Metals, Mining Stocks in Upward Trend in Early 2009

In recent weeks, mining companies and precious metals climbed to highs unseen in over 2 months. In a December 11, 2008 commentary, we suggested that our trading stock, RBY would continue to advance beyond $0.90 to new highs by the end of the month and we were accurate. Today, RBY showed promise as it reached $1.10 for the first time since early October.
Our two buy alerts gave traders nearly 40% profits in just 3 weeks.
During the same period of time, gold surged to new cyclical highs and spent December 11th trading as much as 30 cents higher than the price of platinum. The recent momentum comes as economic uncertainty and inflationary policies persist:
- Trust in Banks Corrodes as Goldman Sachs Declares First Loss Ever.
- Fed Cuts Interest Rates to Near Zero.
- OPEC Cuts Production to Stop Sliding Oil Prices.
In light of the higher resistance levels that we’ve observed this month, we’re looking for higher support levels after the next correction. Expect RBY and gold to settle at $.90-$ 1.00 and $800 – $820 respectively.
Cyclical patterns and signals are pointing to the first 2 weeks of January in which we expect the following events to occur:
- Rubicon Minerals will shock investors with gold estimates at its Phoenix/Red Lake Mine.
- One or more larger mining companies will seek to merge with or acquire Rubicon.
- Gold will test the $900 resistance level.
- Oil will stage a huge rally after it settles near $25.

The Next Bubble: It’s Already Underway

President-elect Barack Obama made it clear that his solution for turning around a stagnant economy is the “largest single investment in our national infrastructure since the creation of the federal highway system.”

He and advisers are assembling an astounding $850 B stimulus plan including tax breaks and money directed at huge alternative energy projects.

In a May 2008 commentary entitled, “The ‘R’ Word” we suggested that the US was in desperate need of investment in infrastructure and that it would create the next wave of economic expansion. Now it’s finally a reality.

The cornerstone to any major period of economic expansion is inflation. The next bubble will be fueled by the trillions of dollars that central banks are currently
injecting into our financial system.

Whenever there is significant inflation, or a trend of dollar depreciation, we experience economic growth and development. When in periods of deflation, like the short term period from August to November, we experience economic contraction.

Yes, the next bubble is beginning to expand because more money is entering world markets.

In spite of the over-reliance on credit–loans and inflationary monetary instruments–we think periods of expansion are very beneficial to society. Barrack Obama’s investment plan will bring necessary modernization to the country’s aging infrastructure.

Similarly, FDR’s new deal improved the quality of living for most Americans and modernized the country with additional infrastructure. In the 1950’s the federal highway system eased congestion and made travel quicker and easier for all. More recently, the tech bubble created the interconnected and technologically advanced web-based world in which we presently live–and we certainly couldn’t imagine living without it.

Nonetheless, living in periods of economic expansion means you must invest wisely in order for your money to grow. You can beat inflation through sound investments in gold and silver coins at the end of deflationary periods (NOW). The price of gold has shown signs of reversing from its previous short-term downtrend (see chart below). Both precious metals and quality mining stocks are on the verge of a major bull run that will run its course throughout the better part of 2009.

   

RBY Jumps 20% on News of Another Major Gold Interception

In our previous commentary we suggested that RBY would move from its support level to new highs at the end of the month and it looks like we’re heading in the right direction.

In the last 3 days, RBY’s price surged from $ 0.73 to over $ 0.90 and it seems we might have more ways to go. If we breach the .90-1.05 resistance level then we could declare with confidence a new trend. We think this is most likely to occur within a little more than a month from now.

Today, Rubicon Minerals execs complimented RBY’s surge with good news of yet another high-grade gold interception up at its Red Lake, Ontario mine. Rubicon Minerals has consistently released positive news that is undoubtedly attracting new investor interest and old investor confidence.

This may be the beginnning of a new long term trend. Many traders of mining stocks use the HUI (Gold Bug Index) as an indicator about overall trends for specific mining stocks. The index now shows a clear reversal from our previous sector slump. The price of gold has yet to show us a clear reversal pattern; however, prices have been spending a lot more time above $ 800 than in prior months.

Gold Rises on $ 7.7 Trillion Bailout

In our last commentary we forecast an up trend that would end roughly around November 27 and we were accurate. Over the past two weeks, our mining stock pick increased by roughly 25%. Friday commenced a short downtrend which should reverse close to this month’s full moon.

Meanwhile, gold’s price surged from $700 on Nov. 20th to about $830 last week–a 20% increase. Strong gold sales, and an increase in demand helped push the price of all commodities:

- India Gold Demand Rises on Safe-Haven Buying – Reuters – Nov. 24

- Saudi Arabia, UAE Lead Gold Demand Increase in Q3 (+51 and 56% respectively) – Saudi Gazette

- US Stocks Post Biggest Two-Day Rally Since 1987 on Citigroup – Bloomberg – Nov. 24

- US Pledges Top $ 7.7 Trillion to Ease Frozen Credit

The last piece of news is perhaps the most astounding. When you add up all the Fed’s financial commitments, it comes up to $ 7.7 Trillion. That’s all going to be created and pumped into the system–the implications of which are that inflation will soar. Enjoy cheap gas and stock up on precious metals, because when the next major cycle begins in about a month, things will be a lot different.