Despite the junior resource sector being near a major bottom and going through a bear market of epic proportions, I still believe that this may be one of the best times to add to quality positions. Nothing perfects one’s craft in the financial markets like a bear market. In a bear market one has to refine their skills in stock picking. The emergence of a new bull market is usually the most propitious time for outsized gains.
Investing in stocks is easy if you follow the rules that have proven to be successful over time. The number one rule is buying low and selling high. Many investors are chasing the U.S. dollar (UUP) and Large Cap Equities (SPY) to record heights liquidating all their junior miners (GDXJ). Be careful of selling low the junior miners and buying assets such as U.S. bonds (TLT) and large caps (DIA) at record high valuations.
In 2011, the herd mentality pushed silver and gold to record values selling all their stocks before a multi-year correction ensued. The opposite tactic should now be liquidating large cap equities, real estate and the U.S. dollar and building positions in junior resource stocks that are extremely high quality and compelling takeout targets. Gold (GLD) and silver (SLV) could gap higher by the end of 2014 and the top notch juniors could skyrocket.
It's not just me that sees the value in gold, but entire nations. The Swiss voters decided not to back the Franc with a 20% gold reserve with a pledge never to sell its gold again. However, it is important to be encouraged that people are beginning to be concerned about fiat currency and foreign exchange manipulation. The Swiss made a mistake back in 1999 to drop their gold backing.
Look at the Russians who bought close to 19 tons in October. The Russian Rouble is crashing along with the economy due to the Ukraine standoff and record low oil prices. Smart investors should be adding precious metals and energy to their portfolio instead of expensive US dollars. Demand in China and India is still strong for gold and silver as evidenced by record coin sales and numismatic premiums rising.
Could the Russian economic collapse spark a global rush to buy physical gold and silver by other nations and sovereign wealth funds? Eventually, a change in psychology for precious metals could affect our junior mining positions trading at pennies on the dollar to see explosive gains.