gold juniors the next profit strategy

Friday, 28 March 2008 - Melbourne Australia

By Al Robinson


Gold Juniors the Next Profit Strategy
Barrick Takes Holding in Allied Gold
Reserve Bank Likely to Maintain Inflation Focus
Oil at US$107
Gold Juniors the Next Profit Strategy

Well, gold hasn’t crashed. And it doesn’t look like it’s going to. Do you agree? We found our French colleague and professional trader Gabriel André murdering a croissant at his desk this morning. Maybe you’ll find his simple analysis of the precious metal convincing.

“Gold could easily go straight back up to US$1000. Consider what has happened in the last two weeks…the dollar has resumed its negative trend…stocks have fallen…commodities and precious metals have good upside in the coming months. It shows that this was just a speculative clear-out.”

He quickly resumed his destruction of the croissant. We agree with the point he makes. As long as America continues de-valuing its currency with inflationary fiscal and monetary policies, gold will have upside.

But what is the best way for you to profit from it?

Australia has a fragmented gold industry. That, in plain English, means there are a lot of smaller companies for you to choose from. Apart from two big, chunky producers in Newcrest (ASX:NCM) and Lihir (ASX:LGL), the rest of the market consists of little bits and pieces.

The biggest gold miners in the world are struggling to locate new deposits as fast as they’d like. Gold is shy. It rarely occurs in the earth’s crust. If you grab a random handful of dirt anywhere on the planet, there’s a 1 in 200 million chance you’ll be holding gold.

So, large-caps need more gold but they can’t find it. With Aussie gold companies 13% off their high (see below) it’s the ideal time to buy explorers with developing assets.
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Barrick Takes Holding in Aussie Gold Junior

So it’s not surprising that Barrick Gold (TSE:ABX), the world’s biggest gold miner, just bought 5% of Aussie gold explorer Allied Gold (ASX:ALD). The two will collaborate on Allied’s project in Papua New Guinea. The stock rose 12% on the announcement.

Equigold (ASX:EQI) is combining with Lihir (ASX:LGL), as you probably read a few days ago. Gold market consolidation looks as though it’s shifting up a gear. The companies that will benefit from this the most are juniors. They’re the stocks getting bought out for premiums, thanks to their new gold finds.