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Geithner Signals Gold Going Much Higher, What to Buy Now

Commodities / Gold & Silver 2009 Nov 01, 2009 - 11:07 PM GMT

By: Q1_Publishing


Best Financial Markets Analysis ArticleThe Obama administration dispatched high-level members back onto the Sunday morning talk show circuit following a few bits of positive economic news.

On Thursday, it was announced GDP is back on the climb. That was followed with the claim one million jobs were created or saved due to stimulus spending. And that’s right on pace to meet the goal (imagine that?). So the best marketers don’t want to let an opportunity to take credit for the free exchange of goods and services between individuals.

But on NBC’s Meet the Press, Treasury Secretary Geithner may have inadvertently signaled the gold bull market has a long way to run. In the interview, Geithner said, “[The recent positive economic news] shows that -- when you act with force -- you can stabilize a crisis like this.”

Force…Force is good!?!

Cranking up the printing press, nationalizing major industries, and increasing taxes (healthcare, cap and trade, VAT, and whatever else happens after 2010 elections) will, in the long run, go a long way to preventing a genuine recovery.

But this is part of the process. It’s training the monetary managers to make terrible mistakes, yet not realize they were mistakes. They’re learning the wrong lessons. And when the next downturn comes, whatever the catalyst, they’ll respond with even more “force.”

And it will be that move that pushes gold to much higher levels. In the interim, anticipation of that eventuality will help keep gold prices propped up.

That’s why now, with the markets showing their greatest weakness in months, gold stocks getting hit 10% to 30% across the board is a great time to continue getting in place for the next “forceful” response. Here are the two best spots to start putting your dollars to work in gold.

Exploration is Back

One of the hardest hit sectors during the credit crunch were the gold exploration companies. Their cash-draining business models were left for dead as gold price fell, institutional investors saved cash to meet redemptions, and hedge funds deleveraged.

That was over a year ago though and a lot has changed. Gold is setting new highs and money is flowing back into the exploration market. More importantly though, there have been some major discoveries in the past few months which will bring even more speculators back into the market.

The biggest discovery of them all has been Ventana Gold (TSX:VEN). It’s a Columbian gold explorer has leapt from discovery to development in a few short months.

Since we said Ventana  was “the next bonanza discovery” and that it “struck gold – lots of gold!” in our free gold stock report a little more than six months ago, its shares have climbed more than 700%. And the company now counts mining entrepreneur Ross Beatty and Brazil’s richest man, Eike Batiste, among its shareholders. Both now own more than 10% of outstanding Ventana shares.

It has gone from unknown penny stock with a small cash position and an aggressive exploration program to a bona fide discovery with a market cap of more than $800 million which just closed $40 million financing deal.

This is the type of discovery and massive gain (Ventana went from 20 cents per share to $10 per share in about a year) which sparks the greed necessary to help keep the money flowing into gold exploration stocks.

Of course, a lot of things have to come together before gold exploration really gets going. The combination of high gold prices, rising stock market (increasing risk appetite), and a couple of major new gold discoveries have made it a much more enticing though. Right now, there are still a lot of small exploration companies trading for less than $20 per ounce of gold in the ground and they were fetching as much as $50 per ounce of gold in the ground two years ago.

It’s not just the high-risk/high-reward gold exploration stock sector getting some attention; junior gold stocks are still in the relatively early stages of recovery too and offer exceptional value.

Junior Gold Stocks: 60% Undervalued

The other gold sector which just got a lot more attractive in the past week has been junior gold stocks.

A quick look at the McEwen Junior Gold Index shows it all. The index tracks junior gold stocks that are actively traded (minimum $50,000 average trading volume) and have minimum market caps of $50 million.

Since November 2007 when the index was hitting all-time highs, gold prices have climbed 30% and the junior gold index is down 60%.

That’s just half the story though. Their outlook gets even brighter when you look at the big gold stocks. The Philly Gold/Silver Index (XAU), which tracks the major gold and silver miners, is down only 15% from its November 2007 highs.

This is a really simple one. Gold is up 30%, major gold stocks are down 15%, and junior gold stocks are down 60%. Which one would you like to buy now?

If you like gold, you have to love the juniors.

The Trend is Still Up

Those are the best two opportunities in gold right now and this is as good a time as ever to start reloading on gold stocks.

You can practically see the confidence of administration and Federal Reserve officials growing by the day. They are now trained and will know exactly what to do next time. Regretfully, that move will likely be what propels gold prices to the next level.

It’s no wonder that while the government claiming “success” and “back from the brink” talk abounds, some of the world’s best investors are loading up on gold and gold stocks. Hedge fund manager John Paulson has led the headlines, but the ranks of newly minted “gold bugs” now includes top-performing investment managers Steve Leuthold, David Tice, and many others.

They see what’s coming and I hope you do to. Now, you just have to maximize the opportunity.

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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