RE: Many non-believers..
“Gold has gone up too fast too far...” “Silver is in a bubble!” We are starting to see more and more of these warning statements in the past couple of days. But sentiment and underlying indicators don’t point at major positivism in the segment at all, on the contrary, investors are still wary of this asset class.
Despite gold and silver reaching new record highs every day, sentiment in gold and silver mining shares is far from bullish. Especially junior mining shares are underperforming significantly nowadays. Senior gold stocks such as Barrick Gold, Goldcorp and Newmont Mining have performed nicely, mostly in line with the price movement of gold.
So what’s the deal?!
According to top gold fund manager John Hathaway of the Tocqueville Gold Fund – who was recently interviewed on King World News – this may change in the short term. Many hedge funds are short junior mining stocks, and are investing in the senior stocks instead. Many investors, including savvy professionals, are still sceptical of the baffling performances junior mining stocks had in the raging bull market during the ‘70s. But Hathaway believes these short sellers will get burnt by the upcoming bull rage in junior mining stocks. They will be forced to buy back positions, setting the stage for incredible performances fuelled by even more fear, greed and panic.
We at Smart Money Europe are confident the junior stocks will eventually outperform major gold stocks. But due to a lack of risk appetite, professionals are still flocking to the seniors.
Under the radar screen, M&A activity in the junior gold and silver field is picking up. On April 4th, New Gold agreed to acquire Richfield Ventures for a 46% premium based on the company’s 20-day weighted average price. The average premiums paid by seniors to acquire promising junior assets are quite high, meaning that the juniors are still very attractive and far from overvalued.
We expect the gold and silver rally to continue. Gold is set to take out 1500 USD in the short run and silver is on its way to 50 USD. If gold and silver would be near a intermediate top, as some pundits are proclaiming, we wouldn’t be seeing the current ‘steady as she goes’ pace of both metals. Daily price performances in the PM complex would run wild, with percentage gains up in the double digits for the equities of senior gold miners, and the junior gold and silver stocks going ballistic!
Today, we aren’t seeing any of such price action whatsoever. So be right and sit tight, the famous Jesse Livermore once said!