Seeking Alpha

Jeb Handwerger's  Instablog

Jeb Handwerger
Send Message
Gold Stock Trades Editor Jeb Handwerger is a highly sought-after stock analyst syndicated internationally and known throughout the financial industry for his accurate and timely analysis of the equities markets, particularly the metals and mining sector. Subscribe to his FREE Newsletter right... More
My company:
My blog:
Gold Stock Trades
My book:
Free 30 Day Trial Invitation To Daily Bulletin
View Jeb Handwerger's Instablogs on:
  • Value Investors Entering Junior Mining Sector?

    The gold (NYSEARCA:GDX) and silver (NYSEARCA:SIL) miners have been hammered down to historic 1999 lows, while the U.S. banks (NYSEARCA:XLF) and U.S. dollar (NYSEARCA:UUP) reach new heights. Many amateur investors may be prematurely assuming that all is well with the global economic picture. The fine tuning of the economy by the Central Banks and specifically Ben Bernanke appears to have been a major success to the masses. On the other hand, astute investors who have learned from history and are aware of the financial risks stemming from currency devaluation. Could this really be an illusion? Could the dollar be on the verge of a collapse? Is The Fed losing control of interest rates that could spike higher? (click to enlarge)

    Gold (NYSEARCA:GLD) is undergoing a significant correction after making a huge run from the 2008 low below $800 to $1900 in August of 2011. Gold is significantly below its 3 year trailing average at $1550 and its 5 year trailing average at $1327. The last time this occurred was in the late 90's. Investors who acquired gold back then saw incredible 660% gains while the equity markets did nothing over the next 15 years. A similar opportunity could be occurring right now in precious metals and the junior miners (NYSEARCA:GDXJ).

    Long term investors are increasing realizing that this is a historic buying opportunity for natural resources and mining stocks. We are near thirty year trough in the value of miners. Commodities are cheap, interest rates are historically low and the U.S. housing, greenback and equity markets are near all time highs. It seems that many of us, underestimated the powers of the Central Banks on the free markets to manufacture a recovery while suppressing commodity prices for the short term. However, astute long term value investors realize that this is the time to acquire real assets for pennies on the dollar. Every action has an equal and opposite reaction. Eventually, contrarian value investors will be rewarded.

    Don't get confused by the Fed's bafflegab. One week, Bernanke testifies in Washington saying easy money policies must continue to prop up a weak economy or else we could face a significant threat to this recovery. The markets rally. The next week, he says he may taper by 2014. The markets fall. The Fed appears to be micro-managing the markets as they fear a loss of control.

    Bernanke may have wanted to take a little froth off of the equity markets and prevent oil breaking the $100 mark. Precious metals are now completely out of favor, which allows Central Bankers to continue devaluing the dollar. Not allowing the free markets to balance itself out and these constant policy interventions could lead to unknown long term economic consequences. Eventually, investors could lose confidence in paper assets and get "fed" up with potential devaluation. Remember fiat currencies over the long term end up worthless as a form of money. Only precious metals have withstood the test of time. Gold bulls know that time is on our side over the long run and the sector continues to get cheaper in the short term moving to historic discount valuations.

    Remember Bernanke is on his way out and Obama is probably looking for an even more dovish successor. Bernanke will be known for unleashing quantitative easing to boost housing and equities. The turn for commodities after this two and a half year decline could be right around the corner.

    U.S. housing is now hitting multi-year highs. Many homeowners destroyed their credit by walking away from their homes and capitulated near the lows four years ago. We have witnessed a major "V" reversal in the housing and financial sector where the real losers were the ones who did not have patience and sold. Learn from their mistakes in the resource sector, smart money picked up housing assets for pennies on the dollar back then, while the lemmings walked away from their homes and destroyed their credit. It may be happening right now in the oversold resource sector. Four years from now we could see exponential gains in the sectors which the masses are ignoring right now. Remember most investors chase the latest fad and ignore a crucial rule in the market. What was the worst performers were over the past two years could be the best performers over the next two.

