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01/06/2012
Ramblings

If gold goes to $2500 and silver to $100, which I think is highly probably, the miners are going to be printing money. That is why gold and silver stocks could very well be the investment of this decade.

Why? Trend following. If the mining stocks begin rising, many investors are going to jump on the bandwagon. And why not? There will be money to be made. And what other industries/sectors are going to be making money? It's possible that the gold/silver mining sectors could be one of the ONLY sectors making money.

My feeling has always been that history will repeat itself with regards to gold. If you look at the 1930s and 1979, the gold mining stocks did really well. It's likely that will happen again during this bull market.

In January 1980, nearly 20% of the value of the stock market was gold and silver stocks. That is a stunning number. And it occurred from a mania into these stocks. Today, the valuation of gold and silver mining stocks is less than 2% of the stock market, and the total for all gold mining stocks is about the valuation of Microsoft ($250 billion). For silver mining stocks, it is an incredibly miniscule $25 billion. That's it people. The potential for these sectors to explode in value exists.

Very few people are interested in gold and silver mining stocks today. A big reason is the ETFs: GLD and SLV. Why buy stocks when bullion has done so well? In fact, bullion (up 500%) has been a safer play than stocks during this bull market, so that has been the trend. But this will change in my opinion as silver passes $50 and gold passes $2000. The upside will then diminish for bullion, yet increase for stocks (because of leverage).

I think all of the gold and silver stock categories (majors, mid-tiers, and juniors) will do well going forward. The dividends from the majors could be incredible. The mid-tiers could easily triple in value. And the juniors should blast off, with many returning 10x their current values.

A 10x return is a called a 10 bagger, or what I call a homerun. In my opinion, their are going to be a lot of homeruns in the juniors. There are about 150 decent gold and silver juniors. I would expect at least 25 of those stocks to be 10 baggers. Some of them will be 50 baggers. As a group, the juniors could become the investment of the decade (yet today no one wants them!).

The last time there was a mania in gold and silver stocks in 1979, there were at least 10 stocks that were 100 baggers.

We have not had any sort of mania yet in these stocks. However, First Majestic Silver rocketed from $1 to $28 from 2009 to 2011. It has since fallen back, but I think it will eventually reach $50. And I don't think it will be the only 50 bagger during this gold bull market. FM and a few other stocks have been clues of what is going to happen.

I don't know if 2012 is the year mining stocks take off (probably not), but I do know that majors will lead the way. As gold and silver prices rise, the majors will increase their dividends to the point that many investors will be enticed. That will be the transition into the mania wave.

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