Monday, September 5, 2011


Wow!  And it's about damn time too!  I just wanted to take some time this extended weekend and analyze a few of the miners specifically that we might want to use to play this breakout going into next week.

Let's start with the overall sector.  This is the HUI punching through tough resistance at the previous all time high.  If you are not familiar, the HUI is called the gold "bugs" index, "bugs" standing for "Basket of Unhedged Gold Stocks."  It consists of the major and intermediate producers, such as GG (which I believe is the highest weighted stock on the index) ABX, NEM,  IAG, AUY, etc...  The majors seem to have really made a stand recently.  Most likely due to constant divided increases in an uncertain market.  Now that it has cleanly broken above resistance at 610, I'm eyeing a target of 750-800 in the next few months.  That may sound like a lot, but an 800 target is only a 30% gain, and if you've ever seen gold stocks when they decided they want to move, you'll know that you can make a good chunk of that 30% in just 1 day.

Next, we have Fortuna silver FVITF.  (Or FVI.TO for you Canadians.) After 5 months of developing a cup and handle formation, Friday's close was the high of the day pushing it barely through the break out point on good volume.  It looks guaranteed to run to 7 from here, though it may pull back a few times in its move higher, the chart suggests a target of $8.50... My analysis on the company suggests higher than that, especially if we see higher silver prices going into years end.  I don't think 12 is an outlandish target price for the coming year. Let's take a min to look at some other aspects of the company.  They have a major mine in mexico opening this month, and they just filed for the NYSE.  They're costs at this new mine will be in line with industry standards at about $8/oz, but coupled with their existing mine that produces for -$4, you've got about 6.5 million oz's produced in 2012 at $6/oz... 130 million shares outstanding.  They will be making some serious profit.

Next we have a tried and tested solid company I have liked for quite a while, First Majestic Silver.  (AG or FR.TO)  The setup is identical to FVITF, except AG hasn't quite gotten passed it's break out level 25-26 yet.   Buy when it does make a clean break through.  A target of 32-35 is reasonable and likely.  With production increasing to 8 million oz's this year and 10 million in 2012, while costs remain near $8/oz and talks of a dividend in a few months, the fundamentals behind this company certainly support such a move higher.

Great Panther Silver, (GPL or GPR.TO)  looks ready for a move.  It might only be a modest move higher to about $4, but if it can clear above that, $5 seems likely.  Major wedge formation is tightening and a break is imminent.  If it clears around the $3.50 level on good volume, It will at least try for $4. 

Ok, I know.  The title is "GOLD STOCKS (finally) BREAKOUT" and I'll I've done is mention silver companies.  They seem to be leading not just the metal, but the gold stocks which will follow very soon.  So here is GG.  Support has held at 46, while resistance has held it back at 56.  This long consolidation pattern gives it a target near 65 by years end and I think that is reasonable. 

Now NEM,  which for years has been everyone's least favorite gold stock.  It is butting up against resistance at the all time high of 65.  Although a touch extended, it looks like it wants to go through, although a pullback to the $60-58 area wouldn't be a surprise.  If it were to clear,  it could go to around $70-80.  Let's say $75 by years end for good measure.  This one is more than backed up by the fundamentals.  The current PE is 13.5, the dividend yield is near 2%  (and will be drastically rising soon, as the board of NEM spelled out that the dividend will be raised to $1.60 at gold 1700-1799.  Based on their chart of 20 cent increases for every $100 increase in gold, and that we are now 1900+, we should expect $2/share in the near future). 

Well, that's the main ones I wanted to discuss.  There are plenty more I like a lot but, they have already made a move higher, or don't have exciting charts to post, but I will leave a brief description on each.

1.  NGD- Moving nicely higher and I expect that to continue.  Buy on a pullback to support near $11.50.   A $15 target on this is more than conservative. 

2.  IAG- If they can clear the 22-23 level It should try for near 25-28.

3. RGLD-  The royalty model is king, and RGLD is showing us that.  Nice break out.  Support is near 67-70 area, and stronger support near 62.50, but I wouldn't hold my breath waiting for it to go that low.

4.  FNNVF- Again, royalty rules. Breaking out from a small consolidation, it could move near 48 or so.  Support is around 42, and 40. They also should be moving to NYSE this month.

5. UXG- Chart looks terrible but support at 5.50 has been tested and held strong multiple times.  I wouldn't make a huge bet with this one now, but I guarantee whatever McEwen is doing regarding the merger of US gold and Minera Andes is gonna be big so pay attention to any news.

6. SNDXF-  Again, on royalty.  This company has some royalties on small miners.  Just moved cash flow positive.  Chart looks great.  Not a bad one to pick up some shares of at  less than $1.50 a piece. 

7. AUNFF- Aurcana is a monster silver miner cleverly disguised as a penny stock.  There is just too much to say, so I will post the company profile here.  Look this over for yourself, and try and tell me with a straight face this is not worth MUCH more than the 70 cents it is selling for.

OK EVERYBODY!  THIS IS GONNA BE A FUN FALL AGAIN FOR PM INVESTORS! Remember please to do your own due diligence, I have been wrong once or twice ya know.  Good luck out there and happy trading!

-Jonathan M. Mergott

*Full disclosure*- I myself, and/or clients I work for own every one of the stocks mentioned above.  I do not however, work for any of the companies, or collect special payments from them in compensation for my writing about them.  I make money the same way all shareholders do, share appreciation and dividends.