BALTIMORE (Stockpickr) -- Another "perfect storm" is forming in the precious metals market right now, and market players need to be paying attention.
Gold and silver futures contracts are both technically setting up to explode higher. Breakouts in both metals are already underway as rising geopolitical fears, European sovereign debt issues and a threat of a U.S. government shutdown loom in the markets. To put things into context, gold futures hit a new record during Asian trading hours Wednesday, while silver printed a new 31-year high.
The threat of a U.S. government shutdown is probably the biggest catalyst driving up metals prices here. This is such a serious issue because it's all about balancing the U.S. government's budget. This is not just a direct threat to the world's reserve currency (the dollar), but it's also a threat to confidence in the American economic system. Negotiations are under way to solve the problem, but if the current administration can't come to an agreement and soon, a shutdown could start as soon as Friday.
If a shutdown does indeed occur, look for precious metal prices to go up every single day that the government is not open for business. Even if the shutdown doesn't happen, most analysts think that Congress will raise the debt limits, which would also likely cause precious metal prices to go up.
Treasury Secretary Timothy F. Geithner said on Tuesday that if Congress doesn't raise the debt ceiling before May 16, the U.S. would have to cut critical payments and interest rates will surge.
If all of this wasn't bullish enough for metals prices, we also have a new war raging in Libya that seems to have no end in sight. On top of that, we have ongoing geopolitical risks in the Middle East due to fears of more social unrest in Saudi Arabia, Yemen and Syria. Let's not forget about Portugal, which is reportedly seeking an EU bailout before June.
This quickly developing "perfect storm" makes me think one thing: Don't be short anything tied to the gold and silver complex. I want to be a buyer here, because the technicals are acting in concert with the fundamentals, which bodes well for higher prices.
With that in mind, let's take a look at a number of
is an exploration-stage company engaged in the exploration and acquisition of gold properties in the People's Republic of China. This is a very speculative gold player with a market cap of $120.34 million. So far in 2011 the stock is off by around 9.5%, but things look ready to change rapidly for Mino Gold.
If you take a look at the chart for Mino Gold, you'll see that the stock has been forming a basing chart pattern for the past couple of months between $2.90 and $2. This is a healthy pattern to see in a stock because it means it's building up energy for a run higher. Of course, that's as long as it doesn't break below the lower end of the pattern, which MGH hasn't. Now the stock looks ready to make a fresh run at $2.90 since it's started to move above the 50-day moving average of $2.32 a share.
What traders should watch for now is for volume to increase dramatically if MGH can break out above $2.90. I would suggest watching for volume to come in to MGH that are well above the three-month average trading activity of 518,000 shares. If the stock does break out, this will be a major development, because it will mean MGH is trading at brand new all-time highs.
The stock could easily double if that occurs, so consider buying some shares now in anticipation of the breakout. You can manage your risk in this trade by simply selling the stock if it moves below some near-term support at $2.25 a share. I like the setup here, and I think MGH has tremendous upside from current levels.
and its subsidiaries are in the mineral property exploration and development business in Africa. The company is mainly focused on its Bisha Mine in Eritrea, East Africa. I don't have to tell you that doing business in Africa is risky, but Nevsun seems to be on the right track with its Bisha Mine. The development is expected to produce more than 1.14 million ounces of gold, 11.9 million ounces of silver, 821 pounds of copper and over 1 billion pounds of zinc during its estimated 13-year mine life. This stock is off by around 16% so far in 2011 and their current market cap is $1.23 billion.
What I like about the chart for Nevsum is that shares are starting make a key technical breakout as the stock begins to trade above a descending trend line. This descending trend line started back in January and now the stock is breaking out above this resistance area on decent volume.
I would be a buyer of this stock once it takes out some near-term overhead resistance at around $6.30 to $6.50 a share. I would then add again above $7.25 and add even more aggressively above $7.75 a share. That said, I would only add to these moves if the volume is increasing dramatically above the three-month average trading activity of around 809,800 shares.
I would like to point out that a move above $7.75 will be huge for the bulls because it will mean that the stock is trading at all-time highs. If that happens, I would look for NSU to make a run at the psychologically important $10 level.
is a mining company, which generates its revenue primarily from the sale of silver. Its current market cap is $16.23 billion, and the stock is up sharply so far in 2011 by around 17%.
