Gold & Silver Miners: What’s the Best Time to Invest in the Producers – and in the Juniors? (+3K Views)

While juniors, mid-tiers and large producers will usually bottom around the same time, they each outperform at different times. In this missive we look at some charts to decipher when its time to buy [each category and when one or the other] should be avoided. Words: 470

So writes Jordan Roy-Byrne (www.thedailygold.com) in edited excerpts from his original article*.

Roy-Byrne goes on to say, in part:

In the first chart we plot the HUI and the CDNX (S&P/TSX Venture Exchange) against the HUI. The CDNX is a proxy for juniors. It is comprised mostly of Gold-related companies but also some energy and technology companies. We mark the start and the end of each cyclical bull market in the HUI. We highlight junior outperformance in yellow

Juniors did not begin to outperform until quite late in the initial cyclical bull, i.e. the middle of 2003, and actually lasted into the first cyclical bear. In the previous two cyclical bulls, juniors did not strongly outperform until about a year after the bottom in the HUI.

In the second chart we plot Gold above the CDNX/HUI ratio. It’s important to note that the periods of extended junior outperformance coincided with major breakouts in the price of Gold….Most recently, the CDNX began to outperform when Gold eclipsed $1000. The juniors would strongly outperform once Gold reached $1200.

While juniors, mid-tiers and large producers will usually bottom around the same time, they each outperform at different times.

• The initial advance in the Gold price benefits producers first and foremost because the bottom line is impacted immediately.
• Since junior explorers and other non-producers do not generate cash flow and earnings they are essentially speculative companies. This group outperforms when speculation increases. Is it a surprise that speculation increases after Gold makes a major breakout?

Take a look at the 12-year charts of the CDNX and HUI. One is in a bull market and has at times provided leverage to Gold while one shows no trend except extreme volatility.

Growth vs. Speculation

If you want leverage to the bull market consider growth-oriented producers…. If you want to speculate then wait until the appropriate time (as we’ve demonstrated here) and price and look at the small explorers and developers….

Conclusion

The results of this quick study, although not exactly surprising, should be instructive for speculators and investors in gold stocks.

1. Juniors will exhibit strong relative performance about nine to 12 months into a new cyclical bull market.
2. A major breakout in Gold will offer strong confirmation of a new period of junior outperformance.

Applying the above to the present and it would indicate that juniors won’t begin to outperform until Gold breaks $1900. Remember, we are speaking about strong outperformance and not specific bottoms.

If Gold and gold stocks bottomed in May then history tells us juniors won’t regain outperformance until 2013.

*http://thedailygold.com/producers-for-growth-juniors-for-speculation/  (To access the above article please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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