    Right now, we are witnessing a shakeout in the mining sector and precious metals. The losers will be those who capitulate (much like the homeowners who foreclosed) and sell their shares to the smart money, which is now entering the precious metals and commodities sector. Insider buying and major strategic investments by smart money is increasing.

    Now the buzzword in the media is tapering. A few months ago it was fiscal cliff. Tapering means to decrease gradually. The Bankers actually are doing the opposite and are increasing money supply rapidly to the tune of $85 billion a month. Our foreign debts have reached historic levels. As interest rates rise from this purported exit, The Central Bank may do a 180 degree turn and continue to print dollars rapidly to pay down increasing debt payment and keep pace with other devaluing currencies like the Yen.

    Silver is below its 5 year trailing average in the high teens and gold is breaking below it 5 year trailing average. We are reaching 2008 and 2001 levels for both silver and gold miners. At these oversold levels in the past the miners were able to reverse and make exceptional gains.

    (click to enlarge)

    We should begin seeing some powerful bullish reversals in the junior miners as value investors continue to enter the sector. It increasingly appears that we are near a potential secular bottom.

    Don't be manipulated by the mainstream press scaring you with headlines about the economic troubles in China or that mining is dead. Negative people may tell you that the financing markets have dried up. That is not true.

    Already we have seen major increases of Chinese investment in energy, potash and precious metals. This may be indicating that some of the smartest minds are taking advantage of this discount sale in the miners and are using the media to their advantage. Be careful of all the bearish headlines on the miners and follow the money. There is capital for the right mining projects in stable jurisdictions. Real assets and commodities are historically the greatest hedges against inflation risk and monetary debasement.

    Look to the companies that are attracting serious capital and institutional support. Major value funds have been buying gold mining stocks over the past few months as the precious metal funds face redemptions. This is characteristic of market bottoms. Value funds are continuing to buy in one of the most difficult junior mining markets.

    Over $11 million was raised this past week for quality Yukon junior miners, which are being completely ignored by the public. This shows strong support for higher precious metal prices.

    Investors should look for platinum and palladium projects in safe jurisdictions as the fundamentals are extremely strong with rising industrial demand for these catalysts and declining supply from South Africa. This supply demand imbalance should impact the price over the long term.

    Look for location and the major partners. Watch the uranium space which is gaining a lot of attention as the Russia-US "Megatons to Megawatts" Program expires at the end of 2013. Remember the U.S. produces around 4 million of the 55 million pounds consumed annually and has depended on these secondary supplies. Japan is set to turn back on nuclear reactors this summer. China is building new reactors.

    The uranium price appears to be making a double bottom as do many of the uranium miners (NYSEARCA:URA). Remember the U.S. produces around 4 million of the 55 million pounds consumed annually. It should be noted smart money is entering the sector in addition to Microsoft's Bill Gates. Warren Buffet's Berkshire Hathaway took a stake in Chicago Bridge and Iron, which recently took over the Shaw Group, a nuclear services provider. Could Buffett be signaling an opportunity in the undervalued uranium sector?

    Keep a close eye on the near term uranium producers the United States. Cameco just started additional production at their North Butte ISR mine. Mark my words the Powder River Basin in Wyoming is a strategic area for the future of uranium production in the United States.

    Obama just announced a major initiative to fight carbon emissions. Countries around the world are also fighting air pollution. The world we live in today is looking to reduce air emissions and the carbon footprint. Uranium and rare earths (NYSEARCA:REMX) are critical metals for that goal.

    In conclusion, turn off the negative news that is broadcasted to misdirect and confuse investors. Follow the capital to quality situations, which are building value during challenging times and continuing to communicate to shareholders. It is during these difficult times in the resource sector when the greatest opportunities are discovered. Remember American Barrick Resources started off as a 16,000 ounce gold producer in the 80′s down market in gold and grew to be Barrick Gold Corp, the largest gold producer in the world.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Jun 28 3:02 PM | Link | Comment!
  • Time To Invest In Clean Energy?

    The U.S. equity markets such as the S&P500 (NYSEARCA:SPY) and Dow (NYSEARCA:DIA) are breaking into new 15 year highs, after an unprecedented move by Bernanke to stimulate the economy over the past five years.

