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« Canada Stocks Drop Most Since June as Silver, Oil Shares Fall | Main | Silver Prices Bounce Back To Close at $22.98 »
Monday
Aug192013

Have precious metals bottomed?

by David Franklin, dfranklin@sprott.com

After a gut wrenching correction that drove gold and silver prices down 38% and 63% respectively from their 2011 highs, the recent price action in precious metals has been dramatic. From the low on June 28th, gold bullion has appreciated by more than 11%, but the real fireworks have been seen in gold mining equities with the NYSE Arca Gold Bugs Index up close to 20% and the junior miners, as measured by the Market Vectors Junior Gold Miner ETF, up a stunning 33%! Silver has joined the party, increasing by 17% over the same time period and silver stocks as measured by the MSCI Silver Index are up 28% to August 16. This price action confirms that the sentiment for precious metals and miners has changed dramatically, and it couldn’t have happened soon enough.

The bottoming process in precious metals investments has been an extended and frustrating affair. Investor sentiment appeared to be hitting rock bottom at the end of June after the metals and miners were pummeled with a series of negative developments. Federal Reserve Board Chairman Ben Bernanke started the downward plunge in gold at his post-FOMC press conference on June 19 when he suggested the Fed would begin to moderate the monthly pace of bond purchases.

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With gold, silver and Uranium stocks being out of favor one must decide if this is a problem or an opportunity. We have steadfastly refused to buy gold and silver mining stocks for the last two years and as evidenced by the HUI we feel that our decision to hold back has been vindicated. The damage done to the mining sector may not be over yet but this demise is starting to offer up some exciting opportunities in my view.

Great care will be needed in the selection process in order to generate a reasonable profit and that’s where our new venture begins. ‘Stock Trader’ has begun trading on behalf of ourselves and our much valued subscribers, all exciting stuff which we are really looking forward to, if you wish to join us then please subscribe below;

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