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Junior Gold Stocks Benefit
from Stabilizing Equity Markets
Stocks - With the Stock Market Panic behind us - for now - we are settling in
for a range bound, relatively calm, second half of ’08. Junior Gold Stocks
should finally start to benefit as the wet blanket smothering equity markets
The New York Stock
Exchange indicator for new lows reached an extreme of 1304 on Tuesday the 15th
of July. That was even worse than the 1100 new lows reached on the 22nd of
January. Such extremes spell one thing P-A-N-I-C.
Whilst it’s difficult to
infer any far reaching conclusions about one day sell-offs, even panics, the
odds now favour a bounce in very oversold equity markets. As for how high and
how long the stock market will bounce is anyone’s guess, but here again,
probabilities favour the market to move higher and longer than anyone expects so
that sentiment indicators return to their old complacent Bullish state!
What will work
during this period of ‘relative’ calm?
We had noticed a very
definite flight to safety since market volatility began in October ’07.
Firstly, a flight away from common Dow stocks to Gold Stocks:
(The following charts show
relative performance of asset classes to each other. That is, when the chart is
falling the first asset class (DOW) is underperforming against the second (Gold
Chart 1 - Large Cap
Gold Stocks (GDX ETF) have outperformed the Dow (DJIA) since August 2007
Within the Gold market this has manifested itself as a flight to bullion and
away from Junior Gold Stocks:
Chart 2 - Gold Stock
ETF has underperformed against Gold Bullion ETF since August 2007
And a shift from smaller
more speculative junior Gold mining companies to their large caps cousins:
Chart 3 - Minefinders
(for example) has under-performed against the large cap Gold Stock ETF
Now that there is a good
chance equity markets will stabilize, the above trends will moderate and
reverse. This means Junior Gold stocks prices should begin closing the valuation
gap and discounting higher earnings based on $900+ Gold.
The remainder of 2008
looks set to be very bullish for Gold Stocks and Gold Stock Juniors in
More commentary and stock
picks follow for subscribers…
I am a trader and
newsletter writer specializing in the price of gold GLD ETF, Junior gold stocks
and Energy Stocks listed in the US, Canada and Australia.
Please visit my website
for more information.
Junior Gold Stocks 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
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