Followers of Richard Russell whose well informed comments I used to post here, will be familiar with his utterances on gold.
Here's a quote from Russell about the phases of the gold bull market.
"I've said before that we've already gone through the first psychological phase of the gold bull market, and that we're now deep in the second (usually the longest) phase of a bull market. If my instincts are correct, the third speculative phase in gold lies somewhere ahead. Forget timing for the third phase, it doesn't matter -- somewhere ahead new comers will know the meaning of the phrase, "THERE'S NO FEVER LIKE GOLD FEVER." Often during the third phase, the item makes more for investors than all their profits through the first and second phase."
Phase 3 is the phase when any stock that is associated with gold can take off for the stratosphere. Rumours fly, taxi drivers tip and any man (or woman) in the street will learnedly discuss his favourite gold stock. I'm not as old as Russell but I've experienced it and there's a good deal of money to be made with the right strategy.
As Russell says, we don't know when this phase will begin but I have a feeling we're not far off it.
During phases 1 and 2, the bigger cap gold producers have seen all the rises in value. In phase 3, it's the most junior, speculative stocks that fly. My strategy is to begin accumulating some of these stocks.
What to look for?
I like to go for companies with a very low market cap and few shares on issue. Clearly, in ordinary times that's a risky strategy as you are likley to get stuck with an illiquid stock that's lucky to trade a few thousand shares once a fortnight. The obvious upside is that when it moves, it will move in multiples. WAC (Wild Acre Metals) for example has only 20 odd million shares on issue for a market cap of around $4million dollars. Doubling the price of the share still leaves the market cap below $10M.
The company doesn't actually need to be mining, only to have some decent gold grades in drilling. A good address helps though I've seen mooting of a new gold region make a stock fly even at a bad address! Credible CEO and directors are also useful to increase confidence of traders.
I'd be curious to read about others views on stocks that might fit these criteria.
WAC Price at posting:
22.0¢ Sentiment: Buy Disclosure: Held
