By Gene Arensberg
04 May 2008 at 08:52 PM GMT-04:00

ATLANTA (ResourceInvestor.com) -- It’s probably time to load up the truck in the junior resource sector. Why? Well, call it a hunch. A hunch based on the hard-core contrarian notion that when the many are convinced it is the few who will prosper. That and the fact that small miners and explorers, represented in this chart by the CDNX in Canada, are beginning to outperform their larger cousins, represented by the HUI, even if it is in a falling market.

Especially hard hit have been the small uranium miners and explorers, even the ones that actually do have real, demonstrable resources and promising prospects. Odd, isn’t it, with oil over $100 per bbl, coal and natural gas both historically high, and at least one marquee high-grade uranium discovery having just been announced in Canada?

This report firmly believes the carnage in the small resource sector is directly related to the credit crunch fallout (no pun intended) from last year and early this year. The great uncertainty that arose during it created a vacuum of liquidity from the more risky stocks in our investing universe, no matter what they did or mined.

This report also firmly believes that liquidity will return to these former high flyers in a very big way in the not-too-distant future. There are already indications that liquidity is returning. A good thing, because some of the more speculative, but promising issues this report tracks have already been so beaten up in the downdraft that they are actually trading under their 2003 lows.

Signs of Life?

Here are just a few signs that, while some are difficult to measure, are nevertheless quite evident for those of us who follow the resource sector just about every waking moment.

Gold and silver have sold off strongly and are once again approaching their respective popular technical moving averages from above. The closer they get to those moving averages the higher the probability they are about to reverse course. See more about that in graphs linked in the Gold Charts section below.

The current correction in gold is already the second largest in percentage terms since the Great Gold Bull began in 2001-2002 as shown in this chart.

As profiled in a supplemental report last weekend, massive outflow of wealth from the world’s gold ETFs (primarily GLD) surfaced last week. It has since slowed and instead of outflow we see the opposite, we see positive money flow or dip buying into the U.S. silver ETF. More about that in the Gold ETF and Silver ETF sections below.

Although the U.S. dollar has gotten a bit of a bid relative to the other members of the global fiat currency leper colony, curiously commercial traders on the NYBOT don’t seem to think it has all that much upside if their net long positioning in U.S. dollar index futures is any indication. See comments about that in graphs linked in the U.S. Dollar Index section.

Sentiment among the popular resource newsletter writers has taken a decidedly bearish tone over the past six months and especially over the last two. Generally, and there are notable exceptions, they have gone from quite bullish (legendary gains ahead), to cautiously bullish (buy on weakness), to defensively bullish (stink bids only), to, and this one hurts, “retreat and regroup” or “focus only on winners,” which is about the about the same thing as fully bearish in that matrix.

It is as if Col. William Barret Travis just drew a line in the sand with his sword at the Alamo in 1836 and, metaphorically speaking, along with James Bowie and David Crockett we 160 or so resource investors still hanging around the resource stock Alamo sanctuary have stepped across to take on 3,500 Mexican regulars “for the cause.”

Supposed financial genius stock picking gurus are abandoning their former resource exploration darlings in wads just when they are hitting 4 and 5-year lows. That just might be the opportunity of the year as it comes at a time when there is still extremely sparse liquidity in the small resources sector.

If any of the financial genius guru’s sizable flock takes the plunge off the cliff with the other lemmings on the already badly beaten up issues they once so lovingly recommended … when they have already been run over by credit market tightness and unusually tight liquidity on the resource sector highway … we bargain loving stock vultures ought to be sitting on the power line just above that scene.

Pass the salt and pepper please. Financial genius guru road kill for breakfast!

So the stocks they loved and enthusiastically recommended at $2.00 are now chopped liver at $0.30 and should now be dumped? Really?

Of course these guru’s have already given the early word to their very close “friends,” the people who pay the higher “preferred member” premiums for their guru advice, and they have already sold. That’s one reason that some of these stocks are so beaten up already before the “regulars,” the lowly subscribers that only fork over a tenth of what the “friends” do, get the word from on high to sell and move on.

As the gurus abandon their former “best buys” at the bottom, with so few buyers around to take on an avalanche of disgusted regular follower sellers, some issues will get hit very, very hard just on that extraordinarily bad timing selling pressure alone. Even though, except for the unlucky firms hit with devastating political insanity like just occurred in Venezuela, Ghana and Ecuador, nothing has really changed for the company, its management (which the gurus loved when they recommended it), or its prospects.

Watch for just that kind of opportunity if you have the strong-stomached, long-term-minded, thick-skinned resolve to go bargain hunting for guru-dumped resource sector road kill.

It probably won’t be all that long before they are picked up, dusted off, and repackaged by the next financial genius guru, once they have alerted their higher paying customers, of course.

The irony was, for Col. Travis, he was on the right side of the argument. Gen. Houston and 680 “Texians” changed the course of history a month later at San Jacinto and the Republic of Texas was born.

Travis was right; he was a bona fide hero, but unfortunately for him, just a little early. The help he expected to arrive never did, but he and those who stood with him managed to hang on for 12 bloody days against a foe with superior strength, giving Houston more time to develop and implement his strategy for victory.

We resource stock vultures don’t have to die for the cause if we are early, but our portfolios might sting a bit more before our San Jacinto Day. We’ll see. Got spec mining shares?

Why Pay More Premium for Silver?

Some physical silver products such as small rounds, U.S. silver eagles, and all bar silver smaller than the very large 1,000 ounce heavies remain difficult to locate in quantity at anything close to a reasonable premium with silver trading in the $16.40s. That is probably one reason that we are seeing significant positive money flow into the U.S. silver ETF. More buying than selling pressure required iShares Silver Trust to increase its trading float and add over 150 tonnes of new silver for the week. That’s obvious dip buying in a pretty convincing measure. Read more about that, including suggestions for lower premium alternatives in the Silver ETF and Silver COT sections below.

Bottom Line

The bottom line for this report is that as both gold and silver are approaching their popular moving averages from above, with this gold correction already the second largest of the Great Gold Bull in percentage terms (although only 7 weeks old), with the most popular physical silver still in short supply in the U.S., positive money flow into the silver ETF, negative money flow from the gold ETFs slowing, mining stocks acting more firmly than they have been and small resource companies now outperforming their larger cousins, there is reason for optimism for those who are still holding positions or are now scaling in. If the indications this report follows closely are correct, both gold and silver are within 6% to 10% of their potential 2008 lows and it would not be at all surprising to see both find overwhelming support near their Friday lows.

Of course that could be wrong. We’ll see. Got gold? Got silver?