gold miners

  1. 36 Posts.

    Summer is typically a period of reduced activity for the junior mineral exploration sector. Share prices either drift aimlessly or deteriorate as the normal limited trading leaves sparse demand for these companies. As with other stock markets and business in general, people are more concerned with enjoying the season than with making stock purchases. Simultaneously with this condition investors and professional traders continue to require income to carry them through the summer months. When they are forced to sell stock, in order to generate sufficient cash flow to satisfy their needs, they typically find few buyers. This is the operational force that normally creates a general erosion of junior share prices until the end of the summer months and the renewal of investor interest.

    During this time both investors and the directors of the various nascent companies take time to enjoy the summer season. Much exploration progresses during the warm weather as the snow and ice have melted from much of the northern hemisphere*s landscape. This allows access to many project areas which the earlier winter months had all but shut down. It will not be until later in the summer or during early fall, when a flow of newly generated information from numerous projects will be disseminated into the market. If history is a guide, and unless gold rapidly resumes its Bull Market or a major discovery is announced, we are now presented with an unusual window that will likely be the last opportunity to acquire exceptional companies at discounted prices. For today, despite the fact that we remain in the summer doldrums, an obvious renewal of interest in the junior exploration companies is emerging.

    The Same Story is Repeated Cycle After Cycle

    Periods when the shares of the exploration companies are soaring give the investor little ability to acquire a substantial amount of stock, without driving prices sharply higher. During these exciting times only a limited number of shares may be offered for purchase in the market. When prices are moving higher shareholders anticipate still larger price gains and tend to limit the amount of stock that they are willing to sell. This is a common thread that is shared by investors in all markets. When this occurs one must take the offerings as only a little buying pressure will move company after company to higher prices levels. If one hesitates, or worse still sits on the bid, he will often watch his coveted company be driven higher by those who better understand the market. This is a prime factor behind the excitement and share price spikes that regularly occur during Bull Markets in the junior resource market. The many investors who try to save a few pennies when bidding for their stock, find themselves with a far smaller shareholding than they desired. They then cautiously compete with one another and move their bids steadily higher with little success. Finally, as if they all throw in the towel at the same time, they all plunge in and simultaneously raise their bids sharply higher in their effort not to be totally left out of the market.

    At this stage, the desperate attempts by legions of investors willing to pay whatever is necessary to acquire their stock positions attracts another segment of the investing public. Not only are throngs of momentum players and traders attracted to the mad scramble, but also other investors who heretofore had watched the market from afar. They all become enticed and seduced by the excitement generated by the sharply rising prices. The end result is a final burst of strength that rockets the majority of stocks higher until the last buyers have been satisfied. Finally, the market suffers from exhaustion. Stocks then drift lower until a bottom is put into place. This continues until the juniors are thoroughly oversold and only those stouthearted believers in the existence of the Bull Market remain. Most of the momentum players, traders and latecomers had been wrung out of the market. They had jettisoned their shares at various declining levels after they had absorbed as much pain as they could bear from the continually dwindling prices and their increasing losses. Eventually, after the junior market declines to an area of important support a base is formed. Later, this downward leg is destined to be recognized as having been only a secondary correction in an ongoing secular Bull Market. However, for those who rode the correction continually lower it seemed like an eternity and a devastating Bear Market. (I believe that this is the state of the market for junior exploration companies that we are now experiencing! It is the accumulation period following the final wash-out that was left in the wake after gold*s spurt to near $390 an ounce earlier this year.) Sequences of events similar to this are characteristic of secondary corrections within Bull Markets as well as of Bull Markets themselves. It is as though the market must first cleanse itself by wringing out all of the excitement and "weak hands", before a major advance can occur.

    After the corrective lows had passed, the first hesitant buyers begin to carefully and selectively reenter the market. They are nervous and fearful that the recent down-leg had not yet run its course, and that still lower prices will occur. If these brave and confident souls are correct and enter near the market*s low point, they will watch as prices first firm and later begin to move higher. When this action occurs they become emboldened. This in turn moves them to increase their purchases of the steeply discounted shares. Later, others who were not so brazen begin to test the water and compete with the first brave entrants. The result is that prices move higher and the momentum increases.

    Never forget, higher prices attract investors! Unfortunately for the majority of shareholders only a few have the understanding and courage to acquire stocks when they are beaten down, look their worst, but offer the most value. All of the rest are attracted to higher trending stocks like moths are attracted to the bright light of a moth trap. Unfortunately in both cases each group is led to its demise. The moths by the zap of a strong electrical current, and the typical investor by his lack of understanding of markets. He knows that he should "buy low and sell high". Yet, in the scheme of things he does just the opposite.

    I believe that we are on the cusp of a major advance in gold, silver, and their mining stocks, both producer and junior. No, I believe that a major advance has already begun! The past several weeks have witnessed a decrease in selling pressure for both the junior and major gold companies. Gold briefly touched $319 during early April, and is trading in the low $350's. Yet the major gold stock indices, the HUI and the XAU, are near breakout and new high levels for their Bull Market. In fact, yesterday the HUI closed at a new Bull Market high!

    Every gold advance for the past several weeks has been accompanied by greater percentage gains for the major gold companies. The gold producers are substantially outperforming the yellow metal! The April-August time frame witnessed gold rising about 10%. Yet, during the same period and after posting their lows and turning higher a few weeks prior to gold, the HUI gained over 45% and the XAU increased by 30%. This is not an unusual situation, but it is often telling at important turning points for the noble metal. In numerous instances the major gold companies struck their nadirs and trended higher before gold either entering a Bull Market or after a major correction and prior to a new gold uptrend. Further, each bout of lower gold movement has seen the gold producers grudgingly relinquish smaller setbacks.

    The majority of the junior stocks on the other hand, have been working in various low level trading ranges. Yet, during the past few weeks this too has changed. Many small gold companies have covertly been trending higher in similar fashion to their senior counterparts. Their tortuous upward movement has also been punctuated with repeated short but sharp downdrafts. But they continue to rise to higher levels! Further, despite the summer period trading volumes have not declined to levels commensurate with the past. The remaining factors that are needed to attract sufficient, sustained buying are looming closer on the horizon. They are the resurgence of gold, the general acceptance by the market of a higher gold price, and time.

    I believe that we are presently faced with an unusual market condition that offers us a combination of great price appreciation potential with the lowest amount of risk. The junior gold and silver resource companies are recovering from a correction that began in late May of 2002. This has been a long, trying period for those who understand the eternal value of gold and the true state of our country*s economy and financial condition. Further, given the innumerable disappointments and false starts during the past year, all but the most resolute believers in gold have been driven from the market. This has created an incredibly oversold junior market! Now, a circumstance has been created where only a little buying entering numerous stocks, will result in their rapid price advancements.

    In a true to form fashion the bottom was first set by the major companies. As stated earlier these have already stealthily risen and one by one are beginning to break out into new Bull Market high territory. Yet, the majority of juniors have barely left their nadirs. I am confident that now is the best opportunity, to acquire thoroughly depressed shares of fine exploration companies, since the beginning of their Bull Market. September is approaching. This will bring with it the return of investors to the market and a full complement of brokers and corporate directors. Further, it will kick off the entrance of the jewelry trade into the gold market. They will earnestly build their gold inventories in anticipation of jewelry production to supply the Christmas Season. If I am correct we will shortly experience a rise in gold and the major and junior gold stocks, which will leave onlookers and even true believers both breathless and speechless.
    watch gtm gml emp mco pts

    August 8, 2003

arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.