Making a profit while we wait
for the Juniors to come to life again

by Peter Degraaf | October 21, 2008

Print

 Most of us have junior explorers in our portfolio, and we wish we had the money we spent on them, instead of holding onto the stock  Some of them have fallen off a cliff and the market cap is now less than the company’s ‘cash on hand’!

Thankfully there is light at the end of the tunnel.  Now that gold bullion is showing signs of having put in the final bottom and put in place the seasonal lows, the juniors will soon be ‘on fire’ again.  In 2001 gold and gold stocks began the current bull market, with gold stocks outperforming gold.  The same thing will happen this time, as gold and silver stocks provide leverage over the gold price. 

When gold goes through the final stages in a bull market some juniors will rise like rockets.  I remember in the 1970’s a bread company named ‘Gold Bond’.  Believe it or not, when gold took off, even this bread stock rose in price.

Here is a chart, courtesy www.stockcharts.com that points to the likelihood that gold bullion is ready to take off, and the mining stocks will initially follow and then take over the lead. 

Featured is the chart that compares the gold bullion price to the XAU mining stocks index, while at the top of the chart you’ll notice the weekly gold price.  The blue lines connect peaks in the Gold/XAU index with bottoms in the price of gold bullion.  Since the current bull market in gold started in 2001, there have been 11 peaks in the gold/XAU chart, and 9 of these have turned out to be solid buying opportunities in gold bullion and the 10th such opportunity is very likely upon us now.  Only one (see the red line) turned out to be miss-timed, but even if you bought there and held on, you will soon be in the black again. 
The investor who bought gold at each of these buying opportunities would suffer no discomfort from having bought in early 2008, thanks to cost averaging.

Next let’s look at a chart that compares the gold price to the HUI index of gold and silver stocks, and at the top is the HUI index itself.  The blue lines connect peaks in the gold/HUI index with bottoms in the HUI itself.  Since the bull market in the HUI began in 2001, six times the gold/HUI made a peak, and six times it coincided with a buying opportunity in the HUI index.  The seventh is very likely going to be the ‘Mother of all buying opportunities’

 

Copyright © 2008 Peter Degraaf
Editorial Archive

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions. Peter Degraaf is an online stock trader with over 50 years of business experience. He sends out a weekly Email to his subscribers. For a free 60-day trial contact him. Happy trading!

contact information

Peter Degraaf | Sarnia, Ontario, Canada | Email | Website

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.