Junior miners can be among the most speculative, most volatile stocks on earth.
They boom, bust, and repeat. Only they do this with more extreme swings than most any other market.
The Nasdaq Composite for example, home to tech and biotech stocks alike, is up by nearly 120% over the past five years, while junior miners doubled… but then gave it all back.
In the last three years, junior miners have, as a group, lost about 58%, while the S&P 500 is up 52%.
But it's looking increasingly like we're entering a brand new boom phase, with junior gold miners up as much as 45.8% this year – with a lot more in store…
Past Their Trough, These Picks Are Poised to Surge
In order to gauge the junior mining sector, most observers will track the performance of the S&P/TSX Venture Composite Index (Toronto Venture Exchange, TSXV). That's because its combined market cap is over $40 billion, and consists of 48% mining and 29% energy sector junior companies.
On the right, you can see how the Toronto Venture Index looks since the secular resource bull market began around 2000.
Anyone looking at this chart can clearly see the sector go through booms, then busts, and start all over again. As of the beginning of 2014, the TSXV looks to be in an uptrend for a brand new boom phase.
But right now a particular subsector of this index, the junior gold miners, appears especially primed to boom.
Over the last 15 years, gold is up 360%, while the S&P has gained a measly 35%. That's more than 10 times the return from stocks, just in gold alone.
Have a look at the chart at left
In fact, gold prices were actually up 573% when they peaked in September 2011. Since then we've been through a protracted correction, with gold off about 32% after likely having bottomed a bit below that level last year.
The Junior Miners Will Eclipse Their Big Brothers
And gold itself looks set to head higher. Seasonally, fall and winter are the strongest times of the year for price gains.
What's more, gold's 50-day moving average recently pushed above the 200-day moving average, completing what's known in technical analysis as a bullish golden cross.
As well, gold is trading around $1,300 which seems to be providing support. Both the 50-day and 200-day moving average prices have acted as a magnet in the gold price forming a bottom.
Gold has also completed a drawn-out head and shoulders pattern which began in July last year, another bullish signal.
The next target for gold is around the $1,380 level, which it touched but reversed from in mid-March. If it can close above that level and sustain it, the next target will be $1,425 followed by $1,475, and finally around $1,600, a level it may reach late this year or early next.
And higher gold prices will draw a lot of attention to one special group of stocks: junior gold miners.
As you can see in this chart, junior gold miners have outperformed their brethren gold miners since the beginning of 2014.
This is where the major opportunity lies.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.