Small Gold Miners Are a Screaming Buy
08/23/2007 12:00 am EST
Eric Roseman, editor of Commodity Trend Alert, says a new rally for gold is in the making and smaller producers should get the biggest pop.
August 16th will go down in the history books as one of the worst days for commodities and stocks.
Last Thursday, all natural resource stocks worldwide suffered their worst single-day drubbing in more than a year. It doesn’t matter that earnings for these companies are growing, or that we’re in a secular bull market for commodities; everything under the sun was recklessly dumped as investors and traders alike scrambled for liquidity.
That’s especially the case with hedge funds, mostly clobbered this month by the credit crisis and enormous net sellers in this market ahead of September 30th redemptions for their funds. Make no mistake about it, this was a panic.
But as the Federal Reserve and other central banks continue to pump the financial system with emergency liquidity to stem this credit crunch, the stage is set for the next big rally in gold stocks—long in the waiting.
In hindsight, the credit crisis in the mortgage-backed securities market will be a gift for commodity investors because it has forced tough-talking Ben Bernanke to relent and cut interest rates. And lower rates can only mean one thing: Big gains for resource stocks.
Gold is very much still in a bull market, and this fresh round of monetary easing will be the catalyst for the next stage as we head to $700 and beyond.
If the Federal Reserve has a choice between saving the economy or protecting the US dollar, you can bet your last precious ounce of bullion that it will choose the economy, [especially] as we head into a US Presidential election year in 2008. The stage has now been set for a new round of bull market profits for gold stocks, particularly the junior and mid-cap mines—all slaughtered last week.
All gold and diversified mining junior and mid-cap stocks now trade at or near their 52-week lows. This is the Mother of all Gifts in the investment world. I’ve even included a new recommendation– Northgate Minerals (AMEX: NXG), just above its low and ripe for the plucking.
Northgate is a rocket; it mines throughout the Americas (gold and copper) and has been on my radar for months. Now is the time to kick into action and buy Northgate [and other smaller gold-mining stocks like] Kinross Gold(NYSE: KGC). (NXG closed under $3 Wednesday, KGC under $12—Editor.)
The smaller producers are where the BIG money lies: the majors will rally as gold flies above $700 this fall, but relative to Northgate and the others, the gains will pale in comparison.
(Editor’s Note: Smaller gold-mining stocks tend to be speculative and volatile, and are suitable only for risk-tolerant investors.)