is trapped and bluffing.
While theworries about reducing the size of its monthly purchases, I predict the exact opposite continue to happen for at least through next December after the mid-term elections. The most powerful in the world actually increase spending.
First, here's why I think the Fed is trapped and bluffing...
As the Fed continues to threaten the market with its stated desire to taper, global economic growth projections continue to decline. Just last week, The Organization for Economic Co-operation and Development (OECD) downgraded its global growth projection for 2014 from 3.1% to 2.7%.
It begs the question, if the Fed was unable to pull the trigger on a taper when the global economy is showing signs of weakness?was projected to grow 3.1%, how is it going to taper now that the global
The answer is... it can't. The Fed has to keep the stock market crashing, and the global economy falling into a deep .spigot wide or risk interest rates spiking, the U.S.
That's why I'm bullish on precious metals miners. The group has suffered huge losses as the market has anticipated the Fed tapering in 2013. Just take a look at the big decline below in the Market Vectors Gold Miners (NYSE: GDX).
But as I'm about to show you, right now could be the perfect time to buy.
Warren Buffett said that the time to buy is when there is "blood in the streets." Gold mining stocks could see triple-digit in the near future... and they're already yielding as much as 7.1%.have certainly taken a beating this . But if the Fed continues its antics, two
Gold Resource Corp (NYSE: GORO)
Gold Resource is a junior gold and silver miner based in Colorado with mining activities and interests located in Mexico. The company's market cap of just $273 million likely create more volatility, but also carries the potential to deliver big in a .
Much like other miners, Gold Resource has had a tough year, with down 67%. While that's produced losses for recent investors, it has also lifted its to 7.1%, more than twice the 10-Year Treasury yield of 2.7%.
Is that high yield (driven by falling) sustainable?
There's no question the company's third-quarter payout ratio of 238% is elevated relative to its peers and average of 105% in 2012. But here's the upshot. That ratio is based on financial results from last quarter, when gold and silver prices fell sharply due to the Fed would taper.
If the Fed increases its monthly bond purchases -- which I think it will be forced to do -- we should see price gains in gold and silver. And that would have a huge impact on , and operating , pushing Gold Resource's payout ratio back to normal levels.
In the meantime, Gold Resource's current yield of 7.1% is a rare window to lock in a high yield while most of the market looks backwards and incorrectly anticipates a Fed taper.
IAMGOLD Corp. (NYSE: IAG)
IAMGOLD is more than five times the size of Gold Resource, with a market cap of $1.6 billion. Not only is the company much larger than Gold Resource, it's also much more global, headquartered in Ontario with mining operations in Africa and South America. While that carries increased political risk, it also provides IAMGOLD with more production across a larger number of mining assets and regions.
That gave IAMGOLD a payout ratio of 46% in the third quarter. Although that is above its average of 29% from 2012, it is well within the range of a sustainable payout ratio. But much like Gold Resource, any upward movement in gold and silver prices will have a big impact on IAMGOLD's financial results and could dividend and share price growth.both
IAMGOLD also looks like a deal. Its forward P/E (price-to-earnings) ratio of 11 times is a sharp discount to its 10-year average of 21 and peer average of 24. If shares traded with the same valuation as its peers, IAMGOLD would jump to $9.60, a 118% increase from current levels.
Risks to Consider: The Fed continues to suggest it will taper the monthly bond purchases it has used to stimulate the economy for the last five years. Although I don't believe that is going to happen because it would have a devastating effect on the economy, fewer segments of the market would be harder hit than precious metals.
Action to Take --> For investors looking to make an aggressive play on precious metals, Gold Resource and IAMGOLD big-time, leveraged exposure. If the Fed keeps pumping its magical money machine, both stocks are in position to deliver big gains. In addition to potential gains, investors buying now will lock in high yields that are more than twice the 10-Year . That provides Gold Resource and IAMGOLD investors with a compelling combination of growth and .