When Will the Juniors Finally Begin to Rally?

By: Boris Sobolev | Mon, Jan 14, 2008
Print Email

The Large Cap Party

With gold knocking on $900 per ounce, most gold stock indices are making large advances despite an overly bearish sentiment on the broad equity markets. Large inflows into gold and silver ETFs are highlighting the point that there is major demand for stagflation insurance, namely gold and silver.

Institutionals seem to have a voracious appetite for large gold producers in early 2008. Barrick Gold, Newmont Mining, Goldcorp and Gold Fields make up around 60% of the S&P/TSX Global Gold Index ($SPTGD on the chart below), as well as other highly followed indices such as the Gold Bugs Index ($HUI) and Philadelphia Gold & Silver Index ($XAU). All have made impressive gains on large volume and a ton of block trading, which are signs of major institutional involvement.

In today's markets, it is becoming increasingly difficult to find companies with solid earnings growth. With the earnings reporting season just around the corner, precious metals producers are expected to report large improvements in profits. Sharply rising gold price is more than compensating for the increases in mining costs and decreases in production.

No Evidence of Gold Rally on Small Caps

The picture for the small / micro cap gold and silver stocks is much less rosy. The main index for these speculative exploration and development companies is the S&P/TSX Venture Composite Index ($CDNX). The ratio between $CDNX and $SPTGD is now falling to a low set in 2004 as investors seem to be repulsed by these leveraged gold plays. What are the reasons behind this disparity between producers and junior exploration companies?

Even the "blue chip" exploration and development companies, which have been combined by Resource Stock Guide into a World Class Deposit Index, are not performing up to par. Stocks included in this index have the largest undeveloped gold, silver and uranium deposits in the world. They are prime targets for acquisition by major companies, yet they have underperformed the $HUI index by a wide margin since last summer.

Turnaround on the Way

The factors enumerated above are preventing investors from jumping on the exploration and development value plays. But this will change:

A takeover frenzy is coming and it will push exploration and development stocks much higher.



Boris Sobolev

Author: Boris Sobolev

Boris Sobolev
Denver, Colorado

Resource Stock Guide (RSG) provides a free dynamic database for over 120 gold, silver and uranium companies. Stock, metal and currency prices are updated daily; company resources, costs, finances, etc. are updated within 2 to 5 business days after their release. Premium Services including the Newsletter are also available.

Database content includes but is not limited to:

  • A broad list of mineral resource stocks representing the most appealing investment opportunities
  • The various types of Mineral Resources owned by companies
  • Value of In Situ Mineral Resources broken down by category
  • Market Valuation of Resources owned by companies
  • Geography of mines and projects
  • Wide range of Financial Metrics, Proprietary Benchmarks and Metrics
  • Company Profiles containing comprehensive data on individual mines, projects, resources, costs, latest news and developments

RSG tools allow our users to sort, group and compare mining companies based on various characteristics. Moreover, these tools help user identify resource companies that are undervalued compared to their peers and have a potential to appreciate in price.

Disclaimer: The above information in this article pertaining to investing, stocks, securities must be understood as information provided and not investment advice. The information provided by Resource Stock Guide is obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Resource Stock Guide advises all readers to seek advice from a registered professional securities representative before deciding to trade in stocks featured on Resource Stock Guide or any stocks for that matter. All statements and expressions of the companies featured are not meant to be a solicitation or recommendation to buy, sell, or hold securities.

Copyright © 2006-2010 Resource Stock Guide, All rights reserved.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com