Friday, August 14, 2009
Buying a Few Junior Gold Miners
The junior Gold mining sector is the next mania in my opinion. As the forces of deflation intensify over the next few months and stocks, commodities and corporate bonds resume their bear markets, there are few places to hide. Gold is a great safe haven. The US Dollar will be a temporary, albeit risky safe haven that must be bought and sold at the right times to avoid major losses when the inevitable Dollar devaluation comes.
Junior Gold mining companies are risky, speculative plays. In aggregate, this sector is a wonderful investment. The problem is that some companies will go up 500-5,000% and some will go to zero. A basket of companies is always needed for proper diversification in this sector unless you know how to properly evaluate an early stage mining company and its management. I personally don't. So, I am looking to scale into this sector on weakness and start buying some of these companies.
Van Eck Global, the firm that brought you the senior Gold mining GDX ETF, has filed with the SEC to launch a junior Gold mining ETF. The ticker will be GDXJ, but it is currently unknown how long it will take until this vehicle is available.
I am not interested in spending the time or research to figure out "the" junior mining companies to own. I am compiling lists of junior mining firms listed on American stock exchanges mentioned by other analysts as worthy of investigation and am buying some of these stocks based solely on technical analysis with a small portion of my speculative capital, knowing that I will hit some home runs that should more than balance the strike outs.
Two firms I am scaling into and their charts follow. Again, keep in mind that I really know nothing about these firms and they may be total scams. I am letting the charts tell the story and using the old adage that "a rising tide lifts all boats." Even a pig stock can fly when its' underlying sector moves in a big way. And believe me, junior Gold mining stocks are going to move in a big way and the move will last for at least a few years.
First up, Gold Reserve (ticker: GRZ). Following is a one year daily chart:
Next up, Pacific Rim Mining (ticker: PMU). Following is a 16 month daily chart:
Just from looking at these charts, I know that these companies are not leaders in the sector, they are weaker firms. My guess would be that their fundamentals aren't great. I am trading their charts however, looking for a longer term pay-off. These are just a few of the junior Gold miners I am following while I patiently wait for attractive entry points to scale into the next big bull market.
Couldn't resist and went short the silver miner Pan American Silver (PAAS) yesterday on strength. This is a short-term trade.