Can you believe the rebound in the junior mining sector and precious metals?
This astonishing bullish reversal in the commodity sector does not come as a surprise to my readers. While the herd was panic selling last year, I took a strong contrarian stance and highlighted three reasons why gold prices should violently move higher to possibly $1600 USD per ounce by the end of the first half of 2016. That may have seemed like a crazy move but gold is now breaking into new 52 week highs above the critical $1300 price. A breakout above that level could see a measured move to approximately $1600.
Back in late September, in this interview, I believed gold (NYSEARCA:GLD)was going to make an explosive move for three major reasons. First off, global interest rates are negative meaning that currency is losing value in savings accounts across the world. The only place that was getting a bid was the US where investors mistakenly thought rates would go higher. That doesn’t seem to be the case and The Fed may actually lower rates to prevent a global deflation and pay off massive debts including a potential municipal and energy debt bubble bursting. I also believed stock market volatility and geopolitical terrorism would drive safe haven buying.
Now for the first time in more than five years investors are returning to commodities (NYSEARCA:DBC) and the junior miners in a big way. This quarter could be a record in terms of attracting a whole new group of investors into the sector. That is why I always urged patience and fortitude, not to panic sell, avoid margin and definitely do not short the junior miners or precious metals as so many mistakenly did.
This could be a major turning point and transition from a historic bear market in the junior miners to what could be the beginning of a breathtaking move in precious metals, commodities and the junior miners. Looking at the returns year to date, silver is in first place followed by gold, platinum and oil. Smart contrarian investors have been accumulation precious metals and commodities at once in a generation price levels. The worse things got in 2015, the better they became in 2016.
Despite the mainstream media distracting investors away from precious metals and commodities, contrarian investors concerned of a black swan similar to 2008 are positioning with precious metals and commodities which outperformed during the last crisis. I don’t believe this rally in junior miners will be short lived. This could be the early stage of a bull market which could last another 3 years. Although many gold stocks in the interview above have already moved higher there are still a few discounted opportunities which I highlighted in this recent article.
The recent decline in precious metals and commodities over the past few years could completely revamp the entire landscape as the new bull market begins. Companies with strong balance sheets and share structures will be able to gobble up distressed assets and grow through acquisition. Over the next couple of years I expect to see strong financed companies build their assets for a discount.
Oil is beginning to move higher and there could still be good deals found in this area but they aren’t easy to discover. Many of these companies have high levels of debt and their assets require much higher oil prices. Its been two rough years in oil, but we may start coming out of it as value contrarian investors return to the sectors where there is blood in the streets.
Nowhere is that more evident than in oil. Over $1 trillion dollars have been lost in the US Energy Sector. Many companies are on the verge of going under and their bondholders who are many regional banks may lose a lot of money. I am looking for the oil (NYSEARCA:USO) companies that will be able to come out strong from this downturn. The downturn in the US Energy sector may force the Fed to keep interest rates low and possibly resort to another quantitative easing.
One oil company I have featured for many months, just came out with their 2015 year end reserve report which showed a 277% increase of their proved and developed reserves. Even more exciting because of the energy downturn, the cost to find and develop these assets dropped 69%. The company spent around $6.29 million to acquire 760k barrels of oil equivalent in 2015. With these sort of fundamentals, I expect the company to make strong margins over the next few years especially if oil continues to base and turnaround.
The company recently raised close to $7 million and has no debt putting it in the rare category of growing oil companies with a strong balance sheet to hopefully continue to grow through acquisitions at distressed valuations. The stock is in strong hands with over 20% held by insiders who are blue chip caliber. If you find other oil companies that have cash, are debt free and growing their asset base please let me know.
Disclosure: I own this oil stock, buying shares in the open market and recently participating in the private placement. The company is also an advertising sponsor of my website. There is a conflict of interest as I could benefit if the share price rises. Please do your own due diligence, consult with a registered financial advisor and be aware of many risks of investing in stocks. Be aware that I may need to sell without notice for many reasons as I have expenses. See full disclaimer byclicking here…