David Smith: Mining Stocks Offer Opportunity of a Lifetime

Speaking to a digital audience at the online MoneyShow last week, David Smith explained that it is currently the best time in recent history to hold mining stocks — and if played correctly, they could offer the opportunity for generational wealth.

After years of underperforming relative to the gold price, mining shares are now outperforming the yellow metal, said the Morgan Report’s senior analyst.

He advised that after acquiring some physical gold, investors should purchase mining shares for what he described as “possibly the greatest opportunity for making very good money in mining stocks that we have had in decades, perhaps in your lifetime.”

Smith also offered some tips on how to decide which plays to make. He noted that juniors and seniors in the mining space usually trade in close correlation; however, majors are up significantly more than their smaller counterparts at the moment.

“… Which means if you pick the right juniors, they will gain faster than the right seniors as that gap closes,” he explained to listeners.

With gold rising 9.8 percent since January, Smith reassured investors that they haven’t missed the chance to get into the bull market.

“David Morgan has determined statistically that as much as 90 percent of the profit potential comes during the last 10 percent in time of the entire bull run,” said Smith of his colleague’s research.

“So we will see a very large run-up over the next few years, and at some point, during the last 10 percent of the time, roughly, we are going to see it go vertical and make more profits probably than have been available for the whole bull run on some of these stocks.”

Speaking about silver, the analyst was adamant that growing demand and declining supply will lead to significant price growth.

“Grades have been dropping for the last 10 years,” said Smith. “They have dropped over 50 percent in terms of the amount of grams per tonne that you get from ore, versus the amount that you have to dig out of the ground, and this is impacting just about every silver mine out there.”

As a by-product of base metals output and some gold production, he added that silver supply can’t just be ramped up as demand increases. That ultimately can lead to a disconnection in supply and demand, which can in turn elevate prices.

Speaking about the gold/silver ratio — the amount of silver ounces it takes to buy an ounce of gold — Smith said it has risen as high as 120:1. However, the ratio between gold and silver production is 8:1, evidencing the potential value the white metal holds.

How much value? Smith projects gold could reach US$10,000 per ounce by the end of the bull market. At a gold/silver ratio of between 60:1 and 40:1, silver would be valued at US$166 per ounce to US$250.

“I believe that between US$26 to US$49 silver we’re going to see what I call volcanic tremors — there will be a lot of massive back and forth of people (buying and) unloading their silver,” Smith said.

“When it gets above US$50, we will see a quick run to US$65. Once that happens this will be a powerful classic eruption. It will be the highest in nominal terms that silver has ever traded, on its way to what I believe will be a three digit price figure over the next few years.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.