-- Posted Wednesday, 3 January 2007 | Digg This Article
First of all I wish you all a happy and prosperous New Year. A new year indeed which provides new investment opportunities for us gold investors. So how to approach this new year from an investment point of view? Should I hold on to my precious gold shares? Sell them? What can we expect for gold and its shares this year? How long this bull market in gold could last? Well, sure enough nobody can predict any future movements and neither can I but all I can say is that Iím more excited than ever since the gold-bull market began in April 2001.
Itís my strong believe we could see new gold and HUI highs before year end and that legendary profits are in the pipeline when invested in high quality junior gold shares. I explicitly say junior shares since they will out perform the major gold producers by great margin. Just look at the facts, the HUI clocked an overall gain of 20% in 2006 while the average junior stock (measured over 600+ companies) gained more than 80% in 2006. It doesnít end here since those juniors in discovery stage returned astronomical profits, some of them exceeding the 1000% profit mark. Itís simple, a small junior with a market cap of letís say $80 million finding a multi billion dollar gold deposit will see its share price exploding. So itís during the discovery phase that share prices of junior gold stocks appreciate fast, see chart below:
Sounds easy right? Just invest in those companies in discovery stage and let them do the work for you. Iíve been writing for years that the principle of discovery investing is the only way to go from an investment point of view since discoveries are paying off tremendously, no matter what the gold price does. My piece ĎGold & Juniorsí (published in May 2005) described in detail why discoveries are paying off so well even during extreme bad sentiment. The problem of past years however was that almost no major discoveries were being made so my thesis on discovery investing couldnít be proven up until new significant discoveries would come on stream again.
The chart below clearly shows the lack of new major (world class) discoveries after 1996:
However since 2003 juniors are getting access to fresh investment capital much easier and that trend is only accelerating. Yes, the inflow of investment capital into the exploration sector has increased substantially over the past few years. Since it takes a couple of years of exploration before any exciting discovery news could be reported we couldnít expect that much exciting discovery news straight after 2003. But things are changing, the year of 2006 brought us already much more exciting discovery news as in 2005 and that trend seems to be accelerating as well. When I started the Gold Discovery Letter one year ago it was my goal to prove up the principle of discovery investing. The results speak for themselves. The average performance (in 2006) of our Discovery TOP 10 portfolio outperformed the HUI by great margin (465% vs 20%)
So if a successful discovery portfolio could yield already more than 400% on a yearly basis while the HUI struggles to yield a mere 20% only what would you think could happen with discovery stocks if the HUI gains 100% within the next two years?
Why Iím coming up with this? Well, simple, because itís my strong believe the HUI could easily double from here on (within the next two years) since the setup is phenomenal. The last time weíve witnessed such a setup was in Sept 2005. This setup led to a HUI gain of 100% in less than nine months. The same analogy applies for gold. The setup in Sept 2005 led to a gold gain of $300 ($430 - $730)
Needless to say that similar moves from current levels would lead us straight into new gold/HUI highs!
The charts below visualizes the setup mentioned above:
Early November we told our members that the multi-months gold-correction was over (Gold - Break-out!) and that a new up-leg had begun (Gold Ė A New Up-leg has begun!)
Now after three months gold trades $30 higher and has formed a perfect launch-pad which is characteristic for all previous major up-moves in gold.
The last time we witnessed such a set-up (50 dma, 200 dma and gold price nicely coming together all in upward trend) was in September 2005. Gold traded around $430 at that time and clocked a new high of $730 in less than nine months.
Again, the similarities of Sept 2005 and now are striking, see chart below:
The setup of Sept 2005 led to a gold move of $300. A similar move would lead to a new all time high for gold before year end. Sure enough such a move could only be sustained if most critical drivers for gold continue to point towards much higher gold prices indeed. But with a further weakening dollar in mind (see Gold&US$), a declining gold supply and a tremendous increase in demand for gold the case for new highs in gold gets stronger by the day.
The setup for the HUI is similar:
On November 27 we informed our members about the imminent HUI break-out (HUI Ė Break-Out imminent!).. The HUI was trading at about 340 and as a matter of fact the HUI still trades around that level. The only difference is that the current setup is even better, just as we saw on the gold charts, the 50 dma, 200 dma and HUI are coming together nicely which was characteristic indeed for all previous major HUI up-moves. The chart below tells it all:
The Sept 2005 setup led to a HUI up-move of 200 pts, in other words, the HUI doubled. Needless to say a similar move today would lead to new all time HUI highs..
My bet is we will see new HUI highs this year since so much fresh investment capital is flowing into the gold share sector these days and the gold share market is only so small. In other words, all new investment capital chasing the same gold shares is like guiding the Niagara waterfalls through a garden hoseÖ The only thing that can spoil the party is a declining gold price but as mentioned above most critical drivers for gold are pointing towards higher gold prices, not lower.
Conclusion: Both gold and HUI are bound to clock new highs coming year. Junior companies making significant discoveries could be yielding stellar results.
You want to profit from valuable discovery news? Please join us today and youíll be introduced to our favorite Discovery TOP 10 for 2007. (Discovery TOP 10 vs HUI in 2006: 465% vs 20%)
Subscription info can be found HERE
Readers interested in participating in our Junior Picking Contest 2007 can sign up free of charge HERE . Itís a handy tool to see what favorite stocks other (high qualified) investors have in mind for 2007.
Eric Hommelberg & Partners
The Gold Discovery Letter/
The Gold Drivers Report
-- Posted Wednesday, 3 January 2007 | Digg This Article