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David England: Hitting pay dirt with mining stocks
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Column | Eye on the Market

David England: Hitting pay dirt with mining stocks

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Last week, I focused on the leveraged, gold and silver Exchange Traded Funds.

Today, I answer questions on additional weak U.S. dollar plays and identify individual companies in these groups.

David England: Leveraged silver or gold?

First, let’s identify potential weak U.S. dollar funds in addition to gold and silver that are going up while the U.S. dollar continues to sell off.

GDXJ-VanEck Vectors Junior Gold Miners ETF tracks as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Junior Gold Miners Index, small-capitalization companies that are involved primarily in the mining for gold and/or silver.

GDX-VanEck Vectors Gold Miners ETF tracks as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index, companies involved in the gold mining industry.

EEM-iShares MSCI Emerging Markets ETF tracks an index of mid and large-cap, emerging-market companies. Please note, this is a very misleading title. This group includes some of the largest economies in the world, like Hong Kong, Taiwan, China, India and Brazil.

To see the performance of these select ETFs compared to the performance of the U.S. Dollar Index ($USD), I designed a chart beginning on March 24, to real-time. The VanEck Vectors Junior Gold Miners ETF took top honors with an explosive 133% return. VanEck Vectors Gold Miners ETF was up 102%, Silver was next, up 96%, followed by MSCI, Emerging markets up 45%. The laggard was Gold, up a nice 29%, but not as impressive compared to the others returns. The benchmark index the U.S. Dollar index was down over 9%.

Weak Dollar Plays

Here are the key points: During this timeframe, all four ETFs traded inversely to the U.S. Dollar. A word of caution, while this inverse action continues, it is a unique event and not something that always happens. I am sure some readers are surprised the junior miners took the top spot.

David England: Buying silver or gold?

Don’t feel bad, I was surprised too! These gains are parabolic. Anytime securities run this much, at some point profit taking comes in and comes in hard. Make sure you are not asleep at the wheel when this happens. Smart traders will be watching and will be prepared to make money with the bear precious metal leveraged funds. See last week’s column for details.

The next step, I identify the top five mining companies in GDXJ, for trading opportunities. To see the performance of these top companies compared to the GDXJ, I designed a chart beginning on March 24 to real-time. The companies are GFI-Gold Fields Limited Sponsored ADR, KGC-Kinross Gold Corporation, PAAS-Pan American Silver Corp., AUY-Yamana Gold Inc., and NST-Northern Star Resources Ltd.

Junior Gold Miners

Gold Fields Ltd took top honors with an explosive 201% return. Pan American Silver was up 176%, Kinross Gold Corp. was up 147%, followed by Yamana Gold up 143%. The laggard was Northern Star Resources, up a nice 67%, but not as impressive compared to the other company returns. The benchmark fund GDXJ was up 133%.

Here are the action points: During this timeframe, four companies outperformed the index GDXJ while one, Kinross Gold, did not. A word of caution, these gains are parabolic and will not run forever. Many times, profit-taking begins overnight and causes prices to gap down when our U.S. market opens. Any protective stop can hit wherever the price opens.

Also, many of these companies are not located in the states. They are in foreign countries and operate under different rules and regulations. This adds extra risk to any investing or trading decisions and can cause extra tax consequences, even in retirement accounts.

David England: Time for a sector report card

Before trading any of these mining companies, study the previous price correlations and see if they are trading with the market (SPX) or inverse to the US Dollar ($USD). Also, see which indicators gave the best signals with previous moves. Trading parameters are set by algorithm traders. What works for some securities may be useless for this group. If you do not take the time to do your homework, you have no business trading.

For full disclosure, I still hold physical silver bars and rounds.

The equity markets continue to be driven by a handful of large-cap U.S. tech companies. At some point, profit taking will hit and funds will go into other securities, maybe into some of these precious metal companies if the shiny stuff continues to rally higher.

Coming up, I analyze the larger gold mining companies for potential investing and trading opportunities. Don’t miss it!

Plan your work, work your plan, and share your harvest!

DAVID O. ENGLAND is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to thetraderseye@gmail.com.

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