The problem with mining stocks now is that most of the good ones have already gone up in price. This makes buying low and trying to sell high a lot more difficult. In fact the action now is really about buying high and trying to sell higher—just like Internet stocks a few years back.
There are a lot of attractive momentum trades in mining shares right now. With spot prices strong and the broader stock market continuing to tick higher, speculators are making moves all over the place. Investors are buying stocks once again and with some fervor. It will be very interesting to see if the January effect takes place this year.
Getting back to the trading action. I’m seeing a lot of fully priced precious metal shares moving up across the board. Even coal miners are doing great in this market. I think this positive trading action is going to stay with us for a while, but readers will remember my previous view that I’d love to see a major correction in this sector so as to create a more attractive entry point. But, the action is the action and, like I’ve been writing for the past several months, it’s an opportune time even to own the market.
Just like during the Internet craze, when the broader stock market was strong, a ton of new issues hit the market. This is happening now, especially with junior miners. Larger producers are also able to raise equity capital without any problems. This is why it’s such a good time to be in the mining business. The money is really flowing.
There is a lot of “group think” in financial markets and institutional money has a real tendency to follow the herd. If that fund is buying, why shouldn’t ours? This is happening now in commodities, as more and more institutional investors increase their exposure to this sector.
The commodity price cycle is now something that we can all feel—in the prices of bread, gasoline and even jewelry. Corn futures just hit a 30-month high. That’s based on fundamentals, but also the herd of speculators. Accordingly, I think the commodity price cycle bandwagon has a lot further to go, especially as domestic incomes improve. People love to spend money if they have it and, with an improving global economy, the fundamentals for gold, silver and agricultural commodities continue to be strong.