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In trying to come up with the right word that describes the current market for junior gold stocks, several come to mind:
Slaughtered
Decimated
Massacred
Obliterated
Take your pick. No matter how you word it, things are bad.
However, despite the current despair, we believe that our day in the sun is coming. Gold World maintains that gold and junior gold stocks are going to rebound from this slump and come back stronger than ever.
The Second Coming of Gold and Junior Gold Stocks
The perfect storm of multiple, negative, and converging financial fronts is here. These fronts include massive amounts of imploding derivatives contracts, extreme volatility in fiat currencies, frozen credit markets, crashing world stock markets, bank failures, and a whole lot more.
Most of us expected that as the global economy broke down, gold and junior gold stocks would soar. But the opposite has happened, at least for the time being. And the reason for this is simple...
While gold is the ultimate form of savings, it also serves as the ultimate form of liquidity. And as we have just witnessed the past eight months, wave after wave of margin call selling (deleveraging) has blindsided the market and holdings of paper gold have been the easiest way to raise the necessary cash.
The amount of safe haven assets that were being held by hedge funds and other large investment institutions took everyone by surprise. As it turns out, these institutions held a much larger inventory of long COMEX gold contracts and gold stocks than previously thought.
The bad news is that we still don't know when the deleveraging activity will end. And that is the downside risk we will have to endure until the turnaround comes.
Exactly how long we will we have to continue enduring the deleveraging really depends on how quickly the impact of the massive liquidity (new funny money) is felt in the economy.
Typically, when large amounts of money are pumped into the system, the ensuing inflationary pressures show up 6 to 18 months down the road, depending on the velocity of money (VOM). The VOM is how quickly this new money changes hands. If it changes hands quickly, then the inflationary pressures show up within 6 to 12 months. If slower, then it could take up to 18, or even 24 months. At this point, it simply is just too early to tell.
The good news is that we are seeing other near-term pressures that could take gold and junior gold stocks higher. For example, the potential for a short squeeze on COMEX gold contracts is becoming increasing apparent. This is because the longs are starting to require delivery of the physical metal instead of settling those contracts in paper.
Wall Street Retribution Trades
One research analyst has perfected a strategy for getting even with Wall Street - and raking in double- and triple-digit returns every time one of Wall Street's "Titans" crumbles down to earth. He made 927% in just two months with this strategy... but he's just getting warmed up.
As these shorts have to go into the physical market to get gold, they are going to have a very difficult time finding any anywhere near the current spot prices. This will cause gold spot prices to be bid up to levels where there are willing sellers. This activity alone could take gold and gold-related investments to a new high in the near future.
What We Ultimately Expect from Junior Gold Stocks
We've already watched the first half of gold bull market push gold and junior gold stocks through the roof. Since 2001, the price of gold has increased as much as over 300% to an all-time high of $1,032 an ounce. As a result, junior gold stocks skyrocketed and early investors reaped massive rewards.
One of the most well-known gold stock success stories was Aurelian Resources. As you probably recall, back in April 2006, shares of Aurelian shot 240% higher overnight after the company made a significant gold discovery in Ecuador. The stock subsequently grew 14 times higher as Aurelian continued to recover and publish positive drill results. All told, early investors could have walked away with a 6,500% gain in just eight months.
The Aurelian success story is one of the most well-known. But it is certainly not the biggest. Other lesser-known success stories delivered even larger heart-dropping gains that made millionaires out of ordinary people.
Examples of these huge success stories include Seabridge Gold and Osisko Mining. Share prices of Seabridge have soared as much as 16,400% higher. Meanwhile, Osisko's stock had a five-year return of over 43,200%.
One of the biggest success stories from the first half of the gold bull market, however, was Laramide Resources. Shares of Laramide erupted 154,400% in just four years. Early investors could have made a profit of $77,200 for every $50 invested.
These are truly amazing gains. But we think that we'll see even bigger once the gold bull market continues to unfold.
How to Manage Junior Gold Stocks Right Now
Great patience and fortitude are required right now to stay the course with junior gold stocks, but eventually those character traits will be rewarded. Until that time comes, we need to make sure we have re-aligned our portfolios with junior gold stocks that are going to survive.
The number of junior mining companies that exist right now is close to 5000. A consolidation phase is currently underway and will continue for the next year or so. The number of junior mining companies will probably be reduced by a factor of 10, leaving around 500 companies that will do very well. Our job is to make sure our portfolios only have junior gold stocks that will be on that list.
Good Investing,
Gold World Staff
www.GoldWorld.com
P.S. Gold World editor Greg McCoach has helped thousands of regular people make new fortunes with his Mining Speculator advisory service by giving specific buy and sell recommendations on junior gold stocks and other publicly-traded mineral companies. These tiny, often unknown gold stocks, hold more potential upside leverage than most every other investment vehicle on the market. He believes that junior gold stocks will come back stronger than ever over the next several months as gold prices are expected to recover. And as this happens, investors following Greg's lead could be tomorrow's millionaires. To learn how you can join the Mining Speculator community, simply click here. He is offering Mining Speculator at a special, low price for a limited time.
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Just like we told you back in 2001... buy gold! Since the Fed and government has intervened on the economic situation and made matters worse, this is the exact time to own gold.
A rise in junior gold stocks is just around the corner.
Gold, silver, and many other commodities are getting ready to skyrocket. It's gearing up to what could be the biggest buying opportunity for junior gold and silver stocks ever and Greg McCoach's service, the Mining Speculator can help you.
Click here for more information.
Economic Releases for the week of Monday, December 1st, 2008:
Dec 01 - Construction Spending
Dec 01 - ISM Index
Dec 02 - Auto and Truck Sales
Dec 03 - ADP Unemployment
Dec 03 - Productivity
Dec 03 - Fed's Beige Book
Dec 04 - Initial Claims
Dec 04 - Factory Orders
Dec 05 - Average Workweek
Dec 05 - Hourly Earnings
Dec 05 - Nonfarm Payrolls
Dec 05 - Unemployment Rate
Dec 05 - Consumer Credit
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But there is one company working hard to keep this nightmare scenario from becoming a reality. In fact, it's virtually a monopoly and its share price could easily double.
To learn more about this Nuclear Monopoly click here.
Gold World, Copyright © 2008, Angel Publishing LLC, P.O. Box 84905, Phoenix, AZ 85071. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Gold World does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Angel Publishing may actively trade in the investments discussed in this newsletter. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.
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