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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Will the January Effect Give Gold and Silver Miners a Bounce?

Commodities / Gold and Silver Stocks 2015 Jan 07, 2015 - 06:03 PM GMT

By: The_Gold_Report

Commodities

The January Effect, the surge that small-cap companies may experience at the beginning of the year, goes back some seven decades. What will 2015 bring? The Gold Report talked to some experts to find out what they are expecting in the early days of the new year and which companies might be in position to take advantage. Most experts were optimistic about a bump, but some had some very interesting ways to profit from it.

Louis James, senior editor of the International Speculator, Casey Investment Alert and Conversations with Casey: We certainly had plenty of tax-loss selling, and I think most investors who know resources see the sector as close to bottom, so, yes, I do expect healthy January buying. I'd differentiate that by commodity, however, as bad economic news could push oil and copper further down, while pushing gold and silver up, and the January effect won't be enough to offset another sharp decline in industrial commodities.


Low-cost producers are the obvious candidates for dollars returning to the market, followed by developers with great projects with positive economics already in hand. Grassroots exploration will have its day in the sun again, but not on the back of January buying; I expect we'll see that when the whole market gets frothy again.

Adrian Day, founder of Adrian Day Asset Management and author of "Investing in Resources": The early part of the year (not necessarily exclusively January) is typically a seasonally strong period for resource and resource equities. Given the very oversold nature of most resource stocks, I would expect a bounce in the new year.

This will affect the major mining companies, including possibly the oil stocks, though they have already bounced off their lows. In particular, it will affect stocks that have been subject to tax-loss selling. In the resource sector, that means pretty much everything! Given that resource stocks are one of the few sectors in the U.S. where investors have heavy losses, this selling has been particularly vicious this year. Even without significant new buying volumes, the removal of tax-driven selling will cause a bounce in these stocks.

The particular stocks affected may depend to some extent on what happens to gold and other resources. Some companies are particularly leveraged, and if gold falls in the first week or two, then these stocks, even if they have been subject to heavy tax-loss selling, would not move as much as others.

Having said that, stocks such as Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX), Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE), Eurasian Minerals Inc. (EMX:TSX.V; EMXX:NYSE), Miranda Gold Corp. (MAD:TSX.V) and Reservoir Minerals Inc. (RMC:TSX.V) could be beneficiaries.

One should note that year-end tax-loss selling followed by a January bounce is so widely known that the effect has become less pronounced, the January rally depending as much on other factors such as the resource prices themselves.

Jeb Handwerger, founder of Gold Stock Trades: When stocks are beaten down as far as they are now, it is a sign that we are at a bottom and an uptick is coming. January—specifically the beginning of the month—is traditionally a good time for the natural resources space. After tax-loss selling in December, many buy back their stocks or use year-end bonuses to purchase. This is the time smart investors look for value situations.

Small stocks tend to outperform the broader market. This year, producers may do well as the collapse in the oil price is a good thing for gold producers because that lower price tag for a key cost can impact the bottom line. Producers have been warning the market about a future supply shortfall as high grading uses up the best ore and less money has been invested in exploration. There will come a time where producers begin outperforming and the valuations go from bad to less bad until suddenly they are very good. That is also when we could start seeing a lot of mergers and acquisitions, which is a very good thing for investors.

A rebound or even a stabilization in the gold price could surprise everyone as the dollar rally could turn into a gold rally. The fundamentals pushing the dollar up right now—flight to a safe haven—are the same ones that could support gold once people see that the dollar is overbought.

One company that would do well in that kind of a January Effect rise is Galane Gold Ltd. (GG:TSX.V) in Botswana. It is trading below cash in the bank and has a great management team.

Another one is Canamex Resources Corp. (CSQ:TSX.V; CX6:FSE), which just announced a new gold zone at the Bruner gold project in Nevada. The company should be publishing its maiden resource estimate soon and I expect the valuation to go much higher once that is in hand.

I also like Goldcorp Inc.'s (G:TSX; GG:NYSE) balance sheet. The Canadian mines could be a big benefit for the company.

Near term, I like Pershing Gold Corp. (PGLC:OTCBB). I like Nevada and I know management is working on getting on a better exchange. The resource certainly merits that. This is a past producer with a state of the art processing facility on site. It is open pit and all infrastructure is in place. That is a rare situation.

Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) is another one to watch. It should be releasing an updated preliminary economic assessment in 2015. I believe this is the best story in Quebec and could be a takeout target. This is another company that has its own processing facility and everything, including permits, in place. The company keeps coming out with news. It just announced a new mineralization zone. I believe it is deeply undervalued.

Another company with a near-term catalyst on the horizon is Red Eagle Mining Corp. (RD:TSX.V). It has one of the most economic, high-grade, low-cost mines out there. It is deeply discounted because it is in Colombia, but I think it has a good chance of getting the last permit and developing the San Ramon mine.

Finally, keep an eye on Corvus Gold Inc. (KOR:TSX) and its North Bullfrog gold property. It has one of the top geologists in the sector and just hit the best drill results in Nevada in the last year.

A lot of exciting names can be picked up right now for almost nothing because the market is irrational and our job is to stay rational and stay the course. This is the craziest time I can remember when it comes to valuations, but that all could change this month.

