Veteran contrarian commentator Dr. Marc Faber maintains that physical gold should be held outside the United States and is also now recommending junior gold exploration stocks. This is one of the best short commentaries on the state of US capital markets I have seen in ages. He sees a ‘very strong rebound’ for gold explorers which have been ‘hammered’. US stocks will rally further he maintains, at least for a short while. In January to March next year you must get out as the economy will implode, he adds.

It was intriguing to watch Dr. Marc Faber announce on Bloomberg TV over the weekend that he now favored the acquisition of selected gold stocks and gold exploration shares, as well as renewing his long-held hold on gold.

Every now and again somebody writes to me and asks: what are your favorite precious metal juniors? And I do also include silver juniors because my logic suggests they could deliver the best bull market performance of the lot: silver prices being leveraged to gold and the junior explorers leveraged against the out-performance of silver producers.

Silver over gold?

So that is why I would buy a small explorer like Endeavour Silver - presently 65 per cent off its one-year high. Dr. Faber intelligently views these 40-year low prices for the juniors of the precious metal world as a buy signal - most investors find it terrifying, especially the owners of these shares.

Endeavour was highly rated by Golddrivers.com, a website that specializes in these stocks. But then the same website tipped Candente Resource Group, off 90 per cent from its one-year peak price. If the original Golddrivers.com tip was right this is a hell of a bargain.

You could say the same for Linux Gold - which like these other two stocks I also hold. This company has seen its stock drop 80 per cent, and yet it still owns the same world-class mining claims on Granite Mountain in Alaska, next to several existing large mines, has remarkably managed to raise funds in a private placing and looks highly unlikely to go bust.

Shorts off

Perhaps the guys who have been shorting my stocks will now stop and go long! Another smaller gold company, albeit with proven low-cost reserves under a town in Australia, Citigold is a group I have been looking at closely. Dubai bought a significant stake recently which brought its cash levels up, and yet it is still 50 per cent down on the past year.

Even if there is not actually going to be gold in them there hills, there is going to be money to be made in these stocks. What they own are claims to potential gold mines - and Citigold is closer than the rest - and in a bull market for gold the value of such claims always grows exponentially.

Consider claims to be like land for house builders - something that surges in value during a boom. Given that analysts at Citigroup see gold up from $820 to $2,000 an ounce next year, the implications for junior precious metal stocks are clear, and Marc Faber’s timing is spot-on as usual.

Peter Cooper

www.arabianmoney.net

Freelance journalist & author

Dubai Media City

Dubai, United Arab Emirates

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