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Junior Gold Miners: Ready To Take Off?

April 10, 2012 | Comments: 0 | Views: 99

Gold has shown some weakness lately. After reaching nearly $1,800 an ounce in February, on news the economy was recovering and that Europe had found a way to manage its fiscal problems, the price of gold dropped down to almost $1600 per ounce.

This could be a perfect entry point for those who wished they'd gotten in before gold broke $1700. I believe gold is about to rise again.

We could be on the verge of a brand new rally in the yellow metal, that'll take the price to all new highs. And it's all thanks to the disappointing jobs report last week.

In case you didn't see the news, March jobs came in substantially less than expected. In a nutshell, employers added 120,000 jobs in March. Estimates called for 205,000.

The degree of the shortfall took most economists by surprise. Pundits are now saying it could mean the economy isn't growing as strongly as expected. Others say the economy is just digesting the growth it's seen in the past three quarters, and growth should continue once this little blip has passed.

Whatever side of the argument you're on doesn't matter: the price of gold is bound to rise. Here's why...

We won't know if it the current report is the start of another down-trend or if it really is just a blip for at least another month, maybe two.

In the interim, risk averse investors and those looking to hedge against inflation and a downturn are likely to allocate at least a portion of their portfolio's into gold as a safe-haven investment.

But the price gold itself has been pretty volatile lately, not to mention expensive. On the other hand, gold companies have significantly underperformed the physical commodity.

While larger blue chip companies have had some increase in the price of their stock, smaller junior companies have for the most part been ignored, with no appreciable increase in stock price.

Logic dictates that if the price of gold rises, and if the price of a company that has gold or gold properties hasn't increased in line with others in the industry, then it is undervalued. Not only should such a company get a nice bump with the expected rise in gold, they also have a lot of ground to make up from their recent decoupling with the commodity.

Junior gold miners in my opinion have the most to gain from an increase in the price of gold for several reasons:

1. They haven't appreciated as much as major, blue chip producers 2. They aren't covered by analysts and so are virtually unknown 3. Their usually low stock price allows for percentage gains unheard of in large cap stocks 4. If a junior explorer "finds" an economic discovery, a bidding war usually ensues leading to the possibility of exponential returns

American Mining Tribune intends to focus on these types of situations at http://www.americanminingtribune.com

Sy Lewis has been specializing in small mining companies since 1992 and believes that fiat currency will soon have to reconcile with commodities. Working out of Beverly Hills he frequently writes his opinions in an electronic paper called AmericanMiningTribune.

Source: EzineArticles
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