Who shot J.R. or, should I say, Jr. – the junior gold mining sector? Who did it? This article will provide evidence of the suspects and leave you to decide. The good news is that on Dallas, J.R. didn’t actually die from the attack and neither will the Jr. gold mining sector. In fact, a miraculous “Jesus-like” resurrection for gold and its shares is long overdue and may already be in its early stages.
So wrote Craig Brockie (www.thetafund.com) in edited excerpts from his original article* as posted on SeekingAlpha.com entitled Who Shot J.R.? The Junior Gold Mining Murder Mystery.
[This post is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Intelligence Report newsletter (see sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Brockie goes on to say in further edited excerpts:
First off, let’s agree that the junior mining sector has been shot. In fact, it’s riddled with holes and hemorrhaging profusely. From its December 2010 peak to its low last week, this sector has fallen 80%! Even since its high of just nine months ago, the sector has bled 65% and, just this year to date, junior gold miners are down 40%.
Market Vectors Junior Gold Miners ETF (GDXJ) December 2010 to present (click to enlarge)
The above being said,…gold miners have proven themselves extremely resilient in the past. In the last outright collapse in 2008, the fund GDXJ did not yet exist, however it’s big brother, senior gold mining fund GDX did, so let’s use it as an example. From its October 2008 bottom, GDX rallied 334% over the ensuing 13 months.
If the above sounds outlandish and an isolated case, it’s not. The article, “What Happens When You Buy Assets Down 80%?” shows that the average recovery is 172% in a sector that has dropped 80%. I don’t know about you, but I’m certainly up for participating in a rally of 172% regardless of the short-term pain required to accumulate the position into falling prices. After the outright slaughter that junior gold miners have suffered, I would not be surprised if the recovery is greater than just average.
Market Vectors Gold Miners ETF October 2008 – December 2009 (click to enlarge)
Now, getting back to the topic of this article. Who shot Jr?
- The killing appeared to be kicked off by an extremely overbought gold peak back in September 2011….
- If the 2011 oversold high started the bleeding, who has been responsible for the more recent bullet holes? Gold and its miners were attacked earlier this year when it was reported in February that investment mogul George Soros cut his holding in GLD in half in the fourth quarter of 2012. (It’s important to note that Soros has since turned bullish on gold and has even bought call options on the junior mining fund, GDXJ.)
- The next round of media ammunition in gold’s demise came from our “friends” at Goldman Sachs. In mid April, Goldman recommended that their clients sell gold short. It’s also important to remember that Goldman was caught up in the crude oil bubble of 2008, suggesting that oil could hit $200 per barrel. Of course, just a few months later, oil dropped well below $40 per barrel.
- Just when things looked like they couldn’t get worse, “Helicopter” Ben Bernanke cast terror on the gold market in the past two weeks as he hinted that the privately owned Federal Reserve may begin tapering its unprecedented inflationary efforts.
We’ve identified a few smoking guns now, but really, who did it? Who killed Jr? Well, according to a report published at zerohedge.com, JP Morgan Accounts for 99.3% of the Comex Gold Sales in the Past Three Months. The article displays Comex delivery notices as proof and identifies that:
“J.P. Morgan has fumbled ownership of 1,966,000 Troy ounces of gold since February 1. That’s 74% more gold than the US mint delivered through the US mint’s American Eagle program in all of 2012.”
Why would JP Morgan be selling so much gold now when they could have gotten $1,900 an ounce back in 2011? You can call me a conspiracy theorist if you like, but this activity appears to be blatant market manipulation that is intended to benefit a small group of “friends,” and not you and me.
The damage has already been done. Junior mining companies have already dropped 80%. Rather than wallow in the injustice of the apparent gold market manipulation, I believe it is better to apply the wisdom, “if you can’t beat them, join them.”
- JP Morgan’s friends appear to be loading up on cheap gold, George Soros has been buying junior gold mining call options,
- commercial traders have taken all-time bullish positions, and
- corporate executives have being buying shares in their own gold mining companies at record levels.
What more does an investor need to get or stay involved? Courage.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://seekingalpha.com/article/1531502-who-shot-j-r-the-junior-gold-mining-murder-mystery (© 2013 Seeking Alpha)
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