The U.S. Fed indicated that they are still willing to come to the market's rescue if the situation were to demand it, however it does not seem that their requirements for entry are that high indicating at least to us that they view this recovery as fragile. We find ourselves bulls most of the time, and currently we are bullish as we had previously arrived at the conclusion that the U.S. Fed had to backstop the markets as the Europeans were either incapable of or unwilling to do it themselves. So commodity investors now find themselves in a sweet spot as they can benefit from higher revenues and profits from currencies being devalued or from increased economic activity. These are indeed the markets we like to invest in, and the type of markets which make investing in precious metals worthwhile.
Oil & Natural Gas
SandRidge Energy (SD) rose $0.12 yesterday to close at $6.55/share on volume of 10.4 million shares. The volume has risen the past few sessions, but the stock has begun to stagnate. We need to see it test $7/share, break through that level and then hold it. If this cannot be achieved then we are going to be in a holding pattern here and with oil prices having risen dramatically this could cause shares to underperform. We think that the company's last quarter was misunderstood and that analysts have shifted preference over the past few years to companies which crank out positive cash flow and earnings rather than significant production growth and value creation through the drill bit. Eventually the market will recognize the opportunity here and we still believe that the shares will rise to the $10 level in the next 12-18 months.
It came to our attention yesterday that Freeport-McMoRan (FCX) was able to rise to the $37/share level yesterday which puts it within range of that $38/share level we have talked about. With the Fed more than willing to act if we hit a bump in the road to recovery it indicates to us that whether the economy does well or bad, either way Freeport will flourish. They still have some issues regarding their mines in Asia and Africa and how those will be taxed moving forward, but with gold rising and central bankers still willing to depreciate their currencies it seems shares are set to rally on that news alone.
Precious metals stocks performed well yesterday, especially the gold miners. We think that Yamana Gold (AUY) is one of the better plays with momentum on its side as shares are not too far off of a 52-week high. It is one of the more bullish stories in the sector, however we would also like to highlight Paramount Gold & Silver (PZG) which finished yesterday at $2.50/share on volume of 1.7 million shares. During a conversation with our mentor two days ago, he brought up Paramount which is a stock we both follow. The company continues to grow the deposit and he has been eyeing this for some time but only pulled the trigger earlier this week. We mention this because he generally has impeccable timing when it comes to these types of trades.
Barrick Gold (ABX) had strong volume yesterday and managed to turn in a strong day after the Fed Minutes were released. The stock has been battered recently, but shares are on the rebound and are looking at taking out $38/share which if that were to be taken out investors would then look to $40/share. We are not buyers until shares rise the needed 10% to take out $40/share as we see that as the level when the situation is confirmed for a bullish move higher without much in the form of resistance headwinds as $45 looks like the next test after that. One could trade within these ranges, but that would take far more effort than we are willing to expend on this trade.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.