, Nevada where they are making a major new gold discovery.
The project is extremely well located in an area of multi-million ounce deposits near the famous Round Mountain Mine two hours southeast of Reno. Canamex has made some very positive discoveries recently at the project. The company is demonstrating that there are high grade feeder zones on the property that could be used as a starter pit.
Canamex continues to hit amazing results on a consistent basis and attracted the attention of major gold producers such as Hecla who came on as a significant shareholder after months of research and due diligence on the asset back in 2012. Hecla bought a major position in this company around 15% at $.18, around three times higher than where it is now. This investment of capital, an active representative on the board and technical expertise came after six months of due diligence and analysis.
Investors can buy it now at close to a 1/3rd of that Hecla’s purchase price. Over the past year, Canamex has made unbelievable geological progress. Canamex has released some awesome holes from both the historic resource area and the new discovery at Penelas East.
In the historic area they hit 57.9 meters of over 5 grams/ton. In addition, The Penelas East Target is one of the seven target areas on the property and the technical team has hit on 38 out of 44 drill holes with some of the best results being over 100m of 4+ gram grade. They released results of 79.9 meters of 1.5 grams per ton.
In a regular resource market these high grade results over large intersections would get the market very excited and the stock should fundamentally be at much higher levels despite a struggling gold market. As the resource market turns Canamex may be one of the first takeover targets from a major and may see increased interest as investors return to the sector in 2014.
The metallurgical studies of both the historical resource area and Penelas East show that this could be a lower capital intensive asset. These geological and metallurgical results warrant further funding in 2014 as this could be the type of asset an emerging major like Hecla would want to own 100%.
Look for Canamex (CSQ.V or CNMXF) to breakout from this ascending triangle at $.075. Notice the strong accumulation in the fourth quarter of this year as the company appears to be forming a bottom since this summer. Technical traders are looking for a golden crossover of the 50 and 200 day moving average which indicates a major trend change.
Disclosure: Author Owns Canamex and the company is a sponsor on website. Conflicts of interest apply. Do your own due diligence.