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My Favorite ETF To Profit From Precious Metals Now

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JohnCM Member Level  Tuesday, 09/05/17 01:03:25 PM
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My Favorite ETF To Profit From Precious Metals Now

Feb. 6, 2017 11:20 AM ET|16 comments| About: PureFunds ISE Junior Silver ETF (SILJ)
Moby Waller - Seeking Alpha

Summary

The bottom line is that money is flowing into precious metals and the price action is strong. It looks like a classic 'flight to safety' that should have some legs.

The gold and silver miners are the outperformers and achieving the best gains - these companies are leveraged to gains in the underlying commodities.

An ETF, which is a basket of miners, is less volatile than an individual stock. My current favorite ETF in this sector is the PureFunds ISE Junior Silver ETF.

An old saying, paraphrased, is, 'those who sell pickaxes during a gold rush will get rich'.

Currently, this axiom applies to gold and silver mining companies. We've seen a big rally in gold ETF (NYSEARCA:GLD), silver ETF (NYSEARCA:SLV) and other precious metals ETFs since December.

The potential reasons for this move are myriad: among them are global uncertainty from the new Trump administration, China and India currency and political fluctuations, and U.S. dollar and interest rate expectations.

But the bottom line is that money is flowing into precious metals and the price action is strong. It looks like a classic 'flight to safety' that should have some legs.

What is the best way to profit from further moves in the yellow and silver metals?

The gold and silver miners are the outperformers and are achieving the best gains - these companies are leveraged to gains in the underlying commodities. And the best way to play this group is through a basket of stocks in an ETF, in my analysis. This lessens the overall volatility and risk compared to an individual company.

My favorite ETF among this group is not widely known... yet.

It is the PureFunds ISE Junior Silver ETF (NYSE - SILJ).

SILJ holds a basket of small-cap silver mining and exploration companies. The ETF has holdings in 25 stocks currently, with the top 3 holdings representing about 41% of its total assets. Those largest holdings are in Pan American Silver (NASDAQ:PAAS), Coeur Mining (NYSE:CDE) and First Majestic Silver (NYSE:AG).

This ETF simply gives the biggest bang-for-the-buck on rallies in the precious metals.

I looked at relative performance over multiple recent time frames: since the December bottom in gold, year to date and since the S&P 500 peaked recently on January 26.

SILJ is outperforming GLD, SLV, the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), the VanEck Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) and the Global X Silver Miners ETF (NYSEARCA:SIL) over all of these time periods.

And, in my analysis, SILJ can achieve potential further gains of 30%+ this year, or even sooner.

Take a look at the SILJ daily chart below.

This chart contains the unique, tested indicators and settings that I utilize for trading sectors in our Wyatt Research ETF Sector Alerts premium service. Those are 24- and 82-day Exponential Moving Averages (Exp MA), which show the average price level over a certain time frame (these are useful to show directional trends and support/resistance levels), and Stochastic, which is an oscillator I use to measure the strength of the price action.

SILJ Daily Chart


You can see above that the SILJ recently had a bullish crossover of the faster moving average above the slower one. The two previous crossovers of these key Exp MAs were good directional triggers in both directions. Notice that SILJ is now trending along and holding support from its faster Exp MA on any pullbacks - this is a sign of strength and bullish price action. At the bottom of this chart, you can see that both the faster and slower Stochastics are also giving a strong reading above the 70 bullish threshold.

My current upside target on SILJ from here is the 20 area, which was a key high reached in 2016. However, if you notice the giant rally this ETF had from last February to until August (from around 5 to around 20), there is big further potential upside if this rally shows some serious legs. Breaching the 14 or 13 levels would likely be triggers to exit the ETF on a stop-loss.

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