If corporate insiders are right, precious metals stocks are going to regain their lustre in 2013.
Insider sentiment in the sector has been trending higher in recent weeks and there are now more than three stocks in the group with key insider buying for every one with selling, according to INK Research, which monitors trading activity by executives and directors within their own businesses.
INK Research’s indicator for the group now stands at 321 per cent, up 110 points since November 15.
Since mid-November, the S&P/TSX global gold index is down about 2 per cent. For the year, it's down about 18 per cent and is one of the worst performing sectors on the TSX.
Insiders are betting the stocks may be undervalued or are at least likely to rise in coming months. Insider sentiment within sectors tends to best foreshadow market moves over a 12- to 18-month time frame.
What’s key now, points out INK Research CEO Ted Dixon, is whether insider sentiment can hold up following the results of the Japanese elections over the weekend, which saw the return of Shinzo Abe to power.
The Japanese Liberal Democratic Party leader has promised more aggressive stimulus measures, including money printing to weaken the yet. How that impacts gold in U.S. dollar terms is unclear, Mr. Dixon points out.
If the Japan central bank buys domestic assets such as government bonds, it could mean fewer purchases of U.S. Treasuries. That could push up U.S. bond yields, making gold less attractive.
On the other hand, it’s possible other central banks in Asia may snap up U.S. Treasuries to help keep a lid on local currencies against the yen. If such a scenario were to more than offset a pullback in Japanese Treasuries buying, it could be bullish for gold, he said.
The company with the most net insider buying, by value, over the past 60 days is Banro Corp., with $1,630,436 worth of shares bought. This is followed by Osisko Mining Corp, with $1,002,500 in shares bought.
In contrast to the precious metals sector, industrial stocks have been rallying, with the S&P/TSX diversified metals and mining index up 9 per cent since mid-November. During that period, INK Research’s specialty mining and metals indicator rose from 355 per cent to 403 per cent.
“The combination of insider buying and rising share prices is an upbeat sign,” commented Mr. Dixon in a research note. “Insiders are giving every indication that industrial metals stocks as a group could surpass their early November highs and then some.”
The indicators are derived by taking the number of stocks with buy-only transactions over the last 60 days, and dividing that with the number of sell-only transactions. The indicators ignore stocks that have both buying and selling in an effort to give a more accurate reading.