First Come the Majors, then the Mid-Tiers, then the Juniors
Understanding how mining cycles work is a pre-requisite in junior resource investing.
Whether you talk to Rick Rule, (who we just interviewed on Palisade Radio on this very topic), or Frank Giustra, or Jordan Roy Byrne, they will all explain the same phenomenon.
As gold prices start to move up, major mining companies see an almost immediate lift in share price. This is intuitive, as their profits increase from realizing higher prices on the sale of their gold.
Over time, this money begins to trickle down to mid-tier producers, as investors seek out better returns in lesser known names.
Finally, money makes its way down to the most speculative names – the juniors.
Juniors rarely produce anything; instead, constantly diluting to raise capital for exploration. Their goal is to develop or explore for the deposits of tomorrow. This is a necessary component of the mining market and without juniors, new discoveries and reserve replacement would be left to the majors. So how is this cycle playing out today?
It is no surprise to readers that Newmont (NYSE:NEM) and Barrick (NYSE:GOLD) are breaking out to new highs. As such, the Van Eck Gold Miners ETF (NYSE:GDX) has blown through both its 2016 highs, and moved meaningfully above pre COVID-19 highs.
Mid-tiers, as represented by the Van Eck Junior Gold ETF (NYSE:GDXJ) have fared well, but are still about 5% from their 2016 highs and 10% from reaching pre COVID-19 prices. This is a key level that could be taken out any day.
For investors paying attention to juniors, they have been on a tear the past two weeks. Still, they remain way off from their 2016 highs and have yet to regain losses from the recent sell off.
Keep your eye on these charts over the coming weeks. Once the mid-tiers take out old highs, next up will be the juniors. And there is a long way to go and lots of gains to be made in short order!
Palisades Goldcorp is invested exclusively in the junior resource sector, a segment of the market that historically provides investors with spectacular gains. We are on the cusp of a major junior breakout. When it comes, watch out.
Until next week,
Founder & Executive Chairman
Palisades Goldcorp Ltd.