GDXJ Rebalancing Presents Big Opportunities For Junior Miners

From The Gold Report: The GDXJ rebalancing is shaking out speculators and opening the sector up to new blood, opines Tom Beck, founder of Portfolio Wealth Global.

Amex Gold Bugs Index and bear market cycles since 1995

Focus on the 2004 to late 2005 period. Much like today, after a strong move out of a historic bottom, two full years (2004-2006) were mostly dominated by fierce sell-offs, and many investors lost confidence.

The key to remember about those who buy out of the fear of missing out is that they don’t spend time researching the fundamentals of their holdings. If they did, then price action wouldn’t disgust them and emotionally cripple them as much as it does.

This is how immature most market participants are. The table below shows the average holding period for a NYSE stock.

Average holding period for NYSE stock

This means that if you can own equities for longer than 211 days, you have a competitive advantage.

With small-cap stocks, it’s a whole different approach. The main prerequisite is to engrain in your mind this truism from Jim Rogers: It is utterly useless and impossible to time the market perfectly. Instead, be patient, and when you see an anomaly in pricing, grab on to it, even if it takes months to return to normal, because that’s where fortunes have been made time and time again.

In contrast with NYSE companies, the strategy with mining stocks is to buy at extreme value moments and sell when the market becomes saturated with latecomers.

XAU/Gold ratio

This is how early we are.

Latecomers are three to five years into the future and probably won’t have the guts to own gold stocks until every CNBC talking head says it’s the best time to diversify that they have ever seen. The price will probably be over $2,000 per ounce by then.

I’ve been running comparisons for days between the GDXJ components that have been liquidated and have found some specific companies that were so loved by the fund managers that they attempted to avoid selling them until the last minute.

The gold price action is, in effect, repeating the 74-76 cool-off, where most holders were tested for conviction before the eventual surge took some gold juniors into the stratosphere.

GDXJ/GDX ratio vs. gold price

When the gold price goes sideways or moderately up, investors want to own the safe companies, but as gold prices rise substantially, they turn to the juniors, like in 2016.

Your role is to get ahead of this trend and sit tight while market conditions turn.

The company that has compelling upside potential right now is U.S. Gold Corp. (USAU:NASDAQ).

The Keystone project is a very underexplored, Tertiary (34.1+/-0.7 Ma), complex intrusive-centered, domed, permissive carbonates, lower-plate window in the heart of Nevada gold country.

Modern-day, systematic, model-driven exploration has never been conducted on the property.

The area possesses strong, widespread gold and pathfinder geochemistry, especially arsenic and zinc, in the soil and rock samples indicate a very large potential epithermal gold system is present. Historical drilling in the area has produced high grade and thick intercepts of gold.

Research this company now.

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