-- Posted Wednesday, 19 March 2008 | Digg This Article | Source: GoldSeek.com

Many a frustrated junior resource investor is asking when will the pain end? It is one thing to be entirely wrong on the market, it dents the ego and you get over it. It is quite another to be right and still not make any money! That’s been the case for most junior resource stock investors.

With Gold over $1,000, Oil over $100 and Natural Gas over $10 its incredulous that junior mining companies are not more highly valued.

Take Gold miners for example, the average cost to mine an ounce of Gold is about $400 (but varies enormously depending on company specifics). At $1,000 Gold, the margin is a healthy $600 per ounce. But lets say smaller miners have sold a little forward to defray costs and the average selling price is now $850. That’s still $400 gross profit per ounce. In our book that should warrant significantly higher stock prices but in practice it has not.

So when will the junior market jolt out of its deep freeze ???

The problem with Resource stocks is that they are just that – stocks. And needless to say equities are not the flavour of the month, nor have they been since the credit crisis broke in September 2007. Investors have turned away from riskier equities preferring the safety of treasuries and real assets instead. Perhaps the recent love affair with the real estate made it easy for speculators to cross over into other real assets such as Grain, Gold and Oil?

Point being that in order for junior stocks to rise the perceived risk of holding equities – all equities - must fall. 


Chart 1 - 6-month performance - Gold up 35% ; HUI 24%; S&P -15%

The above chart demonstrates this. The large cap miners have been caught between a surging Gold Price and a falling S&P. According to our indicators, the current up leg in Gold and Oil (the commodities) is nearing completion. We expect Gold to top out at around $1100 and Oil at $125. That’s not to say we don’t expect further spectacular gains, we do, but these markets are in need of a rest.

Encouragingly the S&P has held onto its January lows, which increases the odds of a bottom and an ensuing multi month rebound. The HUI will once again be caught in the middle but due to its recent break to fresh highs, the odds favour an upward bias. We are calling for a target of around 650+ (currently 500).

As for the Juniors?

The speculative froth in the juniors usually occurs towards the end of the HUI’s rally. At the time of this writing the HUI is at 500 and signs of life are stirring in the junior market. All in all an encouraging sign for the juniors and we are looking for a bang up April and May.

Time to Get positioned!

More commentary and stock picks follow for subscribers…

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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com

I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.

Please visit my website for a free trial to my newsletter.

Click here: http://blog.goldandoilstocks.com

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

-- Posted Wednesday, 19 March 2008 | Digg This Article | Source: GoldSeek.com

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