    Increasingly, investors may look to cheaper, out of favor sectors such as the uranium and rare earth sector which is critical for clean-carbon free energy. These sectors are crucial for the clean carbon reducing future of emerging nations such as China and India which are dealing with dangerously high levels of air pollution from dirty coal producing plants.

    Investors may be asking themselves, where could there be the ability to outpace some of the overbought sectors such as financials and housing. If this rotation into commodities takes hold and the rally continues, look for exceptional gains in the uranium (NYSEARCA:URA) and rare earth stocks (NYSEARCA:REMX) which have been basing for over two years. The materials sector historically lags other sectors such as the financials and industrials in an expansionary cycle, but eventually outpace as a bull market develops. Over time I have found it wise to buy cheap commodities when equity markets are overbought.

    We have witnessed an extremely peculiar rally in that U.S. equities are hitting new highs at the same time that uranium and the rare earth sector is hitting a new low. This should not last for much longer as a recovering global economy demands clean and cheap energy, fuel efficient vehicles and high tech products such as smart phones and Ipads.

    Eventually, as the stock market climbs into new highs the dividend paying large caps become too expensive and that is when we could witness the rotation into more speculative possibilities, especially in the uranium and the rare earth mining sector, where there is potential for outsized capital gains as the need for clean carbon free energy increases.

    In addition, demand for high tech products such as smart phones, Ipads, and High Definition TV's and Monitors are growing at an unbelievable rate. This could cause supply shortages for critical metals used in lighting and monitors.

    A reason for this underperformance in rare earths is that Asian markets have not yet kept pace with the rebound in US equities. However, that may change as a strong U.S. consumer is a boom for Chinese and Japanese exporters.

    In the past six months, the Japanese Nikkei Index (NYSEARCA:EWJ) has outperformed all other markets including the United States. This may indicate the beginning of an inflationary rally in Asia and may signal that Chinese and Japanese markets are ready for a rebound.

    The U.S. equity market is continuing to rise without any pauses or healthy corrections. This is becoming a parabolic move where caution should be exercised. In such upward moves like we are experiencing now a healthy correction would be warranted.

    Due to quantitative easings and negative interest rates, investors are being herded into richly priced dividend yield paying equities and bonds, which may look nice today, but could be awful long term investments especially when we see inflation reemerge.

    Look at recent rallies, the markets applaud a better than expected 7.5% unemployment rate as U.S. and European Central Banks continue to advance easy money policies. The market is looking for any moderate news to move higher.

    Copper (NYSEARCA:JJC) jumped higher and may be bouncing off of a major bottom around $3. Rare earths may follow that performance as well as it tracks copper closely.

    With interest rates so low, investors are speculating in equities paying dividends but soon may look to enter the commodity sector which may present a better value with potentially greater gains. Do not avoid the rare earth metals sector where we may see a short covering combined with new buying from investors who are sitting with hefty gains in equities. Double digit gains could be expected.

    Industrial end users, which are hitting new highs, may secure long term sales contracts for basic raw materials such as the critical rare earths at these record low interest rates and prices. It may be exactly the time for them to invest and secure long term raw material contracts with their record cash positions and high valued stock prices.

    Keep a close eye on emerging Asia which has not been keeping pace with the U.S. rally. The housing/credit crisis in the U.S. led to a major pullback in Chinese and Japanese growth. The S&P is hitting new highs but Chinese and Japanese Indices are way below 2007 highs.

    However, the rebound in U.S. equities may soon be spreading to the East. The Nikkei has been one of the best performing markets boosted by a record devaluation of the Yen over the past 6 months. This pickup in Asian markets may boost the demand for rare earths, which are crucial for the high tech, chemical and clean energy sectors.

    Lynas (OTCQX:LYSCF), one of the first rare earth producers outside of China is rallying as Malaysia voted in the pro rare earth party. Lynas has their separation plant in this county and they have been dealing with a vocal opposition of environmental activists.
    Some of the Lynas opposition may be coming from Chinese sources. Remember China wants to control the rare earth market and has tightened exports before.

    In addition, Molycorp Inc. (MCP) the owner of Mountain Pass, the largest rare earth deposit outside of China showed sales are increasing and demand is picking up.

