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Junior Gold Stocks and the Global Financial Crisis

Written By Brian Hicks

Posted August 5, 2010

Summer market doldrums are leaving investors of junior mining stocks with a tough road to hoe.

General pricing and trading volumes are down, and there’s little interest in the junior exploration market — except for special news regarding new discoveries.

But this won’t last long…

I expect the junior mining stock market to rebound stronger than ever. And I expect to see another monster bull market for gold and silver exploration shares.

But before the party starts, we might experience a little pain.

And for the next few weeks at least, it might be best to shy away from the whole market and go enjoy the rest of your summer while we wait for signals of a rebound for junior mining stocks.

Robust physical buying supports gold and silver markets

Precious metals remain strong in the big picture with a long-term trend of rising prices.

Right now, gold is just under $1,200 while silver is at $18.30 an ounce.


If you notice, market dips are not lasting as long as they have in past years. This is due to a robust physical gold and silver buying market, thanks to the recent bout of safe-haven investing.

Many large buyers of physical metals have marching orders to buy on any technical dips. (This is why we continue to see gold prices spike back shortly after a dip.)

Richard Russell, editor of the Dow Theory Letter, had a great comment last week:

Gold bullion continues to lead the gold mining shares, although I wish it was the other way around. Somewhere ahead, gold is going to go parabolic.

Safe-haven physical gold buyers will soon be jumping back into the junior exploration market — the investment gains are just too fantastic not to have at least some exposure to the so called “legendary gains” of the junior mining stock market.

And when these investors start to come around again, it will be a rip-roaring ride for the precious metals juniors.

However, I still have concerns over the possibility of a second meltdown of global markets in the near term…

Get ready for a SECOND global financial crash

The riverboat gamblers in charge of finance and politics haven’t fixed a thing.

The TARP and economic stimulus monies have not reached the people as was promised.

This is because the banks haven’t spread the money around enough. And of course, they’re doing this intentionally. They know they are going to need the money themselves later on down the road when markets could face further problems.

The banks took money for 0% interest from the American taxpayer and get to lend it back to the government for a nice 3% or 4% by buying T-Bills. What a scam!

This is taking theft to a whole new level. And yet, Americans in general seem not to be bothered by or are oblivious to the whole arrangement.

The consequences for the country will be awful as the inevitable must take place to purge the system of all this filth.

Never has there been a time in economic history in which everything seems to be crumbling at the same time.

What is happening in Europe is a precursor of things to come on a worldwide basis.

The essence of these problems boils down to three things:

  1. The collapse of European welfare states and the death of the European Union, just as we witnessed the end of the USSR twenty years ago. As many have pointed out in the past, the problem with socialism is that eventually you run out of other people’s money. In Europe, all the debtor nations are trying to suck off the only strong country (Germany) who will soon opt to leave the EU. That means the euro is toast — even though we will probably see many market fluctuations before the ultimate collapse comes.

  2. The collapse of the financial system due to dependency on fiat currencies. Governments worldwide switched to a fiat currency system decades ago because they simply couldn’t pay for all their spending without the ability to create money out of thin air. Unsuspecting voters, not understanding this process, always pay the price eventually. Governments across the globe have abused their systems of credit by issuing more and more paper, debasing their own citizens. Gold will continue to move up against all currencies accordingly.

  3. The need for the worldwide system to purge itself of all the bad investment such as derivatives, asset bubbles in stocks, real estate bubbles, etc.

In his Early Warning Report, Richard Maybury recently explained the root of these problems as a belief in statism, which is basically the belief that the answer to any problem was more government:

All government states are now in the hands of dedicated statists. Most are welfare states that are going broke. Economies are horribly disorganized, riddled with mal-investment caused by counterfeiting fiat currencies to finance all the giveaways. As far as I can see a hyperinflationary depression is baked in the cake. The plunge of the Euro is the markets awakening to this.

The volatility in all markets moving forward is going to be insane.

We are going to experience the roller coaster ride of a lifetime — or at least until we get to the part where we finally learn some of the track on this ride is missing.

Right now, I recommend for all investors to cash up 25%-50% of their holdings in anticipation of severe worldwide financial chaos this fall.

Personally, I am keeping roughly two-thirds of my positions and raising cash with the other third.

Everything is on hold right now until we see what happens this fall…

But if things work out the way I think they will, we should be able to put our cash to good use.

I believe the precious metal junior mining stock market will be quick to recover this time around as meltdown number two becomes a reality, and the safe-haven rampage continues into gold, silver, and mining shares.

Good Investing,

Greg McCoach
Editor, Wealth Daily
Investment Director, Mining Speculator and Insider Alert