Why You Can Bet on Junior Miners

Some trades are more difficult to execute than others. In my opinion, one of the toughest trades to make  are the stocks that have already made big runs, but are showing signs that they’re ready to continue even higher. Fear can easily get the best of you, persuading you to ask a question that crosses many investors’ minds:

“What if I’m too late?”

I have a feeling this question has been uttered by many traders lately as they look at precious metals. Gold prices have risen almost $120 to $1,500 an ounce in the past 60 days. Silver is even hotter, shooting from $32 an ounce to $44 an ounce over the same period.

In a red-hot market like this, it’s easy to get caught up in the hype, or to second-guess a major move. Instead of letting fear rule your trading decisions, you should take a step back from the financial headlines and calmly assess your options in this incredible metals bull market. In my view, one of the best sectors to trade is the junior miners.

Emotions aside, I continue to believe there is room for precious metals to run even higher in the short-term, giving traders ample opportunity to go long junior miners. These are the smallest, most speculative mining stocks on the market. As gold and silver prices continue to outperform, shares of these microcaps can magnify the metals’ rise.

I’m seeing some favorable setups in the junior miner sector this week. And even if you didn’t perfectly time the gold and silver dip earlier this week, you should have ample opportunities to trade small mining stocks in the coming months.

Here are a couple of key reasons why you should not fear gold’s recent rise:

First, forget all the “bubble” talk. The wounds inflicted by the 2008 market crash remain apparent in every media report related to the booming commodities market. The word “bubble” has lost almost all meaning since 2008, with every bull move now likened to one form of a bubble or another. No credible evidence suggests that the precious metals market is in the midst of a mania. It’s a bull market, plain and simple. For now, the trend is our friend.

Next, you have to consider how Uncle Sam is aiding gold’s rise. Record deficits, quantitative easing, and the recent S&P downgrade warning all add fuel to the precious metals fire. Gold is and will be an attractive store of value as inflation and the government’s inability to reverse a growing deficit remain widespread concerns.

Of course, a healthy bull market never progresses upward in a straight line. We can expect volatility in gold and silver, which will translate to our junior miner trade targets. The extreme price swings should provide traders with plenty of buying of opportunities to buy shares and take profits…

Sincerely,
Greg Guenthner
Penny Sleuth

April 20, 2011

Why You Can Bet on Junior Miners was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

This story was originally featured on Penny Sleuth.

Read more at Penny Sleuth