Many people have asked me why junior gold stocks are so low right now.
I have played in this sandbox for a long time and I’ve never seen anything like this. If you had told me 10 years ago that gold would be at $1,700, I’d think you’re crazy. Back when gold was $600 – $700 they used to have a regular gold debate on BNN between a gold bull and a bear, and the bear stated repeatedly that “my children’s grandchildren will never see gold at $1,000.” He still appears on Market Call, by the way, so I won’t mention his name.
Gold has far outperformed its commodity counterparts since the recession. Oil is barely squeaking above the $100 mark, compared to its peak of $140. Copper and the base metals are also still well below their peak. You would have been forgiven for thinking that the housing bubble of 2005-2007 was really an everything bubble. But clearly the case for a coming gold bubble is now stronger than ever, with gold not just exceeding but blowing away its pre-recession peak, as well as every other commodity.
From my 12 years experience in this sector, I have seen all the different asset categories fluctuate relative to each other, but I have never seen it this extreme. The gold price and gold stocks are so out of whack it’s almost ridiculous. Consider this: If you could start a one-man mine in this gold price environment, how much would you need to stay afloat? Well, if you could mine even a half an ounce a day you’d have a comfortable salary with only half the income being used to pay yourself, and the other half for costs. How much is half an ounce? Some prospectors pan that much in a day in the Yukon (maybe we should all go and do that!). A cube of that much gold would have sides of 9 mm.
For a gold junior, if you could build a mine with even 10,000 ounces of yearly production, you’d have a company with $17 million revenue on your hands. This is a small, basically artisanal mine with a few workers.
So why are the stocks so low right now? Well, I wish I had the crystal ball. But my experience in this market over 12 years is telling me this is the opportunity of a lifetime to get into quality junior gold stocks and wait about 3-4 years. You’ll probably 10-20 fold your money.