Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Stocks: Stick with Juniors and Avoid Large Caps

Commodities / Gold and Silver 2011 Jan 18, 2011 - 04:50 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleIn covering the gold sector for my premium subscribers, I have noticed something lately. The large-caps really suck! Ok, that is harsh but it is the truth.

In the chart below I show large-cap indices. What do you see?


The Dow Jones Precious Metals Index hasn’t gone anywhere for five years, while Gold has more than doubled. The next two (the XAU and GDX) are trading right at their 2008 peaks. Since then, I quickly calculate that Gold and Silver are higher by about 33%.

We all know that GDXJ outperformed GDX in 2010. It wasn’t close and even during this correction GDXJ is holding up better.

Yet, GDXJ is weighted heavily in some companies that are above $1 Billion in market cap. Where is the “junior” in that? I created my own index of 25 gold stocks, which are equally weighted and range mostly from $200-$700 million in market cap.

My junior index against the HUI (GDX follows the HUI) is moving higher after an 8-year breakout. This chart tells us that the juniors should outperform strongly in 2011 and likely 2012.

We’ve written about this before but it bears hearing again.

Too often we hear about how gold stocks are cheap and how they are priced for $1000 Gold or $800 Gold. Just because the HUI/Gold or XAU/Gold ratio is low doesn’t mean the sector is at a bottom. The reality is that large gold stocks have consistently underperformed Gold over time. TakealookatthispiecefromSteveSavilleandhischartwhichgoesbackto 1960.

Steve attributes the poor performance to rising costs, management errors, environmental and political factors but most importantly, depletion. Just to stay in business gold companies have to consistently find new deposits, mine those deposits and add to reserves. The larger a company is, the more difficult it is to do these things. A junior company can grow by building a few small mines. A large-cap needs to find huge deposits that can become huge mines. It is simply a more difficult business for the larger sized companies.

It is critical that investors and speculators take note of all these factors before partaking in the sector. I fear that the new entrants in the sector will think they are safe by buying Newmont or Barrick. They may be less volatile, but history argues you are better off holding Gold or Silver.

Sure the juniors have already had a fantastic run, but our chart argues that it may be even better in the next few years. As the bull market rages on, the herd will naturally become more speculative. The large players have begun to resort to takeovers and acquisitions. This will continue and further catalyze the junior sector.

Ifyouwanttobeinvolvedinthebullmarketthenyouhavetohaveapresenceinthejuniormarket. Our service offers professional guidance and focus on uncovering the best opportunities in the juniors. We are soon starting a separate portfolio just for trading the GDXJ ETF. Weinviteyoutoconsiderafree 14-daytrial.

Jordan Roy-Byrne, CMT
Jordan@thedailygold.com
http://www.thedailygold.com/newsletter

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules