a long comment from zero hedge in favor of junior miners
We are truly at an unprecedented fork in the road.
Mathematically the fiat system MUST be rearranged through a revaluation. Gold and Silver, even though they have pulled back from their highs are at levels that very few would have believed even 5 years ago while the shares themselves ARE at levels where they were 5 years ago. I have spent my entire career being a "value investor" which is what led to Gold in the first place, it is also why I believe the shares are right now the best possible investment class on the planet. If you agree that mathematically Gold and Silver must trade at ever higher levels to current currencies then you should go that one step further.
This "one step further" is to look at the valuation levels of the supply chain of the product. In many cases the shares are trading at or even below the "giveaway" prices of late 2008 (in both relative AND absolute terms). This is of course in part because of the naked shorting that has been done but it really doesn't matter "why", it only matters that this is where we are. The shares have historically shown 3 to 1 leverage to the price of their product, not so since 2008. But wait, the producer's earnings HAVE shown very significant leverage to metals prices and have in fact nearly quintupled since 2007. Yes, there are more risks in owning the shares such as mine collapses, regulatory, nationalization issues etc. but this is why you diversify by geography and type of mine.
We are now being offered for the 3rd time in 10 years what investors in industrial stocks get maybe twice in their lifetimes! The shares are at GIVEAWAY levels! You can actually go out and purchase junior mining companies that are not in production yet for less than $10 per proven ounce of Gold in the ground! Yes, physical Silver is cheap...but not even close to this cheap. You are being offered as many shares as you can fit in your "truck" as you can buy for maybe a 90-95% discount to their real values! Yes you can argue "what is truly real value?" but just like pornography, maybe you can't define it 100% but you know it when you see it. The mining sector as a whole is GROSSLY undervalued.
When, not if Gold goes to higher levels in current fiat terms, do you believe that proven Gold in the ground will still sell for less than $10 per ounce? At $2,500 Gold, do you think maybe proven in ground Gold might be valued at $250 per ounce? Will this take a couple of years? Will these companies be sitting on their hands during this time or will they be exploring and "proving up more ounces" on their properties? When you look at it like this, these are dumb questions!
Please keep in mind that the big producers MUST continually add to their reserves as they are being depleted every year, day and minute that they are in production. THIS is what tells me that the current ridiculous pricing will not stand. Proven Gold in the ground IS the CHEAPEST way for the producers to ensure access to future production...period. They cannot go out into the field (even if the long lead time did not matter) and discover Gold and Silver for anything even resembling what the market values some of these very real juniors at. My guess is that the big boys (again, forget about the long time factor) would spend 5 times the outlay of the average junior price to locate and verify precious metal. THIS is what makes the junior sector so attractive, they have (and are) done the leg work and proven up metal which is being valued at pennies on the Dollar!
AI
