Why the Gold Juniors Have Not Popped

Source:

...The question on everyone’s mind is whether or not juniors will experience the same surge in stock prices as experienced by gold and many senior companies. I think the answer is likely to be yes. With the state of precious metals continuing to be wildly bullish, right now is the time to pick up shares of junior companies as they are tremendously undervalued...

We have seen incredible rises in precious metals in the last few months - with gold having been over $1000 and silver above $20. Numerous senior mining producers have seen tremendous gains in stock prices in these market conditions. Junior companies, on the other hand have been quite lackluster in their performance...Reasons Why Juniors Have Not Yet Popped

With gold reaching record levels, it only makes sense that junior companies ought to soar right? Wrong. As with most industries, things are not always what they seem; there are often numerous extraneous factors that affect the performance of companies, and it seems like junior gold companies have become a victim of these extraneous factors. The good news is that investors are beginning to understand what these factors are, what they mean and how they will likely affect the market in the future. Let us now explore some of the reasons why junior mining companies have not performed up to expectations:

Rising production costs – it is becoming increasingly more difficult to extract gold. This increasing difficulty coupled with the high energy intensive production has made it more expensive to mine this precious metal. For junior companies, this becomes even tougher due to the lack of scale economies...

Increasing popularity of ETFs – The first gold exchange-traded fund GLD was launched in 2004. ETFs make investing in gold easy and cheap; in addition, ETFs reduce mining risks, company risks and country risks. GLD has gained immense popularity with investors; it is now the eighth largest holder of gold in the world. This popularity will only increase as investors seek more diversified investment vehicles.

Growing fear of recession and the credit crisis – Junior mining companies tend to be more volatile and more speculative than established companies. The recession has changed many investors’ psychology, and the appetite for speculation has certainly seen a dramatic reduction. As a result, investors are staying away from the more speculative junior stocks.

. . .It’s important to note that a majority of junior companies on the stock exchanges are classified as exploration – they do not have the capital or the skills to produce and process the gold themselves.

The question on everyone’s mind is whether or not juniors will experience the same surge in stock prices as experienced by gold and many senior companies. I think the answer is likely to be yes. With the state of precious metals continuing to be wildly bullish, right now is the time to pick up shares of junior companies as they are tremendously undervalued...

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe