Gold and silver mining stocks are rallying, just as I predicted this past spring.
On May 14, I told you silver stocks were at the cheapest levels I had seen in years. At the time, gold and silver stocks were trading below their intrinsic resource value.
In other words, the market was assigning a severe discounted valuation to resource versus market cap.
Imagine buying proven gold in the ground for $200 an ounce… or proven silver in the ground for $8 an ounce.
That’s how distorted the market was back in the spring.
In fact, many miners were trading well below their break-up value.
I highlighted one particular silver stock as a strong buy on May 14. It was Pan American Silver (NASDAQ: PAAS).
At the time, it was trading at a book value of less than 0.80. But as always, the market inefficiency was corrected...
And Pan American Silver has rallied to reflect its true value:
When I recommended the stock on May 14, it was trading for $16 a share.
As of Friday’s close ($22.46), Pan American Silver is up 40% since my recommendation.
But take a look at this three-year chart:
Notice the massive double-bottom pattern in PAAS that began forming at the start of this year.
It’s indicative of a major breakout.
On a technical basis, subtract the bottom level ($15) from the top ($25). We get $10. Add that to $25.
So our short-term price target is $35... and that’s my most conservative price target.
Safe-haven assets are going to continue to rise because of global uncertainty, both monetary and military.
Global stimulus is spreading.
Recently, Japan announced a major monetary easing that raised eyebrows. Japan is mirroring Bernanke's quantitative easing decision last week in an attempt to devalue their currencies to boost exports.
The Japanese stimulus package is massive — so big that it will total nearly 20% of Japan's current economy.
On a short-term basis, the U.S. dollar is falling as these dramatic moves were much bigger than most expected.
Japan is in a precarious situation. It’s the third largest economy in the world, facing another economic slowdown and rising energy prices because of increase oil imports. And to make matters worse, they’re facing a territorial conflict in the South China Seas with China...
My wife is Chinese, and she tells me Chinese schoolchildren are indoctrinated to hate the Japanese at an early age — that “the rape of Nanking will eventually be avenged.”
In other words, this tension between Japan and China isn’t going away anytime soon.
Throw in what’s happening across the Mideast, and you have a powder keg — the potential for World War III.
Maybe that’s why Putin is putting most of his eggs into golden eggs...
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.