January 24th, 2014
by Matt Insley, Daily Reckoning
Today I want to show you how a gold rush in Nevada could be your ticket to double digit metal gains this year.
This isn't a story you'll find in the mainstream - in fact, while zombie-eyed Wall Street analysts continue to make guesswork of precious metals, I'll share with you a proven winner in the field.
For instance, last year while gold and the broad market miners suffered their biggest loss in years, there was one little-known way to play precious metals for a 40% gain.
Looking for a metals hero? Here's your huckleberry...
There's a gold rush out west. Even with a pullback in metals prices, companies are raising cash and taking core samples to become Nevada's next profitable producer.
To be sure, there are winners and losers to this game. Some Nevada start-ups will fail, while others will strike it rich - after all, the big boys (Newmont and Barrick) are in the neighborhood, if they smell a "loded" asset they'll snap it up at a premium.
But hey! Wipe that drool off your lips. Playing these start-ups for a profit is largely guesswork. Turning core samples into profits isn't easy - you need skill, good assets, financing, miner's luck and it helps to have higher gold prices!
There is, however, one way to play the upside in the mining space whether these juniors win or lose - whether the price of the metal goes up or down.
You see, metal refiners make money whether the price of metal is high or low. It's not the price that they're concerned with, it's the volume. They need more ounces flowing through their chemical sluicegates - the more tonnage the more money they make.
That was the idea behind a company I shared with you last year, Johnson Matthey (JMPLY.)
After a trip to Nevada's gold country, I saw a remarkable opportunity staring me in the face.
That is, with all of the start-up (and existing) gold miners there was a huge need for specialty refiners - these are the guys that take "rough" gold and turn it into the .9999 purity stuff. The nearby refinery was Johnson Matthey's wholey-owned facility in Salt Lake City, UT. Much of the gold pulled from the hills of Nevada finds its way to the open market, via refining at Salt Lake City.
Of note, Johnson Matthey is a fully accredited dealer. Once the metal is refined at its plant it can easily be traded on the London Bullion Market, the CME Group the Tokyo Exchange and the Dubai Commodities Center. At this stage there's no more need for miners to sell their gold at a discount to some local mom and pop shop, instead it's on the global market!
This is a global trend, too. From Africa to Asia folks are still rushing to mine ounces. More ounces? That's music to the ears of a global refiner like Johnson Matthey.
But that's not all to this metal story...
You see, if you're looking to make money in the metals market you need to narrow down your options. Looking at a refiner is a great way to start - you lower your exposure to the price of the metals.
Another way to narrow down this opportunity is to take a look at an emerging trend in last year's metal performance. That is, "industrial" metals are outperforming their "precious" counterparts.
So it shouldn't come as a surprise that palladium was last year's best performing precious metal - it was also the only precious metal that sported a positive return. What's funny, it's often considered the least "precious" of them all!
With a continuation of last year's trend, platinum and palladium look poised for another year of gains.
It makes sense, too. With a global economic recovery underway the need for these precious/industrial metals is up. Both platinum and palladium are used extensively as catalysts - like the catalytic converter in your car.
With more cars, trucks and other vehicles heading off the assembly line, platinum and palladium are catching a solid bid. That's real world demand on top of any "precious metal" affiliation.
And I'll give you one guess as to what company has huge exposure to this budding catalyst market?
You guessed it! Johnson Matthey. Besides being the largest global, full service refiner of precious metals the company is also one of the world's largest makers of auto-catalysts.
If you're wondering how this one-two punch powerhouse has performed compared to gold, take a look:
While gold and gold miners plummeted the price of this refiner/platinum player skyrocketed. The chart above shows the price action from June 6th, after my trip to Nevada's gold fields. But besides the short-term gains, JMPLY has seen a solid 5-year uptrend - sporting a 252% gain.
If you're looking for a profitable metals trend to ride, this is your huckleberry.
Keep your boots muddy.