June 30, 2020 | Wouldn’t That Be Cool…

Take a world that’s spinning out of control with debt, money creation and pretty much every other measure of financial danger flashing red.

Add the inevitable (given the above) precious metals bull market, with rising gold and silver taking the precious metals mining stocks – especially the little speculative ones – along for the ride.

Then toss in something new: a brokerage industry – led by trading apps like Robinhood – that has decided to make stock trading commission-free, leading millions of not-very-experienced investors to become trend-following day traders.

And what do you get? The answer is in the following excerpt from a recent  MarketWatch article. See if you can spot it:

Providing our call of the day is Crescat Capital’s global macro analyst Otavio ‘Tavi’ Costa, who thinks we’re in the early stages of a major bull market for precious metals as a noncorrelated macro asset class.

“The mining space has been in sort of a recession since the 2011 peak of gold and silver prices. The capital in the space has dried up significantly. I think that now with the macro and fundamentals aligning with technicals on the long-term side, I’ve never seen such a good setup for an industry like precious metals,” said Costa.

Costa says they have been taking friendly activist stakes in some “junior explorer” miners with prolific projects.” Crescat created a fund devoted to mining companies a year ago because the sector was so beaten-down.
Miners are divided into juniors GDXJ, +0.87% that focus on hunts for precious metal deposits, and senior miners GDX, +0.62% that have big developed mining operations.

He said the large-cap mining space has started to improve a bit, and thinks investors will move from there onto the bottom part of the industry.

That is good news for one unloved group of stocks. “Wait until the Robinhood traders learn about the gold and silver penny stocks, that’s where we’re long,” Costa told MarketWatch. He was referring to a low-cost trading app that has lured a flood of new investors, who have lately won some bets on beaten-down stocks.

If you chose that last paragraph, well done. The junior miners are a notoriously thinly traded and volatile sector. Let them catch the collective eye of millions of momentum traders and there’s no real limit to their upside — or at least to their volatility.

And this may already be starting. Here are the first few entries in a trading account that contains a lot of junior miners (yes, I’m definitely talking my book here), ranked by one-day percentage price gains on Tuesday, June 30.

Will momentum like this will look tasty to daytraders – especially those with no prior experience in this treacherous sector? Very possibly. Or could these stocks have already come to the Robinhood crowd’s attention, with Tuesday’s gains being the result? Either way, the action going forward could be wild, probably with an upside bias.

John Rubino June 30th, 2020

Posted In: John Rubino Substack

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