Extreme Junior Explorer to GDX Ratio

I’ve been banging the table for the last 6 months about remaining optimistic during bear markets, and becoming incrementally more excited about a particular investment class as the markets appear bleaker. Since the beginning of September, mid-tier and major gold mining companies have rocketed higher. At this time, they are no longer at “catastrophic” level pricing as they were just 30+ days ago.

However, the junior resource exploration market still offers an entry at disaster level pricing. The ratio of GDX (Market Vectors Gold Miners ETF – NASDAQ:GDX) to many junior exploration plays is varying between 500-800 to 1, while in the previous 3 years, the average was about 100-200 to 1. In my opinion, this moment may be a twilight, the slow and precise tipping-point moment in which the explorers edge up ever so slightly—right before a historic boom. What I mean by boom, is many of these companies moving up in price by 200%-400% in a matter of days, weeks and months. We saw this type of action occur following the 2008-2009 crash, and we may very well see it again.

Here is a ratio chart of one of my favorite junior explorers. A snap-back reversion to the mean prior to this summer, equates to 150%+ move.

A typical example of a junior explorer to GDX price ratio.

Many analysts comment that money needs to first move into the upper echelons of the mining sector, before trickling down to the explorers. This is a given. However, the timing of this process cannot be fully predicted, and when it occurs, it happens in a flash. By concluding that you will “wait” for the money to come back in first…is almost like saying, I’ll buy a life preserver when the ship starts sinking.

We are still in a market environment in which risk is abhorred…and for retail investors, this is the perfect time to take positions in low-volume juniors, without driving share prices up. Our advantage in this market(being non-institutional investors), is our size. As mice, we can move in with agility, and calmly wait for the ground vibrations of “risk-on” elephants…who will always return to the feed.

By Tekoa Da Silva

Tekoa Da Silva is a resource writer, speaker, and financial journalist. He has worked with top resource investors and company leaders worldwide. His work can be found at Bull Market Thinking.

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