Hecla Mining Company; A Solid Silver Play
Clive Maund

My 25th November article "Prepare for the Breakout" predicted a major breakout for gold, which duly occurred in December. My 1st January article, "Prepare for the Meltup" predicted a meltup for gold, which is currently underway, although we have yet to reach the terminal "blowoff" phase, meaning there should be more upside. I figured the gold shorts were standing in front of an oncoming train, and that, sooner or later, the urge for self-preservation would become dominant and they would jump out of the way, that it is to say cover - and this is what is happening now in gold bullion. But you have to hand it to these people - when it comes to tenacious masochism, they are hard to beat. So we have witnessed, over these past few weeks, a very big increase in short positions in gold and silver stocks. Apparently their game plan this time round is to cap the prices of gold and silver stocks, precipitate a sell-off by nervy, scared goldbugs, and then zoom in and cover their positions and scoop up loads of stock cheap in time for a huge rally. Clearly, they have so far succeeded in capping the gold and silver stocks, and instilling disquiet among some goldbugs, but there are signs that their crafty plan may be about to backfire on them seriously, and if so, we can expect a spectacular rally in gold and silver stocks before long.

For the sake of argument, let's suppose their plan succeeds, and they manage to keep the gold and silver stocks in restraint until the current upleg in gold runs its course, which I consider to be unlikely, as I believe the current run in gold will reach at least $420. If they can do this, then we may see a sudden sharp sell-off in gold and silver stocks, which is likely to panic many goldbugs out of their shares. The cabal then plan to scoop up the shares cheap and leave the fleeced goldbugs on the sidelines, watching the shares they just sold turn round and go up like a rocket. My advice in this unstable and unusual environment is, therefore, to be very careful about selling, unless you are a very nimble trader, because you may find it very difficult to get back in at a reasonable price. In other words, it may be better to sit through a 15 or 20% paper loss, knowing that a 50 to 100% rise is in the offing over a somewhat longer time frame. But, as I intimated above, the price action in mining stocks over the past couple of days indicates that it may be the shorts who are in for the "white knuckle ride", not the goldbugs. We had many upside breakouts yesterday, including a breakout in Hecla Mining.

Some of my readers are already aware that I am even more bullish of silver than I am of gold and am very positive on silver stocks, although, clearly, gold is leading so far in the great precious metals bull market.

Amongst the silver stocks that I regard as a fine investment is Hecla Mining. Looking now at the 10-year chart for Hecla, above, we see that a long-running downtrend ended with a rather woolly double-bottom forming during 2000 and 2001. We then had a high volume breakout into a new long-term uptrend in early 2002. This advance stalled out below resistance in the $6 price area last June, which was partly due to overhead selling by those who bought around this price level between 1996 and 1998 and remained hung up there, waiting for a chance to get out even. Since last June the price has essentially remained in a very large consolidation zone, which has taken the form of a bullish ascending triangle, which calls for a renewed advance before much longer. This triangle pattern can be observed in detail on the shorter-term one-year chart below, where it can be seen that the time taken for this pattern to form has allowed the long-term 200-day moving average to draw up closer below the price, increasing the potential for a significant upside move. Notice how all the declines over this period have found support above this average, including the latest decline.

Yesterday we saw a breakout from the short-term downtrend in force for several weeks, signifying the likelihood of a renewed challenge of the highs below $6 in coming weeks.
I believe these highs will be taken out before much longer and the price should then proceed quite swiftly towards the next significant resistance zone around $10.

Long term, over a 3 to 5 year time frame, I expect this stock to advance to much higher levels, in response to a very substantial rise in the price of silver.

Symbol HL on NYSE

Closed at $4.37 on 5 February 2003Clive Maund
email: goldstocks@cox.net
Kaufbeuren, Germany, 5th February 2003

No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.