More Bullish Bets on Miners, Commodities

October 12th, 2015 by

Judging by behavior on the commodities markets, there seems to (finally) be a considerable turning of the tide in the entire sector from bearish to bullish. Sentiment among traders and investors has been overwhelming bearish throughout the past two years, but that may finally be shifting.

bull bearAlthough most major financial firms like Goldman Sachs (NYSE:GS) and UBS (NYSE:UBS; SWX:UBSN) are still low on commodities, there has at least been some significant shift in the consensus expectations of the various experts in the field. One notable financial to switch from bear to bull on commodities is Morgan Stanley (NYSE:MS), who changed its outlook through 2017 to positive for the sector as a whole.

Gold Bull Capitulation

gold-bull-and-bear-marketDuring the deepest permafrost of the bear market in precious metals (and commodities broadly), there was a lot of talk about “capitulation.” This referred to the bullish players on the gold markets finally giving up, and exiting their long positions on the metal. Well, almost as soon as the final “perma-bulls” were believed to have capitulated, we get this incredible surge across the precious metals markets. Essentially, this means that a great deal of new positions have been opened by traders that are fresh speculation on short-term gains for the gold price. In fact, bullish sentiment regarding gold is now at a 6-month high. This traces all the way back to worst moments of the default crisis for Greece earlier this spring.

Shifting Tide

With the IMF issuing warnings about its souring outlook for the global economy, especially China, several analysts have updated their expectations to reflect a potential recovery for raw resources and precious metals. In addition to Morgan Stanley, a note from Capital Economics indicated that a reversal in price trends for the commodities and mining sectors is “nigh” it hasn’t already occurred. We may be seeing that reversal right now.

Denmark’s Saxo Bank has likewise pivoted toward predicting a recovery for commodities, although it calls for a more gradual bounce back that may may take a few years. Nonetheless, they see the signs of recovery already at play.

Junior Miner Strikes Gold

There has also been news that a junior Canadian miner, Skeena Resources (CVE:SKE) has identified high-grade gold deposits at its Spectrum Gold property. The site is located within the “Golden Triangle” of northwest British Columbia, an area known for its impressive natural ore deposits. More exploration at the site is planned after drilling revealed deposits with the following grades (expressed in grams-per-tonne of gold, or g/t Au) found in preliminary holes:

mining_011.4 meters grading 16.73 g/t Au, including 2 meters grading 81.8 g/t Au;

4 meters grading 24.24 g/t Au, including 2 meters grading 44.8 g/t Au;

4 meters grading 26.59 g/t Au, including 2 meters grading 46.5 g/t Au;

and all of these deposits are located not far from hole with 2 meters grading 254.5 g/t Au.

(For reference, these would be fantastically gold-rich ore deposits, though they are only preliminary results.)

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.