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THE HIDDEN POTENTIAL OF MINING STOCKS AMID ECONOMIC TURBULENCE

MINING STOCKS WITH UPSIDE DESPITE MARKET APATHY

In the face of an incrementally appreciating gold market, with prices hovering near the pivotal USD 2,050 mark—a better than 9% rise over the preceding year—mining stocks have curiously languished. As of November 23rd, 2023, according to data from Midas Touch Consulting, returns from these investments have not mirrored the underlying commodity's performance. The VanEck Gold Miners ETF, GDX, registered a 1.38% decline since the year's inception. Industry titans like Newmont and Barrick Gold witnessed substantial price retractions, falling during this period 24% and 8.9%, respectively. Even the exemplar of good governance, Agnico Eagle, suffered a near 8% setback. 

THE DISCONNECT BETWEEN GOLD AND MINING SHARES

Investors faithful to the HUI (NYSE Arca Gold BUGS Index) since its zenith in September 2011 have seen the value of their holdings plummet by nearly 65%, notwithstanding, the present price of gold is generous by around USD 65 or 3.4%, above its erstwhile all-time acme of USD 1,920. The lesson crystallizes again: mining equities are incompatible with investing in physical gold. Investors have weathered the market's vicissitudes less tumultuously with tangible assets. Conversely, mining shares have been buffeted by increasing production costs, managerial missteps, geopolitical reorientation, political variability, shareholder dilution, geological hurdles, and the evaporation of liquidity within the sector, culminating in depreciating or stagnating equity valuations. Despite producing commendable drilling outcomes and disseminating positive corporate updates, these ventures have failed to captivate the market's imagination this year, with stock prices of capable companies often taking a hammering.

Furthermore, the niche mining market can reveal precipitous drops of 30% to 50%, driven not by deterioration in a firm's fundamentals but broader market sentiment. Small exploration firms find themselves in a precarious situation, endeavouring to secure crucial funding, often amidst severe fiscal strain. Then there is illegal short selling!

LEGITIMATE VERSUS MALICIOUS SHORT-SELLING

Despite naked shorting's illegality—the act of selling unborrowed shares, it persists due to regulatory loopholes and a lag in reconciling paper and electronic trading systems, demonstrating the complexity and the paradoxical nature of stock trading regulations.

Terry Lynch, CEO of Power Nickel and founder of Save Canadian Mining, recently articulated the distinct roles of short-selling in financial markets. He acknowledged that short-selling can act as a protective measure by identifying deficient companies and overvalued assets, thereby safeguarding investments. However, Lynch criticizes practices that veer into market manipulation solely for profit, detrimental to all but the orchestrating hedge funds and brokers. 

Delving deep into the recesses of the Canadian mining sector, we'll spotlight the ramifications of discarding the uptick rule in upcoming articles. Our focus befalls the embattled junior miners and explorers, whose fortunes have faltered amidst predatory short-selling tactics.

Amidst heightened market manipulations, the clarion call for the Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) to reassess the tick test’s abolishment grows louder. Save Canadian Mining champions a crusade to safeguard the nation’s mining legacy, advocating for equitable market rules—more on this in coming articles.

SEASONAL TRENDS AND RECOVERY HINT AT FUTURE GAINS

Amid the concluding weeks of tax-loss selling, the mining sector prepares for a potential rebound. By mid-December, seasonal indicators forecast an optimal performance period through to February's end. This spells an opportune moment for investment in these disregarded stocks, paralleling a concurrent upsurge in the gold market. Analyses of the GDX's weekly and daily charts from Midas Touch Consulting reveal consolidation patterns after the significant rally of Spring 2020. The ETF currently wrestles with resistance from USD 29 to USD 31. Akin to the silver market, the chart demonstrates a protracted triangular oscillation, suggesting potential for an imminent breakout.

FINAL THOUGHTS – A PROMISING OUTLOOK FOR THE VALIANT

As the year's trading days wane, the mining sector is positioned on the cusp of its most advantageous season. With the dampening effects of tax-loss selling dissipating and the foreknowledge that January and February historically catalyze robust price surges, mining shares anticipate a bullish revival. Should gold breach the USD 2,000 threshold, mining companies, particularly those concentrating on gold and silver extraction, might herald a new era of prosperity? Medium to small-scale producers are poised for a lucrative phase, as they stand to benefit immensely from their increased profit margins, with a commensurate uptick on their balance sheets. As Spring approaches, it is conceivable that a myriad of minor exploration firms may potentially double in value, while a broader revaluation might be deferred until a later cycle phase or instigated by major producers initiating an acquisition wave. In summary, the mining stocks sector remains an unnoticed nook, brimming with promise for the astute investor ready to navigate its mercurial dynamics.