Gold could be ready to end the summer doldrums even before summer begins. If it can break through and find support at the 30-point range between $890 and $920, it will be poised to rise for the summer; I think we’ve had our seasonal low and now it’s gold’s turn to shine as the most preferable commodity… and better yet, to become money again.
Just writing that makes me realise how early in the game it still is. Who today would believe gold will become money again? Yet, at the top of the market, everyone will.
Here is the best opportunity for us right now…
The five best reasons to buy good quality precious metal juniors
Most of the small-cap and junior resource market has been in decline since gold first broke the $700 level back in 2006. But that’s all about to change, I have five reasons why you should buy juniors now before the window closes — lets get started…
Reason 1: Several depressing factors have come together to produce an early seasonal low, at least for the precious metals sector.
Reason 2: As implied in the introduction, gold has lagged the commodity cycle because the market is infatuated with the growth in developing countries, and has inferred a “realness” to their demand for commodities. I’ve never disputed that the growth exists… just that there is a lot more inflation, and that inflation is what drives prices higher.
I believe the gold market is at a bullish inflection point — a point of recognition of sorts.
Reason 3: The precious metal juniors have hardly benefited from the bullish trends in these commodities to date, especially since 2006, never mind the future.
Lots of money found its way into the junior segment over recent years, to be sure, but this expansion in capitalisation has been dilutive. The Canadian Venture Exchange (CDNX) has had a hard time keeping up with gold itself, and is at its lowest level relative to gold since 2002. Simply put, the juniors should be tracking gold — and right now they have a lot of catching up to do. The result is a widening gap between the values of majors and juniors. In my mind, that gap will soon contract.
With that said, I think it’s the best buying opportunity in this segment since 2002.
Reason 4: The money that has poured into the junior precious metals segment over the past few years has been soundly invested. I am impressed with the value that I’ve seen many juniors create throughout this cycle — the development of assets discovered back in the nineties has been astonishing.
Finally, the best reason to own these juniors now…
Reason 5: The next takeover wave! Many of the large-cap producers are priced for growth, and they know that if they want to sustain those multiples, they’ll have to buy or find reserves. That’s the incentive.
Meanwhile, the juniors spent lots of investment dollars proving up their assets, and the market has ignored them. So they are ripe for acquisition, and the majors have plenty of cash, thanks to the latest run in gold prices.
Some, such as Agnico Eagle (TSE:AEM) have said they’re on the hunt, while others including Gold Fields (JNB:GFI) are obviously in need of assets outside of South Africa. Corrections in the price of gold won’t discourage them.
There’s your ammunition, five solid reasons to make sure you buy small-cap and junior miners. These miners won’t remain at these levels long, so now is your chance to get in!
I’m working on a more comprehensive target list as we speak. I see a window of opportunity between now and the end of this gold price correction to buy the good quality small-caps and juniors before they take off. The window could close earlier than you think.
By Ed Bugos for Whiskey and Gunpowder