Silver - Euphoria

By: David Morgan | Fri, Jul 25, 2008
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This week we took a look back into a recent issue of The Morgan Report and decided to reprint an answer we received from one of our subscribers. It seems many including us are frustrated with what is going on with the junior mining sector. In our opinion we are far from over this major bull market, but we are still in the skeptical phase where many are of the opinion that the mining sector stocks and in particular the junior mining stocks are through.

From a few months ago I received the following question, subscribers have direct access in the members only section.

Dear Mr. Morgan:

Congratulations on a great call for March. Gold hasn't gone down greatly but junior stocks certainly have! You said 12-18months ago that in the 2nd part of the bull market it's the large caps that increase dramatically and that it's only in the last part of the precious metals bull market that the juniors have their day.

At the time I didn't fully believe you, as I had never experienced such a thing before. Did these types of market conditions prevail in the late '70s in that bull market period? If so how long did these conditions last? What would you suggest for those subscribers who didn't fully believe you 12 months ago and have invested in junior stocks?

Foreseeing or believing that this scenario would come to pass at a time when juniors were flying high 18 months ago was difficult. However, I thank you for your warnings.

Editor's Response to Part A: Let me be a bit more specific. First, the junior market does do well in the initial stages of a new bull market. This is pretty much self-evident. Many companies with merit and many without merit did rise in price dramatically during the first leg up in the precious metals bull market. Also, let me be clear that exceptions can always be found; we are speaking in general terms here. The bull market was similar in the 1970s and I have written about it in the past. Once we enter the optimistic phase of this market, which right now I am forecasting to begin around the August to September 2008 timeframe, we will see the junior sector perk up.

However, some junior mining companies may have run out of money and/or given up. Near the end of the cycle where we enter the most lucrative but also the most dangerous phase of the market, the "euphoric" phase, we will see the junior market absolutely fly. The reason is psychological -- people love cheap stocks, and many of the best companies in the industry will be trading well over $50 per share and many well above that. Those who are very late to the party will buy stocks based upon the "story" surrounding the stock and also the price.

During this euphoric mania it is possible to see penny stocks go from prices under a dollar to $10, $20, and even $30 per share. This is the exception, not the rule, but in general terms the junior market is so small and the amount of people flooding into the market so great that almost all "cheap" mining stocks get pushed higher.

The key is to not get too greedy, and take profits off the table -- do not expect to sell at the exact top. As I have taught all along, especially for those who trade the futures market, it is always better to sell into strength. The euphoria lasts a very short time, usually a matter of weeks. At that time, it will be most difficult for me to not only remain objective but also to put up with the amount of e-mails that I will receive telling me I am wrong, the market is "different" this time, and I have become a traitor to the cause by even suggesting selling. However, I am fully prepared and plan to do the very best job possible, regardless of how much flack will be flying my way at the top. I still expect the ultimate top to be in the 2010-2012 timeframe, subject to change, as we get closer.

It is an honor to be,



David Morgan

Author: David Morgan

David Morgan

David Morgan

David Morgan ( is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of Get the Skinny on Silver Investing, and a featured speaker at investment conferences in North America, Europe and Asia. You can receive a free 30 day trial subscription here

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided.

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