Editor’s note: Anthony Mirhaydari is filling in for Serge Berger for today’s “Beat the Bell” column.
The inflation trade is on.
Since Federal Reserve chairman Janet Yellen confirmed the money pumping would continue with aplomb last week, despite bubbling inflationary pressures, traders have piled into silver and gold stocks in search of protection.
Protection, that is, from the diminishing purchasing power of the dollar.
Gold enjoyed its best one-day gain since September on Thursday, lifting the list of precious metals stocks I recommended back on June 12. Included on the list were names like SilverCrest Mines (SVLC) and Primero Mining (PPP), which are up 22% and 12.8%, respectively, since then.
More gains are coming. Why? Because the Fed is holding short-term interest rates too low. A simple Taylor Rule analysis, which tries to formalize monetary policy by setting interest rates based on where the economy and inflation are, suggests interest rates should be at 1.8%, not 0%. The more inflation rises, the wider this gap will become … and the wider the gap becomes, the faster inflation will rise.
As a result, silver and gold stocks have much more upside to come, which sets the stage for powerful rallies in the beaten down mining stocks in the sector. Here are five more worth watching.
Silver and Gold Stocks to Buy – Barrick Gold (ABX)
The last significant upward cross was back in January and saw ABX shares rise more than 18% to a high near $21 a share. The long-term chart shows shares consolidating roughly between $18 and $22 a share since early 2013. The 200-week moving average is way up at $34 a share and hasn’t been touched since October 2012.
Barrick Gold operates on properties throughout the world including Papua New Guinea and Saudi Arabia and has proven and probable reserves totaling 104.1 million ounces of gold and 14 billion pounds of copper. I’ve recommended Aug $17 call option positions in ABX to my Edge Pro clients, with the position up nearly 57% since initiated on June 18.
Silver and Gold Stocks to Buy – Compania de Minas Buenaventura (BVN)
Click to Enlarge Compania de Minas Buenaventura (BVN) is a Peruvian precious metals producer that concentrates on properties within its home country. BVN is expected to return to profitability this year, with analysts looking for earnings of 78 cents per share this year growing to $1.14 per share in 2015.
Shares have been melting lower since May and are due for a rebound to their 200-day moving average, a roughly 10% move from here.
Silver and Gold Stocks to Buy – Silvercorp Metals (SVM)
SVM shares have been moving powerfully to the upside and have crossed back over their 50-day moving average for the first time since January.
A test of the 200-day moving average would be worth a 25% move from here.
Silver and Gold Stocks to Buy – Silver Standard Resources (SSRI)
Click to Enlarge Silver Standard Resources (SSRI) has powered higher since early June, up a whopping 28% and just recently clearing its 50-day moving average for the first time since back in December. SSRI is expected to return to profitability in 2015 with 12 cents of earnings per share vs. an expected 19-cent loss this year.
Revenue growth is expected to be rapid, from $174 million in 2013 to $272 million this year and $352 million in 2015.
I’ve recommended the September $8 calls to my clients, which are up just getting warmed up and are carrying a gain of 4% so far.
Silver and Gold Stocks to Buy – Iamgold (IAG)
Click to Enlarge Iamgold (IAG), which has been tracing out a double-bottom basing pattern since December, is breaking to the upside and has pushed over its 200-day moving average for the first time since late 2012.
Yep, it’s been that long.
From that late 2012 high of $16.21, shares are down more than 74%.
The company, based in Canada, explores for silver, niobium and copper deposits as well as gold. Earnings are positive if somewhat choppy. IAG is expected to earn 15 cents per share this year, increasing to 22 cents in 2015. Revenue growth is steady, however, with the top-line number going from $1.15 billion last year to an expected $1.25 billion this year and $1.35 billion in 2015.
I’ve recommended a call option ladder in IAG to my clients, and all of those options are in the September contract. The Sep $4.50s are up more than 30% already.