An Introduction
If you are a believer in much higher gold prices like so many analysts are (see here) then this article should be of considerable interest. Why? Because the price of gold has a huge impact on the profitability of a gold miner and the stock price of such a company. Indeed, the setup for a major rally – dare I say, a parabolic move – in gold miner stocks is right in front of us so it’s time to start searching for undervalued stocks with large reserves in the ground – and this article does just that.
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What Is A Parabolic Move?
A stock goes parabolic when panic buying sets in and prices are driven vertical with an almost complete absence of sellers and this creates a vacuum of buying with traders rushing into a certain stock regardless of price, in fear of being left behind. While parabolic stocks are attractive to buy because they offer the possibility of making a lot of money in a relatively short period of time, it is dangerous to overstay your welcome as it often marks the end of a move with prices not returning to the ultimate highs again for a long time (see the example below). The key in trading such a strong trend is capturing as much of the move up as possible early in the move on the original breakout in price action from a previous range. The price action pattern that creates the parabolic curve looks like a staircase and it can last for weeks and sometimes months.
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Examples of Previous Parabolic Surges
Junior Miners Returns in 1979-1980
Gold increased by 276% from the beginning of 1979 to a peak of $850/ozt. on January 21st, 1980, and gold stocks, in general, went up dramatically at that time (see below) with many of them becoming 10-baggers (1,000% gains and more).
As Jeff Clark has said, “If you had bought a reasonably diversified portfolio of top-performing gold mining juniors prior to 1979, your initial investment could have grown 23 times in just two years as illustrated above. If you had managed to grab 80% of that move, your gains would still have been over 1,850%. A return of that magnitude would have meant that a $10,000 portfolio in gold juniors would have been worth $241,370 at its peak…or about $195,000 if you had exited at 80% of the top prices. To realize such an outstanding gain, however, you would have had to sell your holdings to realize your profits as a failure to do so would have seen many of your winners’ gains evaporate.”
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Junior Miner Returns In Mid-1990s Bull Market
Returns like those shown above happened again in the bull market of the mid-1990s as illustrated below:
Conclusion
We are on the verge of a tremendous boom and the only way to make the kind of money outlined above is to buy before the boom takes off – and that is now. Why do I say now? Because it would appear that gold juniors are on the verge of moving from Base 1 to Base 2 in the parabolic curve. The Sprott Junior Gold Miners ETF (SGDJ), for example, is UP 23.8% in the past 6 months despite gold, itself, only going UP 7.7%. As the U.S. dollar rolls over on inflationary debasement more and more speculators will flood back into gold futures which will catapult physical gold and silver higher and that will motivate investors to chase the precious metals’ upside momentum which will accelerate the parabolic move further and faster. With that, the gold and silver stocks will rocket higher in a massive up-leg perhaps even surpassing the massive up-legs experienced back in 1979/80 and the mid-1990s.
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