    This recovery in the large rare earth miners may prove to be a turning point for the junior rare earth developers of critical and heavy rare earths.

    In 2010, rare earth prices exploded as diplomatic tensions built up with China. The demand for these metals are rising exponentially as they are used for smart phones and TV's which is just entering the emerging world. In the Western World, there are more than seven screens per household. In China there is less than one.

    (click to enlarge)

    There will be a dramatic shift over the next decade in the need for rare earths especially the critical rare earths used in these screens like Europium, Terbium, Yttrium, Dysprosium and Neodymium. Rare earth prices have been under pressure due to the weak commodity environment and major stockpiling in 2010.

    Nevertheless, according to many sources, industrial end users will look to secure deals possibly in the second half of 2013, which should support rare earth prices and the value of some of the junior miners I closely follow and own.

    Look for the critical rare earth miners advancing towards feasibility in mining stable jurisdictions where there is a history of mining and infrastructure.

    Make sure the metallurgy, mineralogy and the geology are well understood.

    The demand for rare earths is growing rapidly in the use of clean energy, smart phones and defense industries. Uranium is also seeing a strong pick up in demand as China is building new reactors and Japan is planning to turn back on additional reactors possibly as early as this summer. The Russian HEU agreement which supplied converted uranium from warheads is set to expire by the end of this year.

    Keep a close eye on some deposits that have the uranium and the rare earths together in the same deposit as it is quite unique and has economic advantages. The uranium can pay for most of the operating costs and it provides diversification to the investor. Look for leverage to rising rare earth and uranium prices as the world looks to develop cleaner-carbon free solutions.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Jun 06 10:00 AM | Link | Comment!
  • Long Term Trend In Gold, Silver And Miners Ascends Upward
    Recently, investors have been concerned over the possible effect of the expiration of QE2. They have been looking for a clear mission statement in order to understand how government policy can impact their investment universe. This has sent gold and silver miners to key support levels and oversold conditions not seen in more than two years. Today, Federal Reserve Chairman Ben Bernanke brought renewed hope for precious metals and mining stock investors. The U.S. central bank is prepared to provide additional stimulus if the current economic slow patch persists.

    My firm has stated unequivocally that we have been programmed over the past two months to accept accommodative policies and QE3. The recent downturn in economic data such as home prices, increased unemployment and decreased manufacturing, indicates that we are being prepared to accept further bailouts and money printing measures. The Fed has already invested trillions of dollars in order to stabilize the capital markets. We are heading into the election year. Fed policies may be affected by political concerns in order to continue the accommodative measures of the Obama administration.

    We have assiduously monitored the all important level of GDX $52.50 for several weeks. It was important that this support held for the long term uptrend. We saw a head fake, or bear trap through $52.50, the 2011 low. The new low was not confirmed by our indicators. This signaled a potential turning point and head fake.

    The market will often do what it can to confuse us. Ergo, in an attempt to shake out weak holders, a head fake break below this support occurred. After these fakeouts occur at support, powerful moves tend to follow, which we are currently witnessing.

    In plain language, the all important 200-day moving average, which has been regained, proves the long term trend in mining stocks moves on a labyrinthian path; however the path ascends upward over time. 

    Silver is showing signs of demand as it regains its 50-day moving average. Notice the 200-day moving average continues to catch up with the price during this consolidation. This recent pullback has been quite healthy for the silver market and has wiped out a lot of speculative hedge funds and day traders who bought at the wrong time when it was overbought and extended way above the 200-day moving average. Notice the decreasing volume, showing that the enthusiasm of profit taking and selling is waning.

    An ascending triangle has been forming and I believe we may see a breakout to the upside where we can challenge April highs.

    Gold is making a record breakout and is forming a bullish symmetrical triangle. This breakout may lead us to our $160 target, originally forecasted in late January. A high volume breakout to the upside has occurred. These continuation patterns favor a confirmed upside breakout.

    Disclosure: I am long GLD, SLV, GDX.
    Jul 14 2:19 PM | Link | Comment!
Full index of posts »
Latest Followers


More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.