Year-End Gold Stock Strategies
We need to talk about the cyclicality, or seasonality, of resource stocks as we approach the end of the year.
During December — and sometimes starting a bit earlier — seasoned investors routinely sell positions for tax purposes. This is often referred to as “tax loss” selling, because the idea is investors are selling some losers to reduce the tax bill from their winners.
But “tax gain” selling — though less practiced and less discussed — can be done as well. For example, if you think the government is going to raise the inclusion rate next year for capital gains, which would increase your tax burden if you wait to sell, you may want to seel some winners in this calendar year.
Why does this matter?
Because resource stocks are both up and down this year. Let me explain…
Below is a chart of two leading precious metal and mining exchange-traded funds (ETFs) over the past year:
- VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ)
- VanEck Vectors Gold Miners ETF (NYSE: GDX)
You’ll see they ran hard for the first 8-9 months of the year, climbing 120%-170%. But then they cut those gains in half over the last quarter.
So on the one hand, if you timed it correctly and bought in late 2015 and very early 2016… you may have some gains to harvest.
On the other hand, if you bought in at higher prices during the summer, thinking you were missing out, you may have some losses to sell.
And I’m sure there are still plenty of folks out there holding shares from several years ago, which are no doubt still big losers, as a real recovery in the metals space has yet to materialize.
These stocks, after all, are still down some 70%-80% from their highs in 2010/2011.
I point this out to show you that precious metal stocks across the board, from explorers and developers to producers, are still greatly depressed.
When you pair the current selling with a gold price that’s shed more than $167 since November, there are some incredible opportunities out there to be bought up.
The first quarter is seasonally good for precious metals equities as the pressure valve of tax-related selling is released.
But in 2017, with a resumed rise in metal prices after this brief but severe sell-off that has materialized, gains could be magnified.
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The ETFs themselves are good choices. For the VanEck Vectors Junior Gold Miners ETF to get back to the $51.70 it traded this past July… it would need to rise 82% from the $28.40 level it trades at today.
And the gains from individual junior mining stocks with quality assets and management and share structures could be poised to rise even more.
Take one component of that already-mentioned junior ETF: Richmont Mines (TSX: RIC).
Richmont has operated six underground mines and one open pit gold mine in Canada over the past quarter century. It currently operates the Island Gold Mine in Ontario and the Beaufor Mine in Quebec. It traded at $14.81 in September but trades at $8.00 today — an implied 85% return if it just gets back to its 2016 highs.
But a development program at its Island Gold Mine to bring an additional one million high-grade ounces online could provide a catalyst for even higher returns. I would bet that initiating a position in Richmont will yield fruit in the new year.
If you’re familiar with the sector and, perhaps more importantly, familiar with the players in it… you can be highly selective and use timing and catalysts to your advantage.
This is what our new resource editor, Gerardo Del Real, does for you day in and day out.
In his most recent trade he told readers to short the price of gold using a leveraged inverse ETF. That trade spouted off for 42% in the days after he recommended it.
Up gold. Down gold. Tax loss. Tax gain. Rate hikes.
It doesn’t matter what Mr. Market deals you when you have the experience and know-how to anticipate and react, and have been doing it long enough to know all the tools available for you to profit.
That’s what Gerardo has. And that’s why high-net worth clients have been listening to him for years when it comes to resource stocks.
Click here to see what Gerardo is saying about gold now and how he thinks you can profit from it going forward.
Call it like you see it,
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street Underground. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.