The GDX, the well-known VanEck Gold Miners ETF, is already up 51% since its September 2022 low, but junior gold stocks have still been stuck in the mud! Last week, these junior mining stocks finally woke up, embarking on what could turn out to be a mania of epic proportions in the TSX-V Toronto Stock Exchange Index. ($JX)
SGL believes it is an appropriate time to increase one’s position in precious metal juniors. As history has shown, some will go up 10, 20, 50 or even 100 times! We believe investors may want to have at least a toe in the water.
Monday, January 16, 2023
Senior Gold Stocks are Up 51%
After a bear market comes the bull market. Swiss Gold Letter was lucky enough to call the bottom in the gold miners: The New Gold Newsletter for the Next Gold Market (October 30 2022) and Bull Markets Start with a Bang (November 6 2022). In the second article, we already mentioned some producers, developers, tax-loss selling bargains and indestructible companies that we like.
And a bang it was, with the GDX now up 51% since the September low and 13.7% since the beginning of the year. It is unbelievable how these stocks have performed in just the past month. So far, gold equities are the asset class with the best momentum early in 2023. And it is well known that a good start in January is generally a very good omen for the rest of the year.
Are Junior Mining Stocks (and Especially Gold Juniors) Waking Up?
In any emerging bull market, it is well known that seniors go up first, then the midcaps, and finally the juniors.
Last year, a devastating bear market culminated in a severe tax-loss selling period that kept the juniors in check - or better said in hell!
Anecdotal evidence however suggests that some institutions are starting to rotate and are buying smaller companies.
This bull market is not only about Newmont and Barrick anymore!
Massive Breakout of the TSX Venture ($JX) Index!
Although the Toronto TSX-Venture Exchange Index ($JX) encompasses companies other than gold exploration stocks, it is a good proxy for these under-researched and under-owned equities.
From a high of 1113 in February 2022, this small-cap index hit a December 28, 2022 low of 551, losing a massive 50.5%.
No surprise that goldbugs were depressed late in 2022!
Is the sector doomed for eternity, as mainstream media wants us to believe?
No, after six months of a declining wedge pattern, the index just broke out with a vengeance. As technical analysts will say, the longer a falling (or descending) wedge pattern is formed, the bigger the upside on a breakout.
Another positive sign is that this surge was on huge volume. On Friday, January 13, this lesser-followed index traded $71.3 billion - the highest daily volume for the TSX-V Index in the last seven months!
In just two weeks, the Toronto Stock Exchange Venture Index is up 11.6%, gaining 69 points and reaching 615.
So, no juniors are not dead! In fact, if one looks at the monthly chart dating back to the early 2000s, junior mining stocks have the potential for huge appreciation.
Massive Potential for Gold and Silver Junior Mining Companies
As shown in the chart above, at the height of the last big mania in precious metal stocks, the TSX Venture Exchange peaked at 3400, more than five times today’s price!
Fundamentally, these unloved junior mining equities have never been valued so cheaply in comparison to gold.
In terms of fundamentals, generally the lower one reaches down in terms of market capitalization, the lower the relative valuation. For example, last week one could have bought a company in Canada with a 43-101 resource of 2,000,000 ounces of gold for as little as CAD $4 million.
Yes, this is notable just to show that valuations in the junior gold and silver market are dislocated from reality and as a result significant opportunities are available.
Moreover, very few people own any physical gold.
Very, very few investors hold precious metal stocks.
And then very, very, very few investors dabble in the shares of small precious metal equities.
Most importantly, the market for these shares is so thin that an insignificant amount of money can double the price of a junior mining stock - even in a few days or weeks!
Always Tread Carefully in Junior Mining Stocks!
While the potential for gold and silver juniors is appealing, after a 51% run in the senior gold miners index (the chart is below) a correction that could adversely impact the juniors is always possible.
For that reason, SGL believes that a strategy of careful accumulation is prudent, concentrating on new stories, projects with resources, and of course, and, perhaps most importantly, companies with cash that can survive in case of a more extended downturn.
Successful investors in the junior mining space might also seek out diversity, because the results of individual companies can often be quite unpredictable.
However, contrary to popular belief, quality is not always paramount since in a raging bull market an extremely low valuation for a mediocre asset can easily outperform higher priced, fashionable equities. Also, companies in dicey jurisdictions that are poorly valued by the market also can result in strong performance so long as a speculator spreads their risk. Congo anyone?!
Finally, a more convenient and possibly safer course of action could be to buy a fund specializing in junior precious metal equities, like Gold 3000, run by the talented stock picker Mr. Erich Meier.
Pedal to the Metal!
2023 is confirming once again that we are in a strong gold bull market for the yellow metal.
Fundamentals have never been as good.
The fact that small cap precious metal equities are so cheap and so under-owned creates a very unusual, long-term opportunity for outsized returns.
SGL believes that fortunes will be made in this sector by those with knowledge or who are just bold and lucky!
Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. . SGL has attempted to present the information fairly, but it owns shares of junior mining stocks so bias cannot be excluded. SGL may buy or sell shares at any time.
SGL makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material on this website. You should seek the advice of a securities professional regarding any stock transactions. SGL cannot guarantee in any way that it is providing all of the information that may be available. Please do your own due diligence before buying or selling any security.