Gold News

January Effect Due in 2015...?

Junior gold & silver miner stocks often pop higher this time of year. But in 2015...?
 
The JANUARY EFFECT, the surge that small-cap companies may experience at the beginning of the year, goes back some seven decades.
 
What will 2015 bring? The Gold Report here asks several mining-stock experts for their view...
 
Louis James, senior editor of the International Speculator, Casey Investment Alert and Conversations with Casey: We certainly had plenty of tax-loss selling, and I think most investors who know resources see the sector as close to bottom, so, yes, I do expect healthy January buying.
 
I'd differentiate that by commodity, however, as bad economic news could push oil and copper further down, while pushing gold and silver up, and the January effect won't be enough to offset another sharp decline in industrial commodities.
 
Low-cost producers are the obvious candidates for Dollars returning to the market, followed by developers with great projects with positive economics already in hand. Grassroots exploration will have its day in the sun again, but not on the back of January buying; I expect we'll see that when the whole market gets frothy again.
 
Adrian Day, founder of Adrian Day Asset Management and author of Investing in Resources: The early part of the year (not necessarily exclusively January) is typically a seasonally strong period for resource and resource equities. Given the very oversold nature of most resource stocks, I would expect a bounce in the new year.
 
This will affect the major mining companies, including possibly the oil stocks, though they have already bounced off their lows. In particular, it will affect stocks that have been subject to tax-loss selling. In the resource sector, that means pretty much everything! Given that resource stocks are one of the few sectors in the US where investors have heavy losses, this selling has been particularly vicious this year. Even without significant new buying volumes, the removal of tax-driven selling will cause a bounce in these stocks.
 
The particular stocks affected may depend to some extent on what happens to gold and other resources. Some companies are particularly leveraged, and if gold falls in the first week or two, then these stocks, even if they have been subject to heavy tax-loss selling, would not move as much as others.
 
One should note that year-end tax-loss selling followed by a January bounce is so widely known that the effect has become less pronounced, the January rally depending as much on other factors such as the resource prices themselves.
 
Jeb Handwerger, founder of Gold Stock Trades: When stocks are beaten down as far as they are now, it is a sign that we are at a bottom and an uptick is coming. January – specifically the beginning of the month – is traditionally a good time for the natural resources space. After tax-loss selling in December, many buy back their stocks or use year-end bonuses to purchase. This is the time smart investors look for value situations.
 
Small stocks tend to outperform the broader market. This year, producers may do well as the collapse in the oil price is a good thing for gold producers because that lower price tag for a key cost can impact the bottom line. Producers have been warning the market about a future supply shortfall as high grading uses up the best ore and less money has been invested in exploration. There will come a time where producers begin outperforming and the valuations go from bad to less bad until suddenly they are very good. That is also when we could start seeing a lot of mergers and acquisitions, which is a very good thing for investors.
 
A rebound or even a stabilization in the gold price could surprise everyone as the Dollar rally could turn into a gold rally. The fundamentals pushing the Dollar up right now – flight to a safe haven – are the same ones that could support gold once people see that the Dollar is overbought.
 
A lot of exciting names can be picked up right now for almost nothing because the market is irrational and our job is to stay rational and stay the course. This is the craziest time I can remember when it comes to valuations, but that all could change this month.
 
Mike Kachanovsky, author of the 'Mexico Mike' column in Investor's Digest of Canada: I am expecting the same uptick in stocks and metals in 2015 as we saw in 2014. Things have gotten so oversold that the price of gold and silver is below the price of production. That has to push it higher. Plus, the Dollar rise does not seem in line with fundamentals for such strength. When it corrects, that will help silver and gold. In fact, I expect silver to outperform gold this year.
 
If you are sitting on a pile of money right now, that is a good place to be. The large, established producers are at historic lows right now and have a very low risk level.
 
Thom Calandra, author of The Calandra Report: January, as you know, can have two faces, or more. That is more than mythological.
 
In recent years, the so-called January Effect that supposedly lifts small company stocks made brief appearances, then disappeared. When I say small, I mean very small, as in companies with market caps worth below $500 million.
 
The new face of January is now lacking a pronounced lift for small stocks. The main culprit is probably because everyone in North America, in Europe and in the UK, among other jurisdictions, are trading or managing the bulk of their money in retirement accounts. Thus, no reason to recapture the equities investors might have sold in November or December to capture tax-loss advantages.
 
Probably the one potential beneficiary of any fresh sweep into a sector in January is biomedical and healthcare stocks. That is one face of January that continues in recent years. The biomedicals are getting more approvals per capita in North America than ever before, regarding FDA-approved pharmaceuticals.
 
As for resource equities, I see little evidence that January is kinder than other months of the year – in recent years, definitely since 2011. Maybe with the decline of resource stocks since 2011, January can be argued to have a less devastating effect on the metals equities than during other months.
 
If there is one thing that bears watching this January, it is the tremendous rise of the Dollar – the US Dollar is sending all currencies to 7- and, in some cases, 10-year lows. Gold's buying power is keeping pace, as bullion is holding its ground. That means Dollar-denominated gold holds a lot of buying power versus other currencies.
 
The decline of most currencies against the Dollar also helps miners and prospectors that report their expenses in other currencies. That is good.
 
Plus, as investors with Dollars, we get more buying power when we purchase Canada, US, Japan and other listed resource stocks.

The Gold Report is a unique, free site featuring summaries of articles from major publications, specific recommendations from top worldwide analysts and portfolio managers covering gold stocks, and a directory, with samples, of precious metals newsletters. 

See the full archive of Gold Report articles.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals