Gold Juniors Soar: FOMO or for Real?

Gold Juniors Soar: FOMO or for Real?

Dear Reader,

At any given time, there are a lot of numbers on my screen.

Some are good, some are bad.

However, this week, many of the numbers that have flashed upon my screen have seen my jaw drop.

There’s been some head shaking, an awful lot ‘unbelievable’, ‘no way’, ‘how is that possible?’ — and a whole bunch of unprintable words muttered to the dog.

Out of all the sectors I expected to be doing well right now, this wasn’t it.

Gold stocks are flying.

And not just the household names either.

But the piddlers. The ones with no cash flow. No income. The sort of gold stocks that haven’t even proven they’ve got gold in the ground…

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Triple-digit gains in 10 days

I’m kind of the gold bug around here.

I’ve spent more than a decade writing about gold. And in the last two years I’ve spent hundreds of hours talking to experts about gold and gold stocks.

It was such a niche area, that when I mentioned what I did for a living to new friends, we kind of moved on from the subject. Because, no one in their right mind would own a useless rock as an investment.

Let’s just say, things are very different this year.

In the last six months I’ve seen more editorial from the mainstream on gold than I have in the past four years.

That’s unlikely to change too. As the US dollar gold price is knocking on the door of a seven-year high, they won’t be able to ignore it anymore either.

And along with a rising gold price, are gold stocks.

While rising gold stocks is something I expected back in March, it’s the past two weeks of price action that has surprised me.

There have been some unbelievable gains in gold stocks.

Not just the names you know and probably have in your self-managed super fund.

But the ones so small almost no one has heard of them.

In just 10 short trading days, some of the smallest penny stocks on the ASX have made triple-digit gains. The sort of companies that investors could blow themselves up on. Normally the ones investors avoid because they are just too risky.

They’ve got no income. Maybe one or two patches of dirt that look good. They’ve proven nothing. And because they’re so small, they rely on capital raisings to keep their exploration going.

Yep, those kinds of stocks. Yet in a small time frame, some of them have made gains that would’ve taken months to make.

To boot, many of them had done this on almost no news.

Bellevue Gold is up 33%. Black Cat Syndicate is up 53%. De Grey Mining is 87% up and Great Southern Mining is a whopping 110% higher.

All those gains in just 10 trading days.

None of them are actually producing gold, by the way. Bellevue Gold and De Grey have shored up some resources. But neither are any closer to making money by pouring gold.

They aren’t alone either. Other gold miners on the ASX have done fairly well in the same period.

Silver Lake Resources is up 20%, Saracen is up 24%, and Evolution Mining has gained 18%.

Yet at the same time the S&P/ASX 200 has actually dropped about 120 points. Meaning that Aussie investors are choosing highly speculative gold companies over banks and bricks.

What gives?

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Fear of missing out

The absolute riskiest sector of the Aussie market is flying right now.

Look, don’t get me wrong, speculative gold stocks are my jam. I love the thrill of finding tiny explorers no one has ever heard before anyone else does.

However, some of these rallies look a little more like investor FOMO (fear of missing out).

The buying of highly-illiquid gold companies with nothing more than a bloke and a shovel is a little frenzied.

Yes, some of these companies I mentioned — and a whole host of others I didn’t name drop — are working on some very exciting projects.

But much of these rallies came on the back of no news. Not just a company update talking about the latest drilling results…

But I’ve got companies on my watchlist making double-digit price gains when there’s been no news for months

That’s not normal, that’s pure speculation.

There’s possibly a little bit of hype driving this rally. Some are possibly chasing triple-digit gains in a short space of time. And I’ll bet a whole host more haven’t done their homework…

Don’t get me wrong, there are some incredible gold stocks out there to be found. But don’t rush in. Don’t chase them high. Do your research and be patient.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia