The gold and silver price may be reversing over the next couple of weeks. The junior miner gold ETF (Market Vectors Junior Gold Miners (ARCA:GDXJ)) is reversing above the 50 day moving average and breaking above its recent three month downtrend.
When the huge cash positions waiting on the sidelines or taking profits in the equity market rising on low volume return to the ignored resource sector the gains could be huge. Already the volume in GDXJ in 2014 has jumped, outpacing 2012 and 2013. On the other hand the S&P 500 has been rising on light volume which is often a warning sign that the extended rally is getting exhausted.
This indicates to me that possibly the large institutions are accumulating the juniors after all the retail investors jumped ship. Prices could jump rapidly in the Toronto Venture Exchange where most of the legit junior miners are traded. These small cap juniors could gap higher as the major institutions are hardly exposed to the mining sector at all.
It appears that some of my charts are showing a potential reversal in the precious metals. Get ready for an incredible bounce higher in precious metals. Here are five reasons why.
1) Increased M&A in the gold mining space and equity investments in junior miners should tell you where the smart money is headed. Take a look at the recent Osisko (OTC:OSKFF) deal where Yamana (NYSE:AUY) outbid Goldcorp (NYSE:GG) for their Quebec mine as a recent example and a straw in the wind. Look at Gold Resource Corp (AMEX:GORO) and Hecla’s (NYSE:HL) increased investments in the junior space.
2) Gold and silver are trading way below their three year trailing averages which indicates that the price is way oversold and a major bounce is likely. Furthermore, gold is priced below production putting strain on future supply as miners mothball marginal projects.
3) The equity markets are too high, reaching extreme overbought and speculative levels similar to 2007 before the crash. A correction in equities sparked by fears of deflation could spark the return to gold and silver as a safe haven as central banks may continue to push negative interest rate policies similar to what the ECB recently announced.
4) Gold and silver have been basing for three+ years and the junior miners have been in arguably a seven year bear market reaching historic oversold levels.
5)Watch geopolitics especially the Ukrainian-Russian and the Middle East situation in Iraq, Libya, Syria, Iran and Turkey. If tensions escalate it could send metals, commodity and oil prices soaring. Do not be surprised to see further chaos and increased violence as the U.S. pulls its troops out of the region.
One of our long term junior gold mining favorites since 2011, Corvus Gold (OTC:CORVF) came out with very positive news that they extended the high grade veins at their Yellowjacket Deposit at North Bullfrog and actually may have a new vein discovery. The drilling may be suggesting that their are additional veins around Yellowjacket. The first 5,000 meter program will focus on Yellowjacket and then the second 15,000 meter program will explore district wide for additional vein systems. In addition, Corvus announced positive results of metallurgical studies using gravity which could increase recovery and reduce processing costs.
Figure 1: Corvus land position at North Bullfrog with estimated resource areas shown.
Corvus owns 100% of North Bullfrog which covers 68 square km in Southern Nevada, approximately 90 minutes from Las Vegas. It is a huge property and there is the potential for additional discoveries.
All of this drilling and metallurgical work will be included in a new Preliminary Economic Assessment and resource update which will be completed after all of the 2014 drilling. This could be quite an exciting time for this high quality junior gold miner Corvus Gold (KOR.TO or CORVF). Remember, management owns close to 10% and Anglogold Ashanti Ltd (NYSE:AU) and Tocqueville Asset Management are the largest shareholders.
Corvus appears to be ready to make a reversal above the 200 day at $1.34 and despite recent progress is trading near a six month low. Notice the improving RSI and MACD despite a new low this month. This is usually indicative of a bullish reversal.
Disclosure: Beware of conflicts of interest. I own shares of Corvus and they are a website sponsor.