by Kenneth J. Gerbino
24 April, 2008
Currently there is plenty of money on the sidelines from gold share sellers that have been liquidating since November. There has been a 3-5 month topping formation in all the major gold shares (We will talk about the juniors later). Many of these sellers will most likely be back in the market for five reasons:
1. They did very well getting out at higher prices and are now somewhat familiar and comfortable with the valuations and the companies and after a 20-30% correction that is obviously overdone, they will be anxious to get back in
2. Worldwide food riots, and the globally reported inflation numbers from just about every country is a leading indicator of higher consumer prices and hence higher gold prices. This is easy for anyone to understand.
3. The financial situation with the banking system is without a doubt enough to convince even a small portion of these non gold bug portfolio managers that a small allocation to the gold miners is probably a good idea. Since they control tens of trillions of dollars, even a small portion in mining shares will eventually create a substantial market.
4. There are also thousands if not tens of thousands of money managers and hedge fund managers that totally missed the first leg up of the gold market and the gold shares and have been patiently waiting for a correction to finally get in. These people are now aware of how bad the possible financial repercussions of the leverage and derivative craze could become and will certainly want some exposure to the metals and the shares. This correction will allow them an entry point.
5. In March the PPI and CPI in the U.S. both annualized over 11%. This is a stat that money managers and global investors will not ignore. Inflation is heating up and the Fed is still lowering interest rates. Even establishment Fed lovers know that this means they should hedge a bit with some gold.
With the recent sell off in the gold shares this week plenty of short sellers, weak holders and investors that bought at the top are selling and creating a real wicked sell off. I would think that Friday the 25th or Monday the 28th will be the end of this sell off and a substantial rally could develop. The market is very oversold. If the sell off continues then it just means an even better entry point is coming up and probably very soon.
The Junior shares have been in the doldrums for two years and here are the reasons:
Unfortunately all these factors have really hurt the junior sector so if you are not an expert you should be careful. Thinking of holding on to a loser means you will most likely have your capital die a slow death.
Unless you own a junior mining company that is loaded to the gills with gold and silver reserves and resources you are in trouble. The ore body better be an economic ore body that actually without a doubt (almost) can become a profitable mine. The stock should be so undervalued that even the insiders are buying.
Most hard money investors would be well served to use these rules:
In the coming years one of the best sectors for investors will be the mining industry for reasons you already know about. Progress in China and India, paper money, derivatives, insane governments, debt, etc. all point towards much higher metal prices for perhaps a decade. Don’t shortchange yourself. Stay with the companies that have the real goods in the ground.
Kenneth J. Gerbino
Kenneth J. Gerbino
9595 Wilshire Boulevard
Beverly Hills, CA 90212
Phone: (310) 550-6304
Fax: (310) 550-0814
Kenneth J. Gerbino & Company
9595 Wilshire Boulevard, Suite 303
Beverly Hills, California 90212
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