David Erfle: The Mining Sector is the Last Deep Value Play Left
During the housing bubble around 2005, having purchased his home in 1999, David choose to sell it instead and invest in the junior mining space. He was very successful in his timing and continues to this day investing full-time in the mining markets.
David feels the term “quiet optimism” does, indeed, sum up the current gold market. He points out that capital markets have yet to open up to most micro-cap gold companies.
David likes to track the HUI to Gold ratio, which shows that miners are quite cheap. Today this ratio is back at levels not seen since 2001, and as a result, this sector may be the last deep value play in the market today.
Capital markets remain quite squeamish towards the mining sector, and in 2016 when the GDX pumped, they got burned, so they remain cautious. Capital markets would like to see at least two consecutive quarters with gold above $1400 before they will open their purse strings.
He thinks that gold will eventually rise above $2000 an ounce, but it will take longer than most analysts expect. Indications that we are reaching a market top may again come in the form of large companies acquiring overpriced low-grade projects.
He likes “The Creature from Jekyll Island” by G. Edward Griffin and for trading recommends “Reminiscences of a Stock Operator” by Edwin Lefevre. This book still has a lot of relevant information for investors today, and it takes a very contrarian trading approach.
Lastly, he discusses what may be the ultimate contrarian play in the base metals.
Time Stamp References:
0:40 – Where are we in the precious metal cycle.
1:50 – Sell your house and invest in juniors?
4:19 – Why the HUI to Gold ratio is important.
7:00 – When will the juniors move?
8:20 – Signs for a market top.
10:00 – Favorite authors and their books.
11:50 – Potential contrarian play in base metals.
Talking Points From This Week’s Episode
• David is optimistic about the gold market.
• HUI to Gold ratio is back at 2001 levels.
• The mining sector may be the last deep-value play in the market today.
• Capital markets remain side-lined.
• Base metals may become a good contrarian play.
David Erfle, the founder of www.juniorminerjunky.com, is a self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest in a growing area of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector, he became fascinated with this niche market. So much so that in 2005, he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full-time job. He has survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times to adapt to changing market conditions.