Although I do think gold has bottomed out at $850 you always have to prepare yourself mentally for a worst case scenario, a scenario in which gold's $850 support level doesn't hold. Then what? Well, in that case we will see gold ending up in the low 800's at or just below its own 200 dma. The thing is it doesn't really matter, the thing that matters is that the downside risk here has dropped below 10%!
These are the times to buy into the juniors (from a technical perspective), bottom is most likely in!
Keys:
· Gold correction most probably over (bottomed out at $850)
· Junior sector just recovering from deepest over-sold condition since late 2002
· CDNX has started outperforming gold over the last few weeks
· Previous bottoms in CDNX/GOLD ratio were being characterized by sharp up-moves that lasted for many months
· CDNX/GOLD ratio charts leave plenty of room for a giant up-move that could last for more than a year
· Sentiment in junior sector has hit an all time low. This is a dream scenario from a contrarian perspective.
Next week we will discuss the fundamentals supporting the juniors, no matter how you slice it, they are the owners of future gold supply. The senior producers are hungry for new resources. Since they can't get it (not enough) by means of exploration they simply have to open up their check-books and buy the ounces...
So if you are a believer in gold's future then these are the times to increase your gold share positions since the gold shares are still selling at fire sale prices. In other words, downside risk is low. Higher gold prices the years ahead will lift the entire gold share sector but the most exciting rewards will come from junior mining companies making new discoveries.