Mike Kachanovsky, author of the Mexico Mike column in Investor's Digest of Canada: I am expecting the same uptick in stocks and metals in 2015 as we saw in 2014. Things have gotten so oversold that the price of gold and silver is below the price of production. That has to push it higher. Plus, the dollar rise does not seem in line with fundamentals for such strength. When it corrects, that will help silver and gold. In fact, I expect silver to outperform gold this year.

If you are sitting on a pile of money right now, that is a good place to be. The large, established producers are at historic lows right now and have a very low risk level.

I particularly like Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ). The company has been around a long time and management knows how to survive downturns. It is more leveraged to the silver price than any other company in terms of defined silver resources in the ground and its two operating mines are very low cost producers. Plus it has a healthy pipeline in production.

Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) is another one that has been around and knows how to survive. It is highly diversified with production on several continents. This is a company that knows how to develop new mines efficiently and is positioned to acquire promising companies in 2015.

Junior explorers are also at historic low prices right now and, because of the low trading volumes, it doesn't take much new buying to move the pieces up. The junior I like is Garibaldi Resources Corp. (GGI:TSX.V). It is currently drilling a high-grade discovery in Mexico. It is well funded and positioned to survive the downturn. The share price is trading at very low multiples and it could bounce off these lows strongly.

Roger Wiegand, author of Trader Tracks: We continue to be upbeat. The stock market will continue to rise at least into the first quarter with the normal ups and downs. Small caps are just more volatile and the healing process for the junior miners will be difficult, but I see signs of stocks basing out.

Gold, itself is in a trading range. To really break out, it will have to get past $1,450 an ounce ($1,450/oz). Silver may not go above $20/oz until the fall. When that happens, the seniors will be the first group to take off. Companies like Goldcorp and Hecla Mining Co. (HL:NYSE) will move because the funds will buy into those. The juniors will take longer, but those days will come. I would look for ones with reserves in the ground and operating capital to cover a couple of years, particularly ones sitting next to big operations that may be in a position to buy them out. When stocks have been knocked down this low, the step back can be stunning.

Thom Calandra, author of The Calandra Report: January, as you know, can have two faces, or more. That is more than mythological.

In recent years, the so-called January Effect that supposedly lifts small company stocks made brief appearances, then disappeared. When I say small, I mean very small, as in companies with market caps worth below $500 million.

The new face of January is now lacking a pronounced lift for small stocks. The main culprit is probably because everyone in North America, in Europe and in the UK, among other jurisdictions, are trading or managing the bulk of their money in retirement accounts. Thus, no reason to recapture the equities investors might have sold in November or December to capture tax-loss advantages.

Probably the one potential beneficiary of any fresh sweep into a sector in January is biomedical and healthcare stocks. That is one face of January that continues in recent years. The biomedicals are getting more approvals per capita in North America than ever before, regarding FDA-approved pharmaceuticals.

As for resource equities, I see little evidence that January is kinder than other months of the year—in recent years, definitely since 2011. Maybe with the decline of resource stocks since 2011, January can be argued to have a less devastating effect on the metals equities than during other months.

If there is one thing that bears watching this January, it is the tremendous rise of the dollar—the U.S. dollar is sending all currencies to 7- and, in some cases, 10-year lows. Gold's buying power is keeping pace, as bullion is holding its ground. That means dollar-denominated gold holds a lot of buying power versus other currencies.

The decline of most currencies against the dollar also helps miners and prospectors that report their expenses in other currencies. That is good.

Plus, as investors with dollars, we get more buying power when we purchase Canada, U.S., Japan and other listed resource stocks.

My faves right now are Angkor Gold Corp. (ANK:TSX.V), which is showing remarkable strength and soon will be receiving a 7 % royalty on a Cambodian gold mine, and, in biomedical, BioCryst Pharmaceuticals Inc. (BCRX:NASDAQ).

Find out what experts are saying about the January Effect on other commodities in The Mining Report.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Vista Gold Corp., Almaden Minerals Ltd., Galane Gold Ltd., Pershing Gold Corp., Integra Gold Corp. and Red Eagle Mining Corp. Goldcorp Inc. is not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Mike Kachanovsky: I own, or my family owns, shares of the following companies mentioned in this interview: Silver Standard Resources Inc., Agnico Eagle Mines Ltd. and Garibaldi Resources Corp. I am paid income by the website Smartinvestment.ca, and the company receives advertising revenues from Garibaldi Resources Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Jeb Handwerger: I own, or my family owns, shares of the following companies mentioned in this interview: Galane Gold Ltd., Canamex Resources Corp., Pershing Gold Corp., Integra Gold Corp., Red Eagle Mining Corp. and Corvus Gold Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview as they are sponsors on my website: Galane Gold Ltd., Canamex Resources Corp., Pershing Gold Corp., Integra Gold Corp., Red Eagle Mining Corp. and Corvus Gold Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
5) Adrian Day: I own, or my family owns, shares of the following companies mentioned in this interview: Vista Gold Corp., Eurasian Minerals Inc., Reservoir Minerals Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
6) Roger Wiegand: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
7) Thom Calandra: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
8) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
9) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
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