My top stock pick for this month is Inca One Gold Corp. (OTCMKTS: INCAF), a small cap producing mining stock that I believe is in a perfect buy position. As you probably know, gold and mining stocks have been in a correction since the end of July, but that correction now appears to be over with a new buying bottom being built this week.
The best way to trade a sector is to buy the top stocks in the sector after a correction plays out. When it comes to gold and silver the single best indicator I have used to time bottoms is the GDX/GLD relative strength ratio.
What it measures is the performance of the GDX gold stock ETF with the GLD gold ETF. This is important, because the performance in the mining stocks tends to lead that of the metal. So the GDX tends to top out before the metal does before corrections begin and turn up before gold does when they come to an end. GDX has now done just that.
Here is a chart of the relative strength ratio. The black line is the price of gold and the candlestick chart is the GDX/GLD ratio.
As you can see the GDX/GLD ratio peaked out in July a week before the price of gold did. The ratio started to go down even as gold went up for one more final week. I put a circle around this point after which gold fell for several months to the point where it made a final plunge below $1800 last week.
But on that final drop this ratio began to go up, because while gold fell on Friday over $30 off the open, the GDX ETF went up and when gold fell on Monday the GDX ETF went up again.
This is causing a very visible positive divergence on the chart, which I have also circled, to give us a powerful buy signal.
Making money in the market is simply about understanding trends like this and then taking advantage of them.
Inca One Gold is a small cap stock and therefore can generate nice percentage swings when you time your entry in it right. It currently has strong support at 45 cents and is just a few cents above that level. It’s daily stochastics are below 20 for the moment to tell us that the stock is deeply oversold in terms of this indicator. Put it together and this makes for a nice entry point in the stock.
Most small cap gold or silver pure exploration stocks reach markets caps of around $25 million over the course of a metals bull market. Ina One Gold has a market cap of less than $13.4 million USD and produces gold! In fact it has sold over one hundred million dollars worth of gold in the past five years.
The company operates two milling facilities in Peru that process gold ore from small scale artisan miners – the first public company granted the right to do so by the Peruvian government. Together they are capable of processing up to 450 tonnes of gold ore a day and put the company on track to produce over 25,000 ounces of gold a year with the capability to increase that production.
Inca One Gold also is making deals with other mining companies to process ore for them with its milling operations. It announced that it entered a contract with PPX a few months ago in a press release. According to the release:
“Under the terms of the OPA, PPX will deliver 40,000 tonnes, approximately 110 tonnes per day (“TPD”) of gold-bearing material during the first year, with a minimum grade of 8 grams of gold per tonne to the Company’s Kori One processing facility. Initial shipments will commence during Q3 from gold-bearing material that is currently on PPX’s stockpile. Additionally, and in line with the Peruvian Government decree announced on June 4, 2020 outlining a staged restart of industrial activity across the country, PPX is in the process of restarting production at its Igor Project in order to ramp-up to previous production levels.”
“We are extremely pleased to secure a significant contract and establish this new relationship with a recognized and proven mining operator in Peru,” stated Edward Kelly, President and CEO of Inca One Gold. “To provide context, Inca One processed 55,000 tonnes of material in 2019, and this contract represents approximately 73% of last years’ total throughput. In other words, the OPA provides supply for approximately 25% of the total milling capacity of our two plants. As licensed miners and ore processors, we both value transparency, business ethics and intend to build out a significant and mutually profitable business relationship.”
Ina One Gold also launched its own bullion store online in September to sell its own gold direct to the consumer product. If you own 5,000 shares of Inca One Gold you can actually buy the gold at a discount to what other dealers sell it at. It’s an easy way to play this gold bottom by getting into a top mining stock and then buy the metal itself at a discount. The CEO, Ed Kelly, talked about this initiative in an interview he did in September.
Inca One Gold has the fundamentals to be a good long-term play on gold production, because when gold goes up it simply goes up even more than the gold price. I own the stock. However, the short-term price action in gold and the positive divergence created with the GDX/GLD ratio make it so that there is now a great entry point in on the stock. This is why I’m making it my top stock pick for December.
Disclosure: Mike Swanson owns shares of Inca One Mining. Because it is a small cap stock with a market cap of less than $100 million he has put himself in a trading blackout on the stock and will not buy or sell a share of it for at least 30-days from the date of this post. Wallstreetwindow.com, is owned by Timingwallstreet, Inc., which is being compensated by a third party (Leadgopher LLC DBA Pinnacle Ad Network) to conduct an investor awareness advertising and marketing campaign for Inca One Mining. This third party paid Timingwallstreet Inc., $11,000 to produce and disseminate this and other similar articles and send traffic to them through paid advertising campaigns for 30-days from the date of this post. This compensation should be viewed as a major conflict with our ability to be unbiased, more specifically: This communication is for entertainment purposes only. Never invest purely based on our communication. For more on trading risks read our policy statement by clicking here.