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Making a Profit while we wait for the Juniors to come to Life again

By Peter Degraaf      Printer Friendly Version
Oct 21 2008 10:23AM

www.pdegraaf.com

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’.

The title of this article suggests that there is a way to make money while we wait for our juniors to become viable again. The method I suggest is to buy into gold and silver bullion ETF’s and hold these to benefit from the rise in bullion while you wait for your juniors to start rising (and they will). Most ETF’s should be considered only for short-term consideration, for as soon as the mining stocks begin to outperform bullion, the switch back into stocks will become profitable again. On my website (www.pdegraaf.com) I have written about a gold and silver holding company that is even better than any of the ETF’s because you can know for certain that the bullion is there, safe and secure and audited twice a year. Also on the website are long-term charts that are helpful for ‘staying the course.’

Peter Degraaf

 

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DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

Peter Degraaf is an on-line stock trader with over 50 years of investing experience. He publishes a weekend report for his many subscribers. A sample copy of last week’s report is available upon request. Just send an E-mail to itiswell@cogeco.net