Gold

Selling Juniors? You must be kidding!

by Eric Hommelberg
January 09, 2006

Dear Member,

As we have noticed the Junior Festival 2006 started with a big bang this year thereby igniting some impressive fireworks among many of the juniors.

Sure enough many questions came our way from readers asking if we should sell some since gold and the HUI have reached overbought territories..

Although we understand the concern all we can say is that we don’t intend to sell any junior in our discovery/exploration portfolio. Sure we will sell them somewhere down the road but certainly not in the early stages of the phase II bull market in gold.

Our approach is simple:

We buy those companies making discoveries and we hold on to them during the entire discovery phase. Sure there will be temporary pull backs here and there but the simple fact is that the downside risk is so low that it makes no sense at all in our opinion in order to try enhancing profits by trading in and out all the time thereby risking to trade yourself out of position before a major blow-off.

A good example we saw in early December when a couple of gold writers advised their clients to sell their gold holdings since they saw a blow-off coming in gold. Yes, they were right, a blow off came indeed, gold blew off to $540 and came down all the way to $490. But our juniors which we’re tracking didn’t come down at all, I fact they just continued to rise. Those investors who sold their gold shares early December did so when the HUI was trading just above its long term key resistance of 250 but unfortunately for them the HUI is trading above 300 now. They took the risk of trading themselves out of position and unfortunately that’s exactly what happened.

The message should be clear: “Don’t get too greedy”

As we’ve said so many times, why try to gain that extra penny to the down-side while the upside potential is a multiple dollars. Just buy and hold. As the famous Jesse Livermore used to say:

"It never was my thinking that made the big money for me. It was always my sitting."

This statement is proven beyond any doubt by the discovery story of Virginia Gold. Investors who bought Virginia upon discovery in 2004 could walk away with a 1000% gain just 16 months later. All they needed to do was doing nothing.

And what about the current overbought conditions for gold and the HUII then?

Wel, they may be overbought indeed but in a bull market overbought conditions can persist for a much longer period of time as one would expect thereby making short-term market-top calls almost impossible. On top of that please be aware that a bull market can eventually emerge into a run-away bull market thereby making the technical indicators totally useless..

A good example we’ve seen during the seventies… Traders buying gold at $250 thought they made a clever deal by selling it at $425 only to see it blowing off to $850 in a couple of weeks time.. Don’t get me wrong, I’m not predicting a coming blow-off in gold here but I don’t rule it out either.. And when it happens I want to be fully invested..

Eric Hommelberg