If you’ve been watching the gold mining sector lately then you may have noticed a recent dip in prices. While this may normally be a sign of problems in the space, as Eric Sprott points out in his latest interview with SGT Report, the reason behind the down-move is actually the opposite of what you may think. As Sprott explains, the popularity of one of the world’s largest gold related Exchange Traded Funds (ETF), the VanEck GDXJ, which is designed specifically to track junior gold mining companies, has led to massive inflows of cash from investors. That, of course, is a good thing for the precious metals sector as whole. The short-term downside is that the ETF grew in popularity so quickly, that it has too much cash and not enough places to put it. The reason for this is that regulatory rules limit how much the GDXJ ETF can invest in any single company – currently at 20%.
What this means is that by June 17, the GDXJÂ ETF must re-balance its entire portfolio by way of selling junior mining company shares before it can re-invest those funds into new holdings. And as you may have guessed, that has put serious selling pressure on some mining companies that are currently being held by the fund. But the selling pressure, says Sprott, will be short-lived and has actually created a unique and potentially very profitable scenario for precious metals investors:
The problem that VanEck found with the GDXJ was that there was too much interest in it… their standard was they didn’t want to own companies with a market cap in excess of $1.8 Billion… In order invest as many funds as were flowing into it they ended up owning large concentrations of ownership in the companies…Â Things became very complicated for the GDXJ… The premise is that the buying interest in junior gold stocks is causing the change…Â
The stocks that exist in the fund up to June 17… Most of them, their weightings will fall to about 50%… Which means that the ETF has to sell… So you’re getting this rebalancing… People are acting in the market to sell ahead of the trade on June 17… It’s putting pressure on the stocks… and ultimately when all this is over these stocks are going to go back to where they were.
The interview, which also features First Mining Finance Chairman Keith Neumeyer, is a must watch for those struggling to understand how record interest in the GDXJ is actually about to cause the prices of some junior mining companies to drop, as well as how to identify profit opportunities over the next month while the effects of the sell-off play out:
A simple chart via Wealth Research Group shows how significant the change has been in the last couple of months as GDXJ offloads up to 50% of some of its junior mining company holdings:
Keith Neumeyer, who joined Eric Sprott in the interview, is the CEO of the world’s top primary silver producer, First Majestic Silver, and the Chairman of First Mining Finance, which is directly affected by the coming change in GDXJ:
The fact that they got up to 15% of total outstanding shares of First Mining Finance is an enormous position for one passive investor that doesn’t really care what happens to price, because it’s just simply an ETF and there’s no real decision making going on… they add you to the portfolio and they subtract you from the portfolio…
I’ve seen First Majestic added to the GDXJ twice… and taken out of the GDXJ twice…
Now a similar situation is occuring in First Mining Finance where they have to reduce their holdings from around 15% to somewhere around 8%, which is about half their current holdings… and they’re doing it in a period of about six weeks. The market for mining stocks isn’t exactly rip-roaring right now… so they’re selling into a relatively weak environment and it’s really putting a lot of extra pressure on the stock which wouldn’t exist otherwise.
It does create an opportunity… but it sure does create a lot of concern for a lot of our shareholder base, who, quite honestly, doesn’t really understand this ETF world.
Though stock prices dipping could cause concern and even panic for some investors, those who understand the mechanics behind the recent technical challenges faced by the GDXJ stand to profit handsomely, according to Neumeyer:
A lot of the analysts point to the GDXJ and say ‘it’s due to success.’
The GDXJ has gone from $1.5 billion to around a $5 billion value… and that’s a lot of funds that have been going into that ETF… the junior mining space is quite small… so that $3.5 billion extra that has been invested into the junior mining space in the last 12 to 18 months has been a huge underpinning to a lot of these stocks…
…
It takes very little money for these stocks to move and for this sector to move… You can fit the entire gold mining sector into the market cap of Apple… It gives you an idea of how small the gold and silver mining sector are.Â
The Dow continually hits new highs… and the NASDAQ continues to hit new highs… so that’s where the money is going [right now]…
But those smart investors out there… they have to look at the other side of the investment world… because there will be a point in time when the money is going to start coming back to the mining sector… You have to be ahead of the game…
In short, as Neumeyer notes, investment inflows of $3.5 billion to just the GDXJ ETF show that investor interest has grown significantly over the last two years, and with prices for some junior mining companies set to temporarily drop, now may be a perfect opportunity for money on the sidelines to make its way into the precious metals sector.
Because in addition to the drop in prices going into June 17, there will be continued interest in precious metals due to uncertainty across the globe, which could, as Eric Sprott highlights, see a very meaningful resurgence in price:
I think the most important thing that you pointed out is that the weighting of gold investments in the world of investments is like one-half of one percent… In 1980 the weighting of gold investments was 8%… Imagine what happened from 2002 to 2011 when went up by 1700%… that sort of thing can happen again…
We have not just the printing of money… but we have the whole geopolitical thing…
Anything could sort of tip this thing over… we’ve seen so many of the smart investors mentioning gold that weren’t mentioning gold two years ago… I see generalist technical analysts who are pounding the table on gold investments…
So when these come to manifest themselves it’s going to be a pretty small door for everyone to come through… and the smallest door of all will be the Junior mining door, so it could be quite exciting.Â
Keith Neumeyer is the President and CEO of First Majestic Silver and the Chairman of Mineral Bank First Mining Finance.Â
Eric Sprott is the founder of Sprott Global Resource Investments and Chairman of Kirkland Lake Gold
Visit SGT Report for more interviews, market news and commentary.
Silver and gold have both gone down. Hmmmmmm
Could well be related to this. A major ETF unloading stocks is going to have an impact. Time to buy?
I like physical, but price distortions like this can lead to good profits.
Europe is doomed. Even on the brink of extinction white people still have not a care in the world.
Idiotic sports games, porn, mindless television, chump slogans, a nonexistent educational system, zero critical thinking skills, no appreciation of entrepreneurial activity, herd mentality, authoritative thought has replaced critical thought.
The people who build this country arent capable of getting by without mass influx of peoples who have never built a decent country on the face of the Earth?????
Women should be running the countries and the heavy industries??????????????
I want it to collapse so we cant right the ship.
Our ancestors knew from thousands of years of human experience.
We should have listened.
You never told us what island you are on. When you mention mud people it leads to some
speculation. Want to share or will you be discovered because you are the only white face
in the country. You don’t have to be ultra specific. Just tell us general vicinity. Most likely
you will not respond because most of the time you never do. I’m not sure why you would
lament over Europe and the rest of the world if you no longer reside there. If I was confined
to some tropical place I would most likely be on the beach doing my Thurston Howell
impression for the locals.
When the SHTF the LAST thing you will want to own is mining stocks, or stocks of any kind for that matter. You might want to own some small miner and/or prospecting equipment depending upon your location. Your equity in stocks will disappear in a heartbeat, eaten up by management enriching themselves at your expense.
Another propaganda video for the metal barons.
Buy more food, more ammo, more supplies. If necessary, buy a trailer to stash it all in; in case you have to bug out. Equip your trailer with a solar setup so you have POWER !!! 🙂
Gold Mining Stocks is the Biggest scam out there. Ripe for Fraud and phony numbers. May as well go to Vegas and bet all on Red and let it ride. Yoi want Gold. Go get some Physical in your hand real Gold or Silver. ETF’s fleec e the stoopid sheep bigtime. 600 to 1 P/E ratios and they are not even producing and Gold Bullion from any mining yet to date. Its Fraud! Beware morons.
Pump and Dump. Sheep get fleeced. LMFAO!! Sucka’s!!
Great interview. Sprott is spot on, as always.
Thank you!
I think you meant to say “Sprott On” !
We’ve been hearing these precious metals industry people talking about a coming crash forever. In 2016, all year long they were saying a crash was coming around the election or right after. Now its May 2017 and Stockman and everyone else is now saying to watch in
or around September. Now we hear of a China bubble. We hear of central banks buying
stock market assets to boost them up. We keep hearing closer, closer, closer. It’s insane.
Retail apocalypse. Auto sales bubble. Student debt bubble. Wars. Insiders dumping stocks.
Every day its something new and we keep getting closer and yet magically it still holds together. You can’t tell me with all this chatter they have not sold record amounts of gold
and silver in the last 18 months.
How long is forever? 2008 was only 8 years ago. 8 years ago isn’t forever ago. 8 years is nothing in the grand scheme of things.
So make your plans for after you’re likely to be dead rather than for the foreseeable future.
2008 was NINE years ago, genius. You must not have 10 fingers or something!
Azcats. Baby wipes are more practical than 200 bars of soap. Thats what the troops used
in Desert Storm to keep the funk off. Was in big demand at the time. Small packs of baby
wipes for the bug out bag probably more practical. No worries. You could garage sale about 150 of those bars and keep the rest. Only a suggestion. We never really recovered
from 2008. Lots of part time jobs created since then. Jobs with no future and no benefits.
Banks are still doing the same jackass things. More derivatives. Not much liquidity. Be extra
careful who you bank with. Research bail-in documents. Big Too Big To Fail Banks have
changed their by-laws. Avoid those banks like the plaque! Money under the mattress is
safer than BofA,Chase,Wells Fargo and all those other useless institutions. 2008 does seem
like yesterday and more warning signs keep popping up. As far as I’m concerned, a 10 acre
hobby farm in the sticks makes much more sense than $150,000.00 in a 401k plan.
The Chinese are preparing for an end to the dollar as reserve currency. Gold is a significant part of the Chinese formula.
If this drives stock and gold prices down, it maybe a nice opportunity.
PTPO. I HAVE BEEN SAYING for a year now that the Chinese are backing their Yuan with Gold. And its true as China has been trading Gold for Oil and opened up a new physical Gold exchange avoiding the Paper Gold Markets ripe with FRAUD in all other economies. Back up the Truck on Physical PM’s. You will be rewarded and survive the US Dollar collapse. Inflation will wipe Americans out. If all you hold is paper IOU dollars. YOU ARR SCREWED. IDIOTS STORE $10 bills in #10 Cans. Toilet paper.
In regards to any Crash, it will come on the timetable of the Criminals who run The Fed and the other Central Banks. Instead of a Melt-Down, it might be a Melt-Up where stock market goes up and up and loaf of bread costs $1,000. Think Venezuela on steroids.
Be very careful
buy honey:
Make sure it has no additives. There are some people putting in high fructose corn syrup. Buy from a reputable source. Local is best. Your own bees make honey from the plants that are near you. This can naturally protect you from pollen allergies to your local plants. Save money on allergy meds and feel better.
Easter stuff is marked down 75%. You can buy now for next Easter, or use for parties. The little Esster Baskets can double as holders of other things in an office, or as presents with food or soaps, for barter items if you have lots of storage space. If you have small children, especially girls like to put their Barrett’s and brushes in them. Good for toting crackers and salami and cheeses to a friend’s house instead of or in addition to wine or beer.
thanks, Martha Stewart. Bye.
Archeologists have found honey in the tombs of pharaohs that was still deemed edible!
Stock up on tampons, and condoms…….
Sourwood honey is the Queen of honey!
Retail is shit. Everyone is selling inferior products designed to fail way sooner than they should. Even so called durable goods are designed to fail sooner. I’ve seen outdoor power equipment fail in a few short years of light use. These machines should last 10plus years imo and they used to. But of course big box stores pushed makers to cut corners to fit price point. It’s no wonder the landfills are becoming full. Now the city’s and towns have privatized the rubbish removal and they give you one big barrel that the truck is designed to lift and dump. Just a few years back I could put 10 yards of junk on the curb and they’d take it. Now you gotta schedule a special pickup for this amount. All you see now is trash dumped on the side of the road everywhere. I’ve seen sofas gym machines and all kinds of large junk dumped on the roadside. This consumer economy was doomed to fail from the start. I’ve withdrawn from the economy. Keeping my $ before I buy anything I seriously consider if I really need it.
Five men were escorted into a room that was completely round: A pastor, a scientist, a banker, a general and a politician.
Each were asked to find the corner within the room.
“It is Gods will that I shall believe its there.” Says the pastor.
“I have a theory that one does exist.” Said the scientist.
“I will force the issue and find the corner!” Says the General.
“For the appropriate fee, I will draw up the necessary charts to predict the odds of finding it.” Says the Banker.
“Vote for me and I will guarantee that it will be found.” Says the Politician.
Meanwhile, we lock the door and throw away the key.
Problem solved.