In trying to come up with the right word that describes the current market for junior gold stocks, several come to mind:

Slaughtered

Decimated

Massacred

Obliterated

Take your pick. No matter how you word it, things are bad.

However, despite the current despair, we believe that our day in the sun is coming. Gold World maintains that gold and junior gold stocks are going to rebound from this slump and come back stronger than ever.

The Second Coming of Gold and Junior Gold Stocks

The perfect storm of multiple, negative, and converging financial fronts is here. These fronts include massive amounts of imploding derivatives contracts, extreme volatility in fiat currencies, frozen credit markets, crashing world stock markets, bank failures, and a whole lot more.

Most of us expected that as the global economy broke down, gold and junior gold stocks would soar. But the opposite has happened, at least for the time being. And the reason for this is simple...

While gold is the ultimate form of savings, it also serves as the ultimate form of liquidity. And as we have just witnessed the past eight months, wave after wave of margin call selling (deleveraging) has blindsided the market and holdings of paper gold have been the easiest way to raise the necessary cash.

The amount of safe haven assets that were being held by hedge funds and other large investment institutions took everyone by surprise. As it turns out, these institutions held a much larger inventory of long COMEX gold contracts and gold stocks than previously thought.

The bad news is that we still don't know when the deleveraging activity will end. And that is the downside risk we will have to endure until the turnaround comes.

Exactly how long we will we have to continue enduring the deleveraging really depends on how quickly the impact of the massive liquidity (new funny money) is felt in the economy.

Typically, when large amounts of money are pumped into the system, the ensuing inflationary pressures show up 6 to 18 months down the road, depending on the velocity of money (VOM). The VOM is how quickly this new money changes hands. If it changes hands quickly, then the inflationary pressures show up within 6 to 12 months. If slower, then it could take up to 18, or even 24 months. At this point, it simply is just too early to tell.

The good news is that we are seeing other near-term pressures that could take gold and junior gold stocks higher. For example, the potential for a short squeeze on COMEX gold contracts is becoming increasing apparent. This is because the longs are starting to require delivery of the physical metal instead of settling those contracts in paper.

As these shorts have to go into the physical market to get gold, they are going to have a very difficult time finding any anywhere near the current spot prices. This will cause gold spot prices to be bid up to levels where there are willing sellers. This activity alone could take gold and gold-related investments to a new high in the near future.

What We Ultimately Expect from Junior Gold Stocks

We've already watched the first half of gold bull market push gold and junior gold stocks through the roof. Since 2001, the price of gold has increased as much as over 300% to an all-time high of $1,032 an ounce. As a result, junior gold stocks skyrocketed and early investors reaped massive rewards.

One of the most well-known gold stock success stories was Aurelian Resources. As you probably recall, back in April 2006, shares of Aurelian shot 240% higher overnight after the company made a significant gold discovery in Ecuador. The stock subsequently grew 14 times higher as Aurelian continued to recover and publish positive drill results. All told, early investors could have walked away with a 6,500% gain in just eight months.

The Aurelian success story is one of the most well-known. But it is certainly not the biggest. Other lesser-known success stories delivered even larger heart-dropping gains that made millionaires out of ordinary people.

Examples of these huge success stories include Seabridge Gold and Osisko Mining. Share prices of Seabridge have soared as much as 16,400% higher. Meanwhile, Osisko's stock had a five-year return of over 43,200%.

One of the biggest success stories from the first half of the gold bull market, however, was Laramide Resources. Shares of Laramide erupted 154,400% in just four years. Early investors could have made a profit of $77,200 for every $50 invested.

These are truly amazing gains. But we think that we'll see even bigger once the gold bull market continues to unfold.

How to Manage Junior Gold Stocks Right Now

Great patience and fortitude are required right now to stay the course with junior gold stocks, but eventually those character traits will be rewarded. Until that time comes, we need to make sure we have re-aligned our portfolios with junior gold stocks that are going to survive.

The number of junior mining companies that exist right now is close to 5000. A consolidation phase is currently underway and will continue for the next year or so. The number of junior mining companies will probably be reduced by a factor of 10, leaving around 500 companies that will do very well. Our job is to make sure our portfolios only have junior gold stocks that will be on that list.

Good Investing,

Gold World Staff
www.GoldWorld.com

P.S. Gold World editor Greg McCoach has helped thousands of regular people make new fortunes with his Mining Speculator advisory service by giving specific buy and sell recommendations on junior gold stocks and other publicly-traded mineral companies. These tiny, often unknown gold stocks, hold more potential upside leverage than most every other investment vehicle on the market. He believes that junior gold stocks will come back stronger than ever over the next several months as gold prices are expected to recover. And as this happens, investors following Greg's lead could be tomorrow's millionaires. To learn how you can join the Mining Speculator community, simply click here. He is offering Mining Speculator at a special, low price for a limited time.