Junior Golds Offer 'Ridiculous' Leverage

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"Above all, there are the two overriding reasons to own gold. . ."

Few Americans own gold in any form. Even though gold's price has risen each year since 2001, the only time we hear gold mentioned is in the ubiquitous "cash for gold" TV commercials. It is baffling to see our profligate nation diligently avoiding the most rewarding investment of the decade.

Only a miniscule number of investors have ventured into the most speculative field of gold—the exploration companies. Some of these small and unproven companies contain proven reserves, while others are still searching. Even to many gold experts and believers they remain intensely speculative and risky.

Further details concerning these stocks and a sound investment strategy will be coming up next week. For now, though, you should know:
  • Gold grades in the world's largest mines are persistently declining.
  • Larger senior companies will need to buy more and more reserves.
  • Continuing shortage of new gold production.
  • Very few major discoveries in the past 20 years.
  • Almost all successful drilling over the past 10-15 years has been done by smaller companies.
  • Most of the top geologists have gone to these companies.
  • Few individual or institutional investors have any position in these companies.
  • The last two years pressured down the gold companies as the liquidity squeeze proved particularly cruel to smaller companies. To me this shows they are still not a consideration in spite of the compelling evidence.
  • Despite a move from $35 to nearly $1,000 over almost 40 years, there's been no lengthy move in the shares and no real sign of speculation.
  • Many are selling for the equivalent of $50 per ounce in the ground. This carries a ridiculous leverage. If a company has a proven one million ounces in the ground and a $10 million market cap, what is its true potential value?
There are the two overriding reasons to own gold—one fundamental, one technical. Concerning the former, the monetary landscape and the certainty of more and more fiat money will keep the gold fires burning brightly. As for technical reasons, on the charts, gold has been consolidating for years to launch into a parabolic rally.

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