By John Jagerson and Wade Hansen
Editors, SlingShot Trader
Gold mining companies can be split into the large “majors,” like Barrick Gold Corporation and Goldcorp with market capitalizations above $10 billion, and the smaller “juniors” that have concentrated exposure to a few geographic areas. The lack of global diversification adds to their currency risk and average volatility — but for investors willing to take this risk, the potential returns can be much greater.
Gold bullion prices have been stuck in a sideways channel since the August 2011 debt-ceiling dispute, but it looks ready to break following the recent inverted head-and-shoulders pattern in the spot price. We expect the coming rally to be particularly productive for junior miners.
When investors become nervous about a spreading credit crisis, they tend to buy the dollar and sell everything else, and a rising dollar will drop gold prices because gold is priced in dollars. This is particularly problematic for junior gold producer stocks. They tend to struggle against a strong dollar because of their potential currency risk.