The trade here is pretty simple. Silver Wheaton is approaching a major breakout if it can manage to trade above $46 to $46.34 a share. Volume on Tuesday was already looking great as the stock approached those past overhead resistance levels. Over 17.2 million shares traded, which is well above the three-month average trading volume of 13.9 million shares. That was the highest volume up day since 17.3 million shares changed hands on March 16.
Traders should now watch SLW to see if it can break out on heavy volume that's well above 13.9 million. If that does happen, it will mean the stock is trading at brand new all-time highs. It will also mean that pretty much anyone who has ever bought the stock is making money. This is good company to be in and it increases the probability that the stock will continue to trend higher for quite some time.
If you buy this breakout, you can simply bail on the trade if it doesn't hold above those resistance levels I mentioned above. Or you can just give it a few points from the breakout area and dump the stock if it falls by around that amount.
is a precious metals company engaged in the exploration and development of mineral properties in Alaska, the U.S. and British Columbia, Canada. Its current market cap is $3.12 billion, and the stock is off by about 3.3% so far in 2011.
I love the way that NovaGold is setting up here technically. If you take a look at the chart, you'll see that the stock is very close to breaking out above a key descending trend line, and volume is increasing dramatically. Volume on Tuesday (an up day) was 7.3 million, which is well above the three-month average volume of 4.4 million. Now all we need to see is one more strong volume day and for the stock to bust above that descending trend line.
If we get it, I would be buying aggressively and then adding to my position as the stock takes out the next significant resistance levels seen on the chart. The play here would be for a run back its 52-week high of $16.90 a share. If we can't get above that descending trend line, then I would avoid the stock for now.
I would also like to point out that NG has a reasonable short interest that could help to power the stock higher if it does breakout. As of March 15, the short interest as a percentage of the float for NG sits at around 7.7%. If this stock starts to take off, and I think it will, then we could easily see some short covering that will help power the stock higher.
NovaGold, which shows up in both
as of the most recently reported period, was recently highlighted on a list of
is a Canadian mineral company engaged in the evaluation, acquisition, exploration, development and exploitation of mineral properties. The Company produces silver-gold from its underground mines at Guanacevi and Guanajuato in Mexico. Endeavour's current market cap is $911.29 million and so far in 2011 the stock is up nicely by around 24%.
This is a stock I last
as a buying opportunity when it was trading at around $7.50 a share. It's now above $11 a share. Just for context, in the same piece I also highlighted
Coeur d'Alene Mines
(CDE) at around $31.50 a share -- it's now above $37 -- and
First Majestic Silver
(AG) at around $15.50 -- it's now over $26. The only bad call I had in that piece was
(MGN), which was at $3.50 and is now trading around $3 a share.
Back to Endeavour: This hot silver play has already started to break out above some recent overhead resistance at around $10 to $10.33 a share. This move is coming on massive volume, which registered over 4.8 million shares on Tuesday (an up day) versus the three-month average volume of 2.3 million shares.
The stock is now trading at brand new all-time highs, and I expect it to continue to soar higher. I think it goes to $15 a share and if the uptrend is strong enough it could have a shot at $20 a share. The trade here is easy to manage from a risk/reward basis. Buy it on any pullback and stay with it as long as the stock doesn't trade below the breakout levels I cited above.
engages in the exploration and development of mineral properties in Canada, primarily in Yukon Territory, and provides consulting and project management services in respect of environmental permitting and compliance, and site remediation and reclamation in Canada and the U.S. Alexco has a current market cap of $582.46 million and the stock is up about 20% so far in 2011.
If you take a look at the chart for Alexco Resources, you'll see that this stock has now started to break out above some recent overhead resistance at around $9.72 a share. This is another big breakout in the precious metals complex because it means AXU is now trading at brand new all-time highs.
Once again, the move is coming on monster volume. During the last two trading sessions (both up days), volume has registered 1.4 million shares vs. the three-month average volume of 657,000 shares.
That's exactly the kind of volume you want to see when stock starts to print new highs. With that in mind, I think this stock has huge institutional support and its heading significantly higher.
The trade here is to buy it on any weakness and only sell it trades back below $9.72 to $9.41 a share. That will give you a good risk/reward outlook, and if AXU wants to keep uptrending, you'll have exposure to capture the gains.
To see more precious metals stocks that look ready to take off, including
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.