After a sharp correction and some choppy, sideways trading, gold and silver have broken out in a post-election rally – in part because the United States has yet to choose a winner.
Mining stocks grossly undervalued as gold/silver break out
The price of gold is now at $1946 per ounce, up roughly 3% so far this week alone.
Silver is trading at $25.10 per ounce and has jumped from as low as $22.60 over the past week (+10%).
As DWR regularly reminds investors, silver outperforming gold is indicative of strong bullish sentiment for precious metals. And with bullion prices still cheap, investors are encouraged to add to their positions.
But for those looking for the most bang-for-their-buck, you can’t beat gold and silver mining stocks. Even when gold and silver were at their recent highs, mining stocks were at historic lows (relative to metals prices) versus any previous bull market.
Since then, mining stocks have gotten significantly cheaper. They have retreated to valuations (versus metals prices) last seen early in the summer.
Load the boat…unless you believe that crippled Western economies will emerge unscathed as the COVID-19 second wave descends upon us. And you believe the political uncertainty and political gridlock in the United States will magically transform into a smoothly functioning government.
If you believe those things, you don’t
need gold and silver. You can sit smugly and wait for Santa Claus to come down the chimney this Christmas.
For everyone else, bullion is cheap. But the mining stocks are still cheaper.
Advantage miners
Further greasing the wheels for a new rally in mining stocks is renewed weakness in oil prices. Crude oil is once again below $40/bbl – even after
three straight days of gains.
With COVID-related economic weakness still sapping demand, oil remains a bad bet for investors.
Mining is an energy-intensive industry. Much of it still runs on oil.
Cheap oil prices = fat mining margins.
Yet with
fundamentals for both precious metals and precious metals mining stocks never better, even the best gold and silver mining companies are on sale today.
Junior mining stocks farther down the supply chain have been punished even more. These junior mining companies are now at give-away prices (again).
Reminder: at their March lows, mining stocks were virtually at all-time lows in relation to metals prices. Even with mining stocks roughly doubling as a whole, valuations were never better than average – even with the price of gold sitting at an all-time (nominal) high of $2070 per ounce.
Now with metals prices breaking out, investors get a second chance to add positions in these mining stocks at extremely advantageous price levels.
Think “small” when buying mining stocks
For new investors to these mining stocks, buying the biggest players in the industry (with few exceptions) has been a Sucker’s Bet for 20 years.
Senior gold and silver mining companies have typically been woeful underperformers. Competent operational execution generally doesn’t start in this industry until you reach (at least) the larger mid-tier players.
With gold mining stocks,
Agnico-Eagle Mines (US:AEM / CAN:AEM) and
Kirkland Lake Gold (US:KL / CAN:KL) are worth considering among the Senior Miners. With silver stocks (where there are far fewer companies to choose from),
First Majestic Silver (US:AG / CAN:FR) is an obvious choice among the bigger players.
Among mid-tier gold stocks,
Alamos Gold (US:AGI / CAN:AGI) and
Equinox Gold (US:EQX / CAN:EQX) have performed well recently. For a more speculative play, investors may want to look at
Osisko Gold Royalties (US:OR/ CAN:OR).
By the time you reach junior gold and silver stocks, the epic buying opportunities are too numerous to list.
DWR has previously pointed to the enormous exploration potential of
Tudor Gold (CAN:TUD / US:TDRFF), along with its project partners at the Treaty Creek Gold Project,
American Creek Resources (CAN:AMK / US:ACKRF) and
Teuton Resources (CAN:TEU / US:TEUTF).
Minera Alamos (CAN:MAI / US:MAIFF) is a near-term gold producer with a high-efficiency production model, projecting strong margins as its Santana Gold Project nears production. A second, even more prospective (potential) mine, La Fortuna, is already under development.
Junior silver miner,
Silvercorp Metals (CAN:SVM / US:SVM) is a perennial top-performer among silver mining companies operationally. It’s now seeking to broaden its production into a higher percentage of gold output.
Even more speculative is early-stage exploration company,
SKRR Exploration (CAN:SKRR / US:SKRRF). With a market cap of just CAD$11 million, SKRR has just started its first drilling program – on its flagship Olson Gold Project.
Situated in an emerging gold district in Northern Saskatchewan, SKRR’s mining exploration is led by two award-winning veterans of mining exploration, with deep backgrounds in Saskatchewan mining.
Look for value in uncertain economic conditions
Most mainstream equities are priced to perfection. Tech darlings are priced beyond perfection, even as the second wave of COVID-19 tightens its grip on Europe and the U.S. Economic uncertainty has never been greater.
Now is not the time for investors to be chasing momentum stocks.
Gold and silver mining stocks were dirt-cheap before the recent breakout in precious metals markets. With metals prices surging, these stocks represent some of the only bargains to be found in Western equity markets today.
Hold robust quantities of physical gold and silver bullion as necessary insurance for your financial security. However, for those investors (most of us) who don’t want to abandon a commitment to growth, there are no stronger bets in the market today than gold and silver mining stocks.
DISCLOSURE: The writer holds shares in First Majestic Silver, American Creek Resources, Minera Alamos Inc, and Silvercorp Metals. SKRR Exploration is a client of Dynamic Wealth Research.
