Hi Cedartree!

I remember how much I celebrated the day that gold broke above $400 a couple of years ago.  I figured we were on our way and that was the last confirmation to me that this would be a new bull market to take gold to new all time highs.  If you had asked me then what I would expect the juniors to be doing when gold broke $800, or on a day when the metal had gained nearly $30, I would probably have imagined double-digit percentage gains across the board.  I would have envisioned the newspapers and business programs would be full of stories about emerging gold and silver producers.  I would have thought the big discovery plays would be the toast of the market.  Well there is usually a disconnect between how things 'should be' and how things are. 

I hang the blame for the poor performance on a couple of factors.  First off, I do not think very many people believe the rise in the metals is real or sustainable.  The media is carrying an overly bearish message, where the stories that warn investors to stay away from mining stocks far outnumber the bullish items.  People have been conned into the notion that gold is behaving on the activity of speculators, and that it is a risky asset.  It is a volatile sector at the best of times, and  many people just cannot stomach the ups and downs that go with it, and there are still raw memories of  the last time gold traded above $800 and how that ended.  So the sentiment is anything but bullish despite the bullish performance of the metals.

Secondly, I believe there is a deliberate and coordinated effort to cap gold and discourage ownership of gold stocks.  I believe this is sponsored from the highest levels of government and implemented by trading houses and bullion banks, with the specific objective to keep gold from breaking out and telegraphing to the market that things are not okay.  How often have we read that inflation is tame, and that gold is a barbaric relic?  Both of those notions are inaccurate, and sometime the market will wake up to that.

So it does not surprise me that the junior miners are so stagnant.  The market is a mess right now with all the nonsense going on behind the scenes.  People are not being given honest information to base their decisions on.  There is outright manipulation active to suppress gold trading and discourage participants in the sector.  The level of excitement has been contained.

The most important thing to understand about gold and PM sector stocks, is that it is driven by emotion.  I have disdain for investors that are irrational and make stupid decisions, but overall it is that which carries the sector.  Fear and greed are drivers in the PM juniors more than any other sector.  And right now it is fear that is winning.  People do not care that the metals are breaking out.  They are more concerned about potential tops, and market meltdowns, bank failures, etc.  So they sell the rallies, and panic-sell the corrections.

I do think sanity will return.  Gold is like a kayak, and it can flip for a short time but it will regain its normal attitude.  People who are bearish today can become ravingly bullish in a short time frame.  Fear that drives people away from the sector can become fear that encouraged people to urgently buy gold.

There is no factor that can push gold lower on an intermediate or long term basis, except a return to stability in the overall world economy.  That is not going to happen.  Things are probably going to become more acute.  Inflation is already running well above what any government will honestly acknowledge, and monetary debasement is a cornerstone of financial management for most countries.  Gold is not going anywhere but up.  Eventually the disconnect between the metals and the juniors will end, and the juniors will enjoy a rapid catch-up phase.  People will literally stampede back into the sector.

Manipulation schemes can have a temporary effect only.  Gold has been actively manipulated for several years, yet it has risen to new multi-decade highs despite the illegal efforts of corrupt institutions.  I am a buyer of the juniors and I know that a certain degree of frustration will go with that strategy, and it cannot be predicted when the breakout will happen, but I know it WILL happen and that is enough.

cheers!

mike