Riding the Momentum in Gold and Silver Stocks

Event-driven trades are the only action in this stock market—a market where cash is seemingly more attractive, given all the risks. For speculators, gold and silver stocks remain an attractive sector in which to speculate, although institutional investors have not returned to this group with the same fervor they had in 2010. Generally speaking, earnings from gold and silver miners are good, but costs have been rising all year and this trend should continue going into 2013.

You can play momentum in gold and silver stocks; in fact, it might be a better investment strategy than trying to buy low/sell high. Picking from existing winners tends to work better in a stock market that’s not providing any wind at your back.

One junior gold exploration company that’s currently experiencing solid upward momentum is Belo Sun Mining Corp. (TSX/BSX). With a significant new financing recently completed, and continued good drill results, institutional investors are participating in this position. The company’s stock chart is featured below:

 Chart courtesy of www.StockCharts.com

Mag Silver Corp. (NYSE/MVG) is another exploration-stage company that’s experienced a lot of upward price momentum on the stock market this year. The stock more than doubled over the last 12 months, and recently pulled back from its 52-week high because of weakness in the broader market. The company’s stock chart is below:

Chart courtesy of www.StockCharts.com

No doubt, this is a tough stock market in which to be taking on new positions. Declining expectations for both earnings and revenues are taking their toll on the main indices, and most brand-name companies have broken their moving averages. But, while gold and silver prices are vulnerable in this kind of environment, both commodities are doing a good job of staying lofty, and this means that gold and silver mining earnings are uniquely poised for outperformance.

Institutional investors aren’t going to run to gold and silver stocks unless spot prices experience a new bull market. And, spot prices aren’t going to advance meaningfully with all the current uncertainty. But for speculators, it’s still a good sector to be betting on because there really isn’t much growth anywhere else.