Golden Stocks for Those Who Believe in Super Cycles

by Nigel Bolton-Shaw on September 24, 2012

Precious metals and mining industry analyst Christopher Barker writes an analysis of QE3 with the gold mining industry in mind.

His biggest point is that “monetary printing presses” are firing up again (did they ever cease?) and this will have a big effect on gold and silver mining stocks.

He’s upbeat about this beaten up class, writing that the outlook “has grown crystal clear for a major resumption of upward momentum by the primary benefactors of central bank largesse: gold and silver.”

Of course this isn’t quite true as there has been ongoing easing that has roused stock markets around the world and more than doubled the Dow since its lows several years ago.

Gold and silver stocks did NOT benefit inordinately though certainly physical gold and silver did. Barker believes that non-paper gold and silver will travel higher still – as well. He writes:

The latest round of quantitative easing by the U.S. Federal Reserve brings my long-standing price objectives of $2,000 gold and $50 silver straight to the fore as conservative near-term targets.”

But the meat of his argument in the column we’re reviewing involves five gold equities that he considers promising. Here’s an abbreviated excerpt:

IAMGOLD, a cash-rich, growth-ready, gold miner, has already surged 39% since I highlighted the stock’s remarkably low resource valuation just one month ago, I continue to perceive very strong upside potential in the shares of IAMGOLD (NYSE: IAG ).

Sabina Gold and Silver (ticker “SGSVF” on the over-the-counter exchange) has enjoyed a 54% advance in just over three months. Just this week, Sabina made yet another new high-grade discovery of near-surface gold — between two of the proposed open pit mines at the Goose portion of its Back River project — with a 15.45-meter intersect of 12.68 grams per ton.

Small-cap gold streamer Sandstorm Gold (NYSE: SAND) has already delivered a prompt five-bagger performance since its inception in 2009, and the stock remains a consistent favorite among the knowledgeable gold investors

Pretium Resources’ (NYSE: PVG) world-class discoveries in the Valley of the Kings portion of its Brucejack property was augmented just this week by another round of top-notch intercepts (not included in the latest resource estimate), including seven intervals sporting grades above 2,000 grams per ton!

Rainy River Resources (ticker “RRFFF” on the over-the-counter exchange) offers a second multi-bagger run. Fools who may have dipped their toes in this river when I highlighted the stock in June could already be sitting on a 30% gain, but I believe room still remains for an easy double from here before Rainy River approaches fair value for the 3.8 million ounces of recoverable gold envisioned by the company’s recently released preliminary economic assessment, or PEA.

Barker is on to something here, not so much with his picks as with the larger issue of how this central bank-driven business cycle works.

In fact, we won’t comment further on his specific stock picks and have only reproduced them here in case readers are interested. But what grabs our attention, as we’ve reported previously, is that this super-cycle is so much like the previous one in the 1970s.

Because this is indeed a central bank driven world, we can detect specific patterns, starting with the rise of gold and silver and then gradually spreading to paper gold and silver.

The difference this time round is the ready availability of ETFs and futures, which may have drained some of the capital available for mining stocks.

But like Barker, we believe over time, central bank rate cutting and money printing could drive juniors much higher, just as happened in the 1970s.

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