Monday, October 5, 2009

More Junior Gold Mining Lottery Plays

I continue to nibble on junior Gold mining stocks that are beat down and that haven't joined the party yet. Gold is looking strong again today and I think new all-time highs are coming soon. Following are 1 year daily charts of lottery-type picks based only on charting, NOT based on fundamentals. I know many think this is crazy, but I am playing the sector, not the story. I am creating my own portfolio of juniors, buying on weakness and holding, though I will sell some positions if they move too far, too fast (to possibly buy them back later).

Here's a list, in no particular order, of stocks I recently bought or put orders in to buy:

I also loaded up on some more RGLD (Royal Gold) on Friday.

I am not concerned about buying more beaten down Gold miners even though the bear market is getting ready to resume. Those who are nervous about buying Gold stocks because we are in a bear market need to be cognizant of the ability of Gold stocks to move independent of the general stock market at times. I am not buying senior Gold stocks or stocks that have just made big runs higher. I am buying the laggard small caps that seem to be on their own time schedule and have already undergone significant corrections.

Never forget this chart to remind yourself not to be quite as worried about Gold stocks going forward:

Lest you think this was isolated to Homestake during the sharpest and scariest bear market in United States history, here's a chart to correct that common misconception stolen from Frank Barbera:

I am not saying Gold stocks won't get briefly caught up in a panic-type stock market liquidation, but to think they can't rise during a bear market plunge is to be ignorant of history. We're not going to have a straight-line panic plunge from current levels to the sub-400 range on the S&P! How about the 2000-2003 bear market in stocks, where the S&P lost 50%? Here's a chart of the S&P 500 (candlestick plot) versus the $HUI Gold Bug's Index (linear plot) during that bear market:

So, I am not interested in buying overbought Gold stocks that have already made historic runs, I am interested in buying the ones lagging behind that have some catching up to do. And don't forget, Gold is above $1000 (again) and continues to psychologically cement this magic round number into investors' and speculators' heads as a reasonable price point for Gold. The odds favor a breakout to much higher Gold prices from here, not a breakdown. Even if the U.S. Dollar rallies, Gold can rally right along side it as all fiat currencies sink relative to real money.

The international monetary system is breaking down, just as it did in the 1930s. This time around, we get to play the 1930s role of Britain and perhaps China will play the 1930s role of America. It will get darker and confidence will plummet. People will flock to Gold like moths to a flame. The Dow to Gold ratio will hit 2 and may well go below 1 this cycle.

In a nutshell, Gold mining stocks can be bought on intermediate-term weakness for the next 5 years with good results. Gold stocks made cyclical lows in the fall of 2008 and won't be going below these lows regardless of what the general stock market does from here. I am buying weaker Gold stocks on weakness knowing that they will play catch up either next week or next year, but "buy low, sell high" requires one to buy low first. Even if we're going to 2,000 on the Dow, that doesn't mean Gold stocks won't have a net rise during this time. And junior Gold mining stocks will be the next mania in the financial markets, for sure. Think bubble dynamics.

Gold miners are one of the few industries that can really thrive during profoundly weak economic times and the period we have entered will be no exception. Because I am not a geologist or mining expert, I am simply buying up a bunch of stocks in the sector. As a selection "filter," I am using lists of recommendations from those I respect (e.g., John Embry, Bob Moriarty, Ian Gordon, Peter Grandich, etc.) and will continue to buy stocks from this list on weakness, not strength. In other words, "pure" technical analysis but laid upon the foundation of a roaring secular Gold stock bull market. This secular Gold stock bull market has the potential to be the greatest of modern times based on the massive strength of deflationary forces upon us at a time when some of the most arrogant and ignorant fiat masters in history are ready to grind their paper currencies into dust to fight back.

I anxiously await another panic sale in the stronger and leading senior Gold stocks, which are NOT what I'm buying now. You can bet I'll be there to purchase other peoples' valuable castaways when they panic again (sort of like I did last year) during the next heavy liquidation phase of this general stock bear market, which is far from over. Because the stock markets and individual stocks do not follow the efficient market hypothesis, buying opportunities can occur at any time in individual firms and even whole sectors. Particularly in junior Gold mining stocks, moves like the one in the chart below will be occurring more and more frequently over the next few years and I, for one, intend to catch a few of them:

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