Napoleon Bonaparte once offered this wise advice; “Never interfere with your enemy when he is making a mistake.” Napoleon’s theory was proposing that by letting his enemy make a mistake it offered him a better opportunity to defeat his enemy. In a sense, over the last two years we have seen investors  literally throwing away shares of stocks that were selling at multi-year lows offering us the opportunity to buy those shares while they were extremely undervalued.

 

Our research has suggested for the past two years that we were making major bottoms in gold and silver mining stocks and it has been an ideal time to accumulate them. We had suggested “dollar cost averaging” and wrote articles that appeared on our sites and in publications such as “The Bull and Bear.” Today we are in the early stages of a bull market for many gold and silver stocks incrementally. Some have already seen enormous percentages while others will see a bull market later on as all mining stocks do not move up at the same time.

 

But in particular, junior exploration and low capitalization mining stocks managements and shareholders must recognize some significant factors that will have an enormous influence on their success.

First of all, are the gold (and silver) mining stocks making bottoms?

Yes, many mining stocks have already made or are completing their price bottoms at what we consider to be exceptionally undervalued levels and have already had enormous moves up. Still many others should eventually prove to be exceptional bargains. Some stocks that we recommended two and three years ago, such as TSE and NYSE listed Richmont Mines at $1.20 then and TSE and NYSE listed Claude Resources at .15 cents then have moved up 900% and 1500% respectively. No guarantees but we expect more from them. Note Claude Resources was recently taken over by Silver Standard which now carries the Claude shareholders.

 

However, for now, some small cap juniors may need a $1400 to $1500 US gold price to ignite greater investors’ interest. But above all, today many remain  very much “on sale.” Few investors ever take advantage of the cheap prices that occur during bear markets but that will always be human nature.

 

What is a major challenge to the low cap junior mining stocks?

Still very low bullion prices and the fact that there is very limited comprehensive research on many mining stocks so few gain investors’ attention. Many mining stocks will do well but not achieve their full potential. Generally, the brokerage industry is no friend of the mining industry and has fought acknowledging bull markets in gold since it indicates a bear market in industrial stocks such as the Dow Jones Industrials.

Bottom line

The brokerage industry cannot be profitable during a bear market in industrial stocks which generally occurs during  bull markets in gold and commodities.  So do not expect to see the large banks and brokerages proclaiming that we are in a bull market in gold and mining stocks. The major American brokerage houses  have a history of poor and untimely advice for gold and gold mining stocks. Look at other sources for advice and be sure that it makes sense to you.

 

Are there other challenges to gold and mining stocks?

The disappearance of market makers (also referred to  in the past as specialists) which we wrote of in the past has created additional price weakness and more downside in stocks as there are few and very weak bids when investors wish to sell. Little to no inventory in stocks is maintained any longer. Today, when investors buy stocks, they have to be shorted to the investors by the designated market makers. We see it all the time in today’s markets. The long-time profitability of the market makers is gone, thus the hiring of analysts to analyze mining companies and create research reports seems to be over. That was the method in the past.

 

What would happen if deliveries of gold bullion were demanded, such as when Germany asked the U.S Central Bank for their gold held in New York for safekeeping asked for its delivery?

We can merely estimate that gold bullion would minimally be at $2000 to $2500 an ounce, conceivably much higher. A friend from Germany suggests that it would go to $3000 to $4000 an ounce.

 

Is there price manipulation in gold bullion?  

      Yes, you bet there is manipulation. It is so obvious to anyone who studies the market that manipulation of gold bullion is ongoing. Without manipulation, it might be selling at $1800 or more-minimally. Let’s not forget the “midnight sales” where gold bullion contracts on the futures exchange (not real bullion-but paper) are dumped to create an image of gold weakness. You have to be blind not to see it.  Keep in mind that the banks and brokerage houses cannot profitably tolerate a bull market in gold and most commodities.

 

Technical Analysis

We want to see the gold bullion price move up in a slow solid pattern, we do not want “spike” type moves which indicate emotional buying. Slow prudent buying is the key. The angle of ascent of the price chart is so important. Our technical analysis suggests weakness should be expected now. It could be a correction to the $1240-$1270 level, but our analysis suggests that the move up and long term bull market in gold will continue.

 

Cycles?  

  The cycles for gold if they are correct and on schedule suggest that we are commencing a major multi-year long term bull market in gold and silver and in many of the gold and silver stocks as well.

 

 Are Gold stocks cheap?

In our opinion, many are right now and many have  bottomed during the past two years. True to form, buy recommendations will come after most already have had moves up on average of over 40% to 500% and more. That will never change.

 

Should we wait to later “load up” when it makes its final decline?

Good luck! If you believe that you will load up as gold makes its final bottom and get all you want, you are dreaming. It is never that easy. We do recommend “dollar cost averaging” as we think that many gold stocks have already made their price bottoms.

 

What else?                                                                                                                                                                      

It is important to mention that out of let’s say 800 mining exploration stocks; maybe fifteen percent at most will attract thorough research coverage. We cannot do anything about that. If a mining exploration does not have research coverage, it should make an effort to obtain it. We are not looking for clients as our focus is investing for ourselves and are limited in time. 

 

 

Note well-Gold representation                                                                                                                              

 Gold representation as a percentage of total assets held by large institutions and by various investment funds remains quite low. That will change as we feel that they will eventually have to invest in gold and gold mining stocks. As you are aware, it is difficult to purchase gold bullion for many institutions and have it delivered and stored safely. You may want to ask the Germans about that subject! We believe we will soon see more institutions investing in the gold mining stocks in order to participate in a bull market in gold. That method will be their proxy for gold investments.

 

 

Central Bankers et al

Large buyers of gold bullion are not emotional but well informed and attempt to time the market using fundamental supply and demand analysis as well as technical and cyclical analysis. The large buyers want to buy at the lowest prices possible for the bullion. Too often, the investing public and some hedge funds can be far too emotional and engage in chasing and pushing the gold stocks up. Patient accumulation is a key ingredient to successful investing in mining stocks.