Value Investors Entering Junior Mining Sector?

The miners have been hammered down to historic 1999 lows, while the U.S. banks and U.S. dollar reach new heights. Many investors may be prematurely assuming that all is well with the global economic picture. The fine tuning of the economy by the Central Banks and specifically Ben Bernanke appears to have been a major success to the masses.

Commodities are cheap, interest rates are historically low and the U.S. housing, greenback and equity markets are near all time highs. It seems that many of us, underestimated the powers of the Central Banks on the free markets to manufacture a recovery while suppressing commodity prices for the short term. However, astute long term investors realize that this is the time to acquire real assets for pennies on the dollar. Every action has an equal and opposite reaction. Eventually, contrarian value investors will be rewarded.

Don’t get confused by the Fed’s bafflegab. One week, Bernanke testifies in Washington saying easy money policies must continue to prop up a weak economy or else we could face a significant threat to this recovery. The markets rally. The next week, he says he may taper by 2014. The markets fall. The Fed appears to be micro-managing the markets.

Bernanke may have wanted to take a little froth off of the equity markets and prevent oil breaking the $100 mark. Precious metals are now completely out of favor, which allows Central Bankers to continue devaluing the dollar. Not allowing the free markets to balance itself out and these constant policy interventions could lead to unknown long term economic consequences. Eventually, investors could lose confidence in paper assets and get “fed” up.

Remember Bernanke is on his way out and Obama is probably looking for an even more dovish successor. Bernanke will be known for unleashing quantitative easing to boost housing and equities.

U.S. housing is now hitting multi-year highs. Many homeowners destroyed their credit by walking away from their homes and capitulated near the lows four years ago. We have witnessed a major “V” reversal in the housing and financial sector where the real losers were the ones who did not have patience and sold. Learn from their mistakes in the resource sector, smart money picked up these assets for pennies on the dollar back then and are doing it now in the oversold resource sector.

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Right now, we are witnessing a similar shakeout in the mining sector and precious metals. The losers will be those who capitulate and sell their shares to the smart money, which is now entering the precious metals and commodities sector. Insider buying and major strategic investments by smart money is increasing.

Now the buzzword is tapering. A few months ago it was fiscal cliff. Tapering means to decrease gradually. As interest rates rise from this purported exit, The Central Bank may do a 180 degree turn and continue to print dollars gradually to pay down enormous debts and keep pace with other devaluing currencies like the Yen.

Silver is below its 5 year trailing average in the high teens and gold is breaking below it 5 year trailing average. We are reaching 2008 and 2001 levels for both silver and gold miners. At these oversold levels in the past the miners were able to reverse and make exceptional gains.

We should begin seeing some bullish reversals in the junior miners as value investors continue to enter the sector. It increasingly appears that we are near a potential secular bottom.

Don’t be manipulated by the mainstream press scaring you with headlines about the economic troubles in China or that mining is dead. Negative people may tell you that the financing markets have dried up. That is not true.

Already we have seen major increases of Chinese investment in energy, potash and precious metals. Here is one example. This this junior miner published showed a major increase in uranium and rare earth resources which boosts shareholder exposure to clean energy metals. Countries around the world are fighting air pollution. The world we live in today is looking to reduce air emissions and the carbon footprint. This could be a key project for Canada.

In conclusion, turn off the negative news that is broadcasted to misdirect and confuse investors. Follow the capital to quality situations like these few examples which are building value during challenging times. It is during these difficult times in the resource sector when the greatest opportunities are discovered. Remember American Barrick Resources started off as a 16,000 ounce producer in the 80′s down market in gold and grew to be Barrick Gold Corp, the largest gold producer in the world.

Written By: Jeb Handwerger