The Bigger the Base, the Bigger the Bull
In last month’s article, I asserted that junior miners were ready for imminent and explosive lift off. While the publication was ill-timed, directly preceding a precipitous decline across all sectors, I still maintain the thesis with even firmer resolve.
Nothing quite tells the story better than the below chart, put together by Cejay Kim, Chief Business Officer at Goldspot Discoveries. Cejay first put this chart together in 2015 and the decline at the time already painted a dismal picture – a 70% decline over a five-year period. Fast forward five years…
…and the TSX Venture has been mired in a decade-long bear market defining an 82% decline!
Roughly 55% of the Venture exchange is made up of resource related equities; it is those very stocks responsible for the exchange’s dismal performance. This means that the resource side of the Venture has in actuality been decimated, down roughly 90%.
This state of affairs cannot and will not persist. In fact, I have reasons to believe a move up in the juniors is already underway.
With the Fed’s newest round of monetary policy, gold and major mining stocks are beginning to spark the interest of investors. As the price of gold and gold stocks continue to increase, the discrepancy in valuation between the larger companies and the smaller juniors will become more apparent.
Inherently, the risk of investing in smaller companies at depressed prices lessens as sentiment towards gold lifts, and the companies producing gold appreciate. This will create a scenario whereby value seekers will deploy capital into the smaller names.
Unquestionably, this will first show up in the higher quality companies, with ounces in the ground. But like clockwork, it will spark an all-out junior bull market mania.
The past few years have witnessed a reduction in meaningful discoveries, which can be directly attributed to the lack of exploration dollars in the sector. In order to accelerate discovery and reserve replacement, money will intelligently, and then indiscriminately rush into junior miners.
Due to the prolonged bear market preceding this mania, expect a bull market that will last well into the middle to latter part of the decade. The bigger the base, the bigger the bull.
Until next week,
Founder & Executive Chairman
Palisades Goldcorp Ltd.