Doc 224899

Bargains Still Abound in a Few Gold Miners

Long term upside? TXX Tirex, Canadian exploration stage miner, is sitting on mountains of ore in the Mirdita region of Albania, which could rival Oyu Tolgoi in Mongolia in ounces extracted in the next 5 years, and their share price has plummeted to the point where an upside move is inevitable. The only question is time frame, since TXX may have to simmer a few years before it gets exciting.

Van Eck's Highly Anticipated Market Vectors Junior Miners ETF Is Set for Its Debut

All of Jeff Nielson's concerns are valid, and GDXJ could buy nothing but high risk derivatives of junior miner stock and sink like a stone, although the most obvious possible explanation of a thing (the ETF will buy shares of small gold miner stocks) is usually the way that thing happens in reality.

There are two ways to play this: trade shares of the ETF (which is what the vast majority of brokers and personal financial advisers will tell their clients, so a heck of a lot of shares will be traded), or trade shares of the stocks in the ETF's list of holdings. For the time being, I'm doing the latter. IPOs of ETFs are tricky, and ETFs (e.g., SMN) don't always perform like the label implies they will (Jeff's point, again).

If people buy a large volume of GDXJ shares, and they almost certainly will, it will pull up the demand/supply curve for many of these small miners, and share prices of the small miners’s stock will also be pulled upwards. GDXJ share prices should leverage GLD and GDX, all things being equal, and volume of GDXJ shares traded will increase the extent to which the individual small miner stocks leverage the price of gold and leverage the value of the gold miner sector.

In the same way GLD's bullion holdings raise the price of gold when lots of new shares of GLD are bought, an increase in the volume of GDXJ outstanding shares will raise the prices of small miner stocks. I’m betting that will happen in the next week or two, as this new ETF catches on, and it will pull up share prices of the junior miners.

Some of the stocks, like GRS and JAG and NXG, have terrific fundamentals right now, and they should do very well as GDXJ pulls their share prices up while their fundamentals combined with the rising price of gold have the same effect.