Junior Gold Stocks Set to Run

Tens of millions of traders around the world are scratching their heads over why gold stocks have so substantially underperformed the gold price. Over the last 15 months gold has risen by over 20% while the GDX major gold miners index is down by 18% & the junior gold miners index (GDXJ) is down a whopping 40%. This makes no sense at all & frankly I have no explanation other than gold stocks do move in cycles & the upward leg part of the cycle is just around the corner if not already here.

The reality is that the strongest leg of gold’s 11 year bull market is yet to come. There are three reasons why I am so certain a huge run in gold & gold stocks is coming. The first reason is because the growth in fiat money globally is progressing at around 8% per annum while the supply of gold actually being produced has only been rising at 1% per annum. One does not need to be terribly clever at maths to deduce that gold prices must rise as paper currencies are devalued & tangible assets which are in finite supply become increasingly valuable. It is important to distinguish between the short term gold price which is set by the futures gold market, a heavily manipulated scenario, & the actual physical availability of gold to purchase. The vested interests (think Central Banks) which are holding the price down will only be able to do so for a period of time. Eventually real market forces will take over & gold will sky-rocket as investors scramble to buy the real thing & not a paper contract that may not be honoured in a financial panic situation. The unavoidable reality is that the debts of Europe can never be repaid with high unemployment & an ageing population so large scale default is a given in my view & large scale default can only occur if Central Banks buy up all the rubbish which means massive money printing.

The second reason is the enormous uncertainty surrounding the future of the US dollar, not only its relative value but also its status as the world’s reserve currency. There are moves underway for trade in oil between countries like Russia, China, India, Iran, and Venezuela in currencies other than US dollars. No-one knows how the next 5 years will play out but the substantial uncertainty alone will cause an increasing movement into gold.

The third & most important reason is that all instruments in financial markets revert to a longer term mean or average when they have become historically extended. This is an irrefutable law of human nature built on fear & greed driving markets first one way to excess, then back the other way to over-correct. It has happened all through history & always will. So the massive disconnect between gold stock prices & the underlying metal will correct itself. In fact gold does not need to increase in price at all & gold producers could rise substantially in price just to catch up. The largest gains will not be in the gold majors, it will be seen in the junior producers, just as we saw coming out of the GFC lows in March 2009 when rises of 500% to 1000% & more were recorded amongst Australian producers. One has to remember that there are many gold producers these days which are very solid businesses with no debt, no hedging, high profit margins & high returns on shareholder equity. Some, these days are even paying dividends. In addition to all those wonderful attributes, these stocks are also very cheap by any scale of assessment.

So what elements do you need to have in place to capture these futures massive gains?

· You need to know what to buy based on solid fundamental evaluation. There are currently 47 existing gold producers listed on the ASX but I have identified the best 12 or so & probably the only ones worth trading. There are some major potential “nasties” among the rest & I don’t like getting surprises when I trade

· You need to have the ability to read crowd behaviour via chart patterns because in the short term the fundamentals often don’t mean much. You can’t just buy a good stock & expect it to go up. This is a skill that takes many years to develop & most traders don’t apply themselves sufficiently to ever get there.

· You need to be able to shut out the opinion of the masses (absolutely essential) & become a focused contrarian trader. With anything short of this you’ll probably lose money. In short everyone needs an environment where they can flourish by being supported for a lengthy period of time

· You need a clear & concise trading plan that defines how much activity is needed to achieve your annual profit target. Every time you take a trade you take on risk, so why do more than you need to – be selective, be decisive & be a consistent winner.

We are on the cusp of one of the great money making periods of this decade so ensure that you have the resources at your disposal to capitalise on these opportunities which really starts now. if you would like more information about how our members are cashing in on these opportunities then go to our website at www.specialistshareeducation.com.au.