The Rude Awakening
Stowe, Vermont
Friday, May 4, 2007 ------------------------- - Guiding you through the precarious realms of precious metals,
- Claiming a modest 70,000% gain in junior gold,
- Avoiding bath-time with the unwashed masses and more…
------------------------- Gold, Jr.
By Doug Casey While there are a number of ways to play rising gold prices, my personal favorites are the "junior" precious metals exploration companies. These types of companies have a very high risk profile (few will ever actually make and develop an economic discovery). But informed stock selection can greatly lower that risk of speculating in these stocks, while also leaving some extraordinary upside. How extraordinary? While an extreme example, on the back of the Eskay Creek discovery, Consolidated Stikine Resources went from 10 cents per share in 1988 up to a high of $73 in 1990 - a stunning 70,000% gain! Gold and silver - it is no secret - tend to perform well during periods of financial crisis. And junior mining stocks can skyrocket during such periods. Because theses stocks represent such a small sub-set of the financial landscape, even a fractional increase in investor interest can send them soaring. Furthermore, this time around, I think the bull market in junior gold stocks will be breathtaking, once it gets well underway. Here's why: - Increase in Equity Accounts. Thanks in no small part
to the dot-com boom, never before have more North American
households been involved in equity markets.
Furthermore, many of these novice investors are trend
followers; they know little more than to buy stocks that
have a "nice chart." Therefore, for the very first time in
the history of junior mining stocks, the gold cognoscenti
might be piling into gold stocks right alongside the
unwashed masses. (The cognoscenti will sell too early, of
course; the unwashed masses will sell too late. That's just
the way the world works). - Meteoric Rise in Hedge Funds. In a similar vein, we
now have the whole new phenomenon of hedge funds, which
have grown like kudzu all over the financial tree. They
were a non-factor in earlier bull markets, but now number
over 12,000 and control something like $1 trillion.
Moreover, the majority of these funds are run by twenty-
and thirty-somethings with little experience in a real bear
market and are herd-like and aggressive to boot. Gold is
increasingly finding favor as an asset class with these
well-heeled gunslingers. - The Rise of the AIM. Thanks in no small part to the
incessant meddling by U.S. regulators, London's AIM is
increasingly becoming the "go to" market for resource
companies, offering these companies exposure to a wider
audience than the less-trafficked Canadian markets, which
have traditionally been home to the junior exploration
companies. - Convergence of Higher Gold Prices and Discoveries.
Perhaps most important is that, for the first time ever, we
should witness a round of impressive mineral discoveries
against the backdrop of a major bull market in gold (and
silver) prices.
The trickle of financings for precious metals exploration that began soon after gold's 20-year bear market came to an end in April of 2001 has turned into a small flood. In fact, according to the Metals Economic Group, in 2006 the amount of money raised for exploration topped $7.6 billion, the fourth year in a row that there has been an increase, and the highest total since they began tracking the numbers in 1989.
All that money, much of it in the hands of teams headed by experienced pros, has set off a massive number of new and fast-moving exploration initiatives, using the latest technology and squarely focused on the world's most prospective geological addresses. It is not a matter of "if" there will be significant discoveries, but "when."This next generation of precious metals discoveries will attract even more investors into the sector. Then toss in a lot of investors with a lot of cash, nervous about the outlook for global financial markets and looking for a trend to fall in love with, and you have all the elements necessary for early investors in the resource sector to capture extraordinary gains. But let's not get overly greedy; don't mortgage the house to buy gold stocks. Just make sure that you move toward being fully invested…which, depending on your willingness and ability and level of risk tolerance, might take you up to 20% - 25% of your portfolio. You're going to find good reason to love gold stocks. But I hope you won't fall in love with them. Although I'm a philosophical gold bug, I'm not always a gold bull. I always keep in the back of my mind that gold shares aren't heirlooms, they're burning matches. And while I still think this market will see gold's biggest run in history, when it's over these stocks will lose 90% of their value… as does any class of stocks when a mania ends. But the good news is that the mania hasn't even begun. Joel's Note: For a while now, Doug has been threatening to launch a newsletter dedicated to uncovering hidden opportunity in the precious metals markets. Doug's followers have been waiting with baited breath for the widely respected contrarian investor to bring his unique investment approach to one of the most explosive markets. Recently, Doug made good on his threat and launched BIG GOLD, a monthly newsletter dedicated to concise and fast-reading analysis of today's accelerating gold and silver bull markets and in-depth information on the world's leading gold mining companies, gold ETFs, precious metals mutual funds, and much more. If this sounds like something you would be interested in, you can give it a try with a risk-free 3-month trial right here. Doug Casey's BIG GOLD Newsletter Risk Free Trial --- Penny Gold --- From Hulbert's #1 Ranked Advisory Letter of the Last 5 Years comes… "A Hidden Way To Buy Gold…For Less Than A Penny Per Ounce…" Even if $600 Gold hits $2,000 by the end of 2008… here's a hidden way you can get in for less than one cent per ounce…This brand new report right here: Penny Gold. ---------------------------- Joel's Endnote: Speculations often, and dangerously, masquerade under names like, "sure thing" and "slam dunk." You might even hear the occasional use of the term, "no-brainer," implying that even a fellow lacking in any cerebral capacity could cart money out of this trade or that investment. For purposes of this exercise, we're not interested in all that they call "certain," for it is usually anything but. There is always the sure thing…but even that seems to go wrong more often than not. We here at the Rude Awakening don't mind the occasional outside bet. We like to keep it very occasional, for prudence, and very outside, for excitement. We are not expecting any 70,000% gains, like Consolidated Stikine Resources experienced back in the late 80's. That would just be greedy. Perhaps a mere 700%…or heck, even 70%…7% anyone? If you have an outside bet lurking on the fringe of your portfolio, perhaps you would like to share it with the rest of the punters. You can mail all certainly-not-certain, surely-not-sure things to us here at aussiejoel@the-rude-awakening.com . Obviously, don't go sending any inside information or other ethically flexible tid-bits…that's something we're NEVER willing to bet on. Cheers, Joel Bowman
Rude Manager |
