Few exchange-traded investments have visited more pain on shareholders in recent years than bullion stocks. Even now, amidst a spectacular surge in the broad averages, gold and silver mining shares have done little better than languish, making the pain even more acute for long-term precious-metal bulls. Is it time to bail out of them? We think not, even though it looks like two popular mining vehicles, GDX and GDXJ, may have further to fall before they hit bottom. We’ll explain in a moment, but you can also click here to access a recent interview on the subject that we did with Al Korelin of the Korelin Economic Report. So how much more damage should we expect? GDX, an exchange traded fund (ETF) that tracks a broad portfolio of mining stocks big and small, has already fallen 47% since September 2012, from a high of $67 to a recent low of $35.57. We think it will shed another 15% of its value, dropping to exactly $30.34, before hitting bottom. As for GDXJ, which measures a basket of junior mining issues, it looks primed for a washout to $13.15, representing a 12% decline from the recent bear-market low at $14.95 and a 70% fall from 2010’s summit at $44.86.
If our expectations are borne out, however, we think the selloff will be worth enduring for two reasons: 1) the respective targets, “Hidden Pivots” identified with our proprietary technical tools, look like back-up-the-truck buying opportunities, and 2) if a bear-market low is indeed nigh, the initial leap from Mindanao depths is bound to be breathtaking — so powerful that any further losses suffered between now and then are going to be recouped in mere days. In the meantime, long-term investors may simply want to visualize better times ahead as they prepare to weather what we see as a final squall. The wait can be made not merely endurable, but productive, if you’re willing to consider covered writing calls or perhaps straddles on whatever bullion vehicles you possess. Two-month at-the-money calls on GDXJ, for one, are currently going for around $1, equating to an annualized return of 37.5%. That should suffice to assuage any remorse you might feel if the stock rallies strongly enough to get called away.
-- Posted Monday, 11 March 2013 | Digg This Article | Source: GoldSeek.com
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