It’s clear that the cheap money is going to keep flowing under new Federal Reserve chair Janet Yellen, and that in turn has brought life into precious metals and mining stocks.
Although Yellen indicated, in her first appearance in front of Congress since being sworn in on Tuesday, that the taper of the “QE3″ bond-buying program would continue apace — at around $10 billion per meeting — this was offset by a moving of the goalposts on when short-term interest rates would rise from the near 0% perch they’ve been sitting on since 2008.
Yellen said rates wouldn’t move until alternative measures of labor market health, such as long-term unemployment and the number of folks working part-time for economic reasons, improves as well as the overall unemployment rate. That suggests more work is to be done, despite a quicker-than-expected drop in the jobless rate to 6.6% in recent months.
Also, she highlighted the fact that the Fed’s preferred inflation measure (personal consumption expenditures) is just 1.1%, below their 2% target, and that there wouldn’t be impetus to hike rates until inflation hit 2.5% — a level that hasn’t been seen since January 2012.
Investors reacted by pouring into gold and silver and related mining stocks as higher inflation — and the weaker U.S. dollar that will likely accompany it — has brought the beleaguered sector to life. After an initial surge higher in January, which I covered in a number of posts, the group is on the move again.
Here are five mining stocks to buy in response in the coming days:
Mining Stocks to Buy: First Majestic Silver (AG)
Click to Enlarge First Majestic Silver (AG) is popping out of a downtrend going back to August as it crosses over its 200-day moving average — a level that it hasn’t spent much time above since late 2012.
The company, based in Canada, operates mines in Canada and Mexico and a silver trading operation in Europe. Management expects silver production to increase between 19% and 25% this year.
A return to the August high would be worth a 45% move from here.
Mining Stocks to Buy: Yamana Gold (AUY)
Click to Enlarge Yamana Gold (AUY), like AG, is also pushing over its 200-day moving average, moving below that threshold in early 2013 and not looking back. The company has operations in Brazil, Chile, Argentina, Mexico and Colombia, but is based in Canada.
Analysts at Morgan Stanley recently increased their price target on the stock to $12 a share — which would represent a 41% gain from current levels.
Mining Stocks to Buy: Harmony Gold (HMY)
Click to Enlarge Harmony Gold (HMY) traded as high as $15.33 share back in 2011 — the last time inflationary pressure bubbled up and the Fed was forced to slam the brakes on the “QE2″ bond purchase program — before suffering a whopping 85% price wipeout into a low set back in December.
Shares have since stabilized and are pushing higher in what looks to be a challenge of its August highs — a move that would be worth a 47% gain from here.
Mining Stocks to Buy: Great Panther Silver (GPL)
Click to Enlarge Great Panther Silver (GPL) has been in a persistent and catastrophic downturn since peaking in early 2011, falling from more than $5 a share to a 2013 low of just 65 cents. That looks to be changing now, as shares break a persistent channel resistance line that has held the stock over the last four years, save for a short reprieve back in August 2012.
The company is looking for a 10% production increase this year via its operations in Mexico. Great Panther is also pursuing development opportunities throughout Latin America. GPL is already up 4% for me since adding it to my Edge Letter Sample Portfolio on Tuesday.
Mining Stocks to Buy: Silver Wheaton (SLW)
Click to Enlarge Silver Wheaton (SLW), a larger market capitalization pick than the other four presented here, has been relatively buoyant in comparison. That makes it a better selection for a more conservative investor. Shares are down more than 40% from their late 2012 high, but is now enjoying upside momentum as it breaks above resistance from its 200-day moving average — a level that held throughout 2013 and into early 2014.
Disclosure: Anthony has recommended AG, AUY, HMY, GPL, and SLW to his clients.
Anthony Mirhaydari is founder of the Edge, an investment advisory newsletter, as well as Mirhaydari Capital Management, a registered investment advisory firm.