Global Outlook

Positive Outlook For Precious Metals

Contributed by eResearch

Regardless of who wins the election, we believe that precious metals, and especially the undervalued junior miners, should be included in one's portfolio. We are living in volatile times, where we see possibly many catalysts to cause a break-out in precious metals.

The world has chosen a Keynesian approach, which may cause gut-wrenching hyper-inflation. Remember, Central Banks all over the world are adding to their gold reserves, especially emerging nations. Countries, such as China, are overweight in U.S. dollars and treasuries, and have already begun buying under-valued natural resource assets and early-stage precious metal miners. They are opening banks in Canada and the USA to finance natural resource development.

The miners are already beginning to outperform both bullion and the S&P 500, and we believe this trend will continue due to favorable fundamentals and seasonality. For the past six months, the silver miners (SIL) and gold miners (GDX) have outperformed.

We expect this trend to continue, as investors see possible weaker earnings and slowing growth in the large caps, yet rising inflation and commodity prices, which benefit the miners. Even during this pause in the rally, both the gold and silver miners are holding up well versus the S&P500, and are outperforming bullion. The miners may be forecasting a coming break-out in gold at $1800, or a rotation from large caps to miners. After this break-out look for the large miners with rising share prices to make deals with the cheap junior gold miners for large premiums.