Mining Into Juniors for a New High

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"For those juniors that have good assets and have cash, there is a growing audience."

Gold prices edged lower in Europe on Friday as a stronger U.S. dollar dented interest in the precious metal as a currency hedge, and oil prices eased. Most commodities priced in dollars have lost value as the U.S. currency firmed, as they become more expensive for holders of other currencies.

Spot gold was bid at US$950.20 an ounce against $954.00 an ounce late in New York on Thursday. The culprit? "A stronger dollar, oil coming off the highs," said Calyon metals analyst Robin Bhar. "We have yet to reclaim the $960 level so I think as gold remains below that, there is always a risk of a move back towards the $930-$940 level, where there is strong support."

As investors gain confidence in the economy and the stock market, there are several others who are convinced the global economy is heading over a cliff and that gold prices are about to skyrocket. As Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier, a Toronto-based money manager said: "There is still a lot of cash out there and I still think the average fund manager is underweight equities and underweight cyclical equities. So I think the market will continue to do well."

But with physical demand lackluster for precious metals, gold is struggling to break out of its established range. "It is getting increasingly tough (for gold) to hold on to its gains beyond $965-$966 levels," said Pradeep Unni, senior analyst at Richcomm Global Services, in a note.

The junior gold sector is, however, back in the running. Many junior golds are also trading around their highest levels in months.

Analysts maintain that people are starting to see beyond the credit crisis, which will pump up the pressure on gold. David Adamson, Rubicon's chief executive said: "For those juniors that have good assets and have cash, there is a growing audience." However, appreciation will not come if gold stays in a narrow band, based on fundamental valuation and current production profiles. Appreciation will come when these companies leverage their fairly generous cash flows, which are accumulating in cash accounts, he said.

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