The Santa Claus Rally: Can it last?

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By Ellsworth Dickson

As with other stock markets, it has been a tumultuous year on the mining stock-heavy TSX Venture Exchange with the heart-stopping plunge in March, then, almost immediately, followed by a recovery. The TSX Venture Composite Index climbed back to the pre-March Index level of 570 by June and kept going. After a jumpy sideways pattern starting in August, the Index gained strength and in early November began a solid upward bullish trend to its current 842, up 12.35 points on December 23.

Not that I’m a technical analyst; however, it’s easy to see that the Venture Composite Index is staying above the moving averages and the Relative Strength Index is in positive territory – basically, a good-looking chart. The more broad-based TSX Composite Index is also bullish.

However, the Venture Composite Index doesn’t show you the details of the various exploration and mining companies that make up a large part of the Index. Besides the risk of not having good drill results, these companies are also subject to various good and bad external forces beyond their control such as metal price and geopolitical events.

Nevertheless, within the advancers are companies developing real assets in the form of gold ounces in the ground, tonnes of copper and so on. Many have raised substantial exploration funds and we have already seen explorers with good drill results and miners with good earnings such as Kirkland Lake Gold and Alamos Gold.

The question is, of course, will this Santa Claus rally continue into the New Year?

Besides the general bullish trend for explorers and miners, metals such as copper, now trading at $3.51/lb, are underpinning the success of copper companies. Demand for industrial metals is real and continuing as the world’s economies recover and copper is a building block.

Gold is volatile on a daily basis; however, in a recent Resource World interview, mining financier and investor Rick Rule, Sprott U.S. Holdings CEO, says the outlook for gold and precious metal equities remains bright.

Concurring with Rule, Edward Coyne, Senior Managing Director, Global Sales at Sprott, said, “If you are a true value investor, you are hard-pressed to avoid the mining space today.”

Investors have been keen on the yellow metal itself. A recent World Gold Council report stated: “Bar and coin demand strengthened, gaining 49% year-over-year to 222.1 tonnes. Much of the growth was in official coins, due to continued strong safe-haven demand in Western markets and Turkey, where coins are the more prevalent form of gold investment.”

However, it is possible this will change with less safe-haven buying as the vaccines get the COVID-19 virus under control and the economic recovery strengthens.

Silver guru David Morgan of The Morgan Report remains bullish on silver and is expecting higher silver prices. Forbes Finance Council stated: “The general consensus among market watchers, researchers and precious metals experts is that the long-term forecast for silver is positive. Although no asset is without downside risk, the case for silver is supported by heavy industrial use as well as its strategic importance as a currency hedge during times of uncertainty. However, the strength of the dollar will play an important role in silver’s performance.”

For platinum group metals, Metals Focus expects to see higher platinum and palladium prices in 2021.

Currently, there is a very interesting selection of mining stocks in several different commodity sectors worth taking a look at, including those active in “hot” gold camps such as Newfoundland, the Abitibi Gold Belt, Red Lake and under-explored jurisdictions in South America – all backed by a firm bullish trend of positive investor sentiment.

We are currently seeing a number of bullish signs that may be the best Christmas present for an exciting 2021.

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