Amongst all the volatility we've seen over the last few months, precious metals have been quietly building strength. This has been a big surprise to many since sentiment in the sector had been bombed out by recent strength in the dollar. As the European debt crisis deepened and investors flocked to the greenback, gold was seen as a less and less desirable alternative.
That's all changing now as hedge fund types scramble to unwind leveraged short-euro/long-dollar trades. In fact, an analysis of futures data from the Commodities Futures Trading Commission shows that this trade recently hit more extreme levels than what was seen back in 2010 during the initial panic over the first Greek bailout.
People have been really loving on the dollar.
Now, with crude oil pulling down inflationary pressures just as the U.S. economy cools, the Federal Reserve is poised to unleash another round of monetary policy stimulus. Whether it's simply an extension of the existing $400 billion "Operation Twist" initiative started last September, or a fancy new "sterilized" quantitative-easing option, it won't be good for the dollar.
New easing will accelerate the short-euro/long-dollar trade unwind and give an added boost to inflation hedges silver and gold.
Foreign central banks are already in on the act. The People's Bank of China recently cut its policy rate for the first time since 2008. And the Bank of England indicated it was next in line by unveiling two new initiatives to support the British economy � adding to the $500 billion worth of quantitative easing the bank has already done and its push to hold short-term rates at 0.5%, a record low.
I've recommended a number of precious metals positions to my newsletter subscribers and readers since late May. Many have already hit their 10% profit targets. Others are quickly moving towards their targets. Examples include the Global X Silver Miners ETF (SIL .
A couple of individual stocks are worth noting.
Comstock MiningLODE is based out Nevada's Comstock District, with gold and silver mining operations. It's relatively small, focusing on the historical mining district home to gold and silver miners since 1859. It knows its properties, too. Comstock has been studying the geology of the district for years, amassing the biggest known pile of data of the area. They've already dug tens of thousands of ounces of gold and silver out of the ground, but believe there's much more down there. They hope to validate qualified resources of 3.25 million gold equivalent ounces by next year.
Newmont Mining Corp.NEM is a much bigger player, the world's second-largest gold producer. They're headquartered in Colorado with assets or operations all over the globe, in Peru, Ghana, Mexico, Australia, New Zealand and Indonesia. Proven and probable gold reserves approach 100 million ounces.
Peru has been Newmont's hot spot recently. One of its biggest and cheapest mines, Yanacocha, produced some 1.3 million ounces in 2011 alone, at $560 an ounce. They're trying to open operations in a nearby mine, the Conga, but was met with fierce local opposition over environmental concerns. Annual production could come in at 633,000 ounces of gold and 200 million pounds of silver once constructed. The company has the support of President Ollanta Humala, and agreed to improve its environmental plan in order to get the project going.
Rangold ResourcesGOLD focuses on African gold deposits in Mali, the Ivory Coast, Senegal, and Congo. It sits on a little over 16 million ounces of proven and probable gold reserves.
Shares are up nearly 30% since May 15, settling above $90 after dropping below $73. Earnings per share quadrupled in 2011 to over $4. The stock is pretty cheap, too, at around 20 times earnings, and sits on a fat 34.95% profit margin and 14.92% return on assets.
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Disclosure: Mr. Mirhaydari has recommended GOLD, SIL and LODE to his newsletter subscribers.
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