How Will You Play The Precious Metals Stock Bull Market?

April 23, 2020

There are as many ways to play the PM sector as there are investors. Some will only buy the big cap PM stocks for safety. Others will only buy the mid cap producers. Some will only buy a mix of big caps and mid cap producers. And then there are the PM stock investors that will only play the juniors. Each has its own advantage depending on your risk tolerance. Some of you are wondering why is Rambus’s portfolio structured like it is with hardly any big caps?

After a great run during the tech bull market that ended in 2000 I was able to basically retire and build our dream home. After that bull market ended I was left looking for another area in which to invest. It wasn’t until early 2002 that I saw a chart for gold which was showing a very large base that caught my attention. Whenever I see a big base I have to study it more to see what is behind the price action. The more I looked, it became apparent to me, that a new bull market may be starting to form in the PM complex.

Keep in mind I knew very little about the PM complex back then as I only traded the big cap tech stocks. I only knew a few of the really big cap PM stocks like Newmont, Barrick, ASA and just a couple of others. I didn’t even know there was a sector called the juniors. It didn’t take long after I immersed myself in studying all I could about this new area to invest that I became hooked. I still remember my first trades in the PM sector which were Newmont, Barrick and ASA.

I kept studying this new and exciting area for me and found out about the juniors and the possibility they could offer. I read several articles about how many of the juniors went through the roof in 1997 I believe, when BRE-X supposedly found the Mother Lode. Juniors were going up 100’s of percent and many going up 1000’s of percent. There are few areas in the markets that a sector can go up that much so I had to study more. The more I studied this little sector the more convinced I became, that for me, this is where I wanted to trade. The rest they say is history.

I already had the foundation for identifying chart patterns so it was just a matter of finding as many juniors as I could and look at their chart patterns. Since the first leg up in the new bull market had ended there were many juniors with some decent consolidation patterns already in place. I was lucky that I was able to catch most of the 2nd leg up in the new bull market before it ran out of gas and needed to consolidate its gains. When I put my first PM portfolio together I bought 10 juniors all under a dollar and hoped for the best. By the time the correction began that portfolio was up 273% in just under 8 months which was more than I had hoped for.

During the next impulse move up that began in 2005 I had bought 20 juniors all under a $1.00 and when that impulse move ended that portfolio was up 328% in less than a year. Needless to say I had found a new home in which to trade.

What I learned trading back then was that the tide would lift all boats to a certain degree with the juniors that had good looking chart patterns 100’s of percent. What I also learned back then was that when the impulse move ended it was time to get out of those juniors as they could give back a large chunk of the profits during the next consolation phase.

So that brings us up to my current portfolio. One thing about the PM stocks is that it is a small universe and following it through the years you begin to learn about their individual characteristics and how they may behave during an impulse move. Some would call my current portfolio very speculative because I don’t have any really large PM stocks, but I do have a decent mix of some mid caps and juniors.

Sir Plunger’s 4 horsemen are going to do very well and make a lot of money for those that invest in those 4 stocks. For me personally and what I learned in the first half of this secular bull market that ended in 2011 was that the juniors is where I want to mostly trade. If I don’t make at least 250% to 300% on this trade, which I finished up the buying today, then I will be disappointed. I hope it will be more but I’ll be satisfied with the 250% to 300% profits.

Another important lesson I would like to make is that once you are in a confirmed impulse move the last thing you want to do is try trading it. That was a lesson I learned the hard way though the years. For whatever reasons once you get out of a trade in an impulse move the idea that you are going to buy back at a cheaper price very seldom works out. My experience has been you usually pay up if you want to get that position back.

I posted this history chart for the HUI several weeks ago which shows all the consolidation patterns that formed during the first half of the secular bull market that ended in 2011. The red arrows show you where the impulse move actually began. As you can see most of the impulse moves between each consolidation pattern lasted for many months before they became exhausted. If you recall the last time I posted this chart I put the red arrow under the 5th reversal point on the 2016 triangle reversal pattern. I said I wasn’t going to wait for the breakout before I got positioned which so far has worked out well. The price objective for the 2016 triangle is above the 2011 all-time high over 700 but I’ll be satisfied to reach the all-time high before the next consolidation period begins.

So how does the 2016 triangle reversal pattern look on the long term secular bull market uptrend channel? It has been forming right on the bottom rail of the 2000 bull market uptrend channel. Where will the HUI be trading if the top rail of the bull market uptrend channel is reached in the future?

https://rambus1.com/

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Rambus Chartology is Primarily a Goldbug TA Site following the precious metals markets. Chartology is the Unique Blend of Technical Chart Pattern Identification and Market Psychology,  Developed by Rambus During the Tech Mania of the late 1990s.  His Early Training came the old fashioned way...Reading Edwards and McGee's Bible of Technical Analysis and spending years with a sharp pencil graph paper and ruler refining his skills and accuracy. Visit the Rambus Chartology website at http://rambus1.com/.

Goldschläger and Goldwasser are liqueurs containing pure gold flakes.

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