RE: Poor performance of Gold stocksRecent performance of exploration companies has been very poor to say the least.
The key feeling in the market at the moment is risk-aversion and liquidity.
So, as good as GLD is for the gold price -- it becomes the first choice for investment in gold generally. This did not exist a few years ago when all the juniors were flying.
Second choice are the big producers -- or at least mid-size liquid producers. They have moved but most have now broken down technically and are not close to their highs of a few weeks ago and are currently not moving with the gold price.
Last and certainly least are the exploration companies. They have several problems. First, the money that would have flowed to them 3 years ago is now stuck in GLD and the producers. Second, they are considered risky in two senses -- the normal "are you going to find anything?" but now also the "can you get financing for your project". Third, is the old problem of liquidity.
So if the credit problems continue, this is not going to get better anytime soon. So the idea that a market drop will be good for the small explorers since gold would go up is not necessarily true at least short term. If you've noticed on some of the down days, the juniors have gone down more than the big guys simply because there are few short term buyers. Good news fuels major selling even without a run-up (See recent effect of news of ECU for example). There is incredible jitteriness bordering on panic out there.
Technically they are also a mess. However, the volume on some of the juniors has become so low that a few determined small buyers could significantly affect the stock price and start to stabilize the technical problems. (I just bought a few shares to show the effect).
So the question is --- when will the market phase favour the explorers again? Risk-aversion would have to be less -- but that would more likely happen when the markets appear to be going up, not down. Or greed would have to take over -- meaning gold is absolutely rocketing and everything else is worthless (final blowout of gold bull?) -- but the powers that be will do everything to stabilize any drop in the US Dollar which has been the prime mover of gold. Amazingly, holding US Dollars is still considered low risk. However, if the economics are truly that bad, all the currencies are going to dive thus holding the rise of gold. Once the Fed rate gets very low, inflation will increase (good for gold) but then the Fed must raise rates -- good for US Dollar -- bad for gold. Gold must detach its inverse rel'n with US Dollar for any explosion. I don't know when this will happen.
Even Embry says that juniors are not cost-effective at the current price of gold. Kind of scary that he was saying the same thing when gold was several hundred dollars lower.
At some point, the juniors are going to be ridiculously cheap but I have a nasty feeling its a way out. The good times of a few years ago may have been a bubble. The best chance is a buyout by a major. Hopefully I'm wrong.
Just my 2 cents.
Long time GIT holder