MARKET INK REPORT :: Precious Metals & Minerals Insiders Lead the Pack


January 21, 2013

Precious metals insider sentiment is now leading the pack in terms of the major stock groups that we follow in Canada.  Insider buying of gold, silver and other precious metals and gems mining stocks has now eclipsed the level of activity among the former leading Specialty Mining & Metals group which tends to be more industrial focused. Our Precious Metals & Minerals Indicator is now at 389%. At 400%, there would be 4 stocks with key insider buying for every one with selling. That compares to our Specialty Mining & Metals Indicator at 278%.
 

The change in leadership among the miners in favour of gold-oriented stocks may be driven by a number of factors. The most significant development is likely the relative outperformance of industrial-focused diversified mining stocks. Over the last two months, the S&P/TSX Diversified Metals and Mining Index has advanced 12% while the Precious Metals & Minerals Index has dropped 4%.  As their shares became more expensive, industrial mining insiders cooled off their buying, while precious metals miner insider buying heated up as their stocks dropped. The recent share price gains experienced by economically-sensitive industrial mining stocks likely reflect a modest upgrading of global economic growth and downgrading of risks after US and Chinese political events last fall. 
 

Now, gold stock insiders are gaining a bit more confidence as we start to get a better sense of what Japan has up its sleeve in terms of monetary easing.  Earlier this month, the Japanese Finance Ministry announced that it would be buying Eurozone bailout debt (bloom.bg/VfxR8R). That move signalled that the Japanese government understood that it was in their interest to buy foreign bonds as they attempt to devalue the yen. Continued Asian purchases of European and US debt will help to keep bond yields in developed markets low, making sovereign debt less able to compete with gold.  
 

We should have a better handle on what Japan will do to tackle its deflation issue later this week once the Bank of Japan concludes a two day policy meeting. The outcome will be significant for gold mining stock investors. At this point, insiders seem to be betting on a rally for precious metal miner share prices.