There are three kinds of precious metals investors, and only two of them are happy. Those who own mostly bullion (or its ETF or digital currency equivalents) have by definition profited dollar-for-dollar as gold and silver have soared recently. Those who own shares of the leading miners have had a nice run too, though not in every case as nice as with bullion. The third group, though, is feeling a little cheated. They (okay, we) loaded up on junior miners in the very reasonable expectation that the ongoing precious metals bull market would turn the little guys into winning lottery tickets.

It hasn't quite worked out that way. Most juniors have barely participated in the past year's run, and many are actually down. A typical junior's chart looks like this one, which belongs to Fortuna Silver (FVI.V):

So now, with gold again threatening $1,000 and silver looking at a supply squeeze* that could send it to the moon, the juniors are a question mark. Are they a busted business model that won't work until energy prices fall and venture capital becomes plentiful? Or are they a rubber band stretched so tight that it has no choice but to snap back violently?

We'll know for sure in a couple of years, but based on a general reading of history (and assuming precious metals keep going up), I'll go out on a limb and say the rubber band scenario is all but a done deal. Bull markets pass through predictable phases, with cautious money flowing initially into the big names and then (after the big names have made geniuses of their early investors) flowing more enthusiastically into small-caps on the periphery. In precious metals the first stage has gone according to plan, and the valuation gap between senior and junior has become a chasm. Today, an ounce of gold in the ground is worth maybe ten times as much if it's owned by a Goldcorp than if it's owned by some no-name Toronto Exchange exploration company. But it's all just gold (or silver), and sooner or later the discrepancy will be arbitraged away via a generalized increase in the value of the juniors' reserves, with the occasional parabolic spike.

So the question becomes which juniors. There are hundreds of them out there and most claim to have promising properties in various stages of development. Even in good times most will turn out to be either mistaken or lying, which makes buying them at random a really bad idea. So I asked a couple of people with histories of separating reality from hype for their current favorites:

Louis James is seinor metals analyst with Casey Research, publisher of several highly-regarded precious metals newsletters and generally one of the best sources of junior miner research. He likes the following:

Silvercorp (SVM.TO). "Great company with a huge profit margin and fantastic blue sky, hammered hard now for no reason. Buying now could force the shorts to eat their shorts, driving the share price even higher. Company has tracked silver for years, and we expect it to do so again for years to come."

AuEx (XAU.V). "Great project generator, following the JV model with exemplary success. Has substantial stake in several projects with potential for large gold resources (over 1M oz), with work being paid for with Other People's Money. Top management."

Andina Minerals (ADM.V). "Not cheap, but has a genuine monster gold deposit in hand, and it's getting bigger. Excellent infrastructure advantages, new resource calculation due out soon."

Claude Cormier, publisher of the OrMetal Report, has almost made me rich once already. Back in 1998 I wrote a column on gold stocks for TheStreet.com that featured his favorite juniors. One of them was Glamis Gold, which looked promising at $1.50. I bought 10,000 shares and when it doubled I sold, feeling pretty smart. Then I watched from the sidelines as it kept on rising, eventually being bought out for around $40. In other words I could have had a seven-year all-expenses-paid vacation by just holding onto that one stock. So Claude has massive cred here at DollarCollapse. His current take:

It is not an easy task to give you my favorite gold stocks in this market because there are so many to choose from. The junior market is truly at bargain levels.

At the top of my list is Canplats Resources (CPQ.V), an explorer with a new discovery in Mexico not far from Goldcorp's Penasquito mine. I am guessing that they may have found as much as 3 millions ounces of gold plus good quantities of silver, zinc and lead. The deposits are open in most directions and are growing steadily.

My second choice, which could really be in first place as well, is Chesapeake Gold (CKG.V), which has a huge open pit deposit in Mexico containing 20 million ounces of gold, 380 millions ounces of silver plus some zinc. They want to maximize the use of conveyers instead of feeding a truck fleet with expensive oil. This could have a major positive implication for costs.

In third position is Detour Gold (DGC.TO) which is developing the Detour Lake deposit in Ontario. It just released an update showing 11 millions ounces of gold. The exploration program is proceeding and more gold will be found. We came in late on this one, so it is no longer a huge bargain. But it should eventually be taken over by a senior company.

* Now, about the silver shortage: Yesterday I called the Northwest Territorial Mint to order some silver coins and spoke to a frazzled but energized saleswoman who claimed to also run the gift shop. Among other things she said that customers are ordering huge quantities of silver bars and coins, and walk-ins (people showing up in person to buy bullion) are gobbling up all the Mint's on-hand inventory. As a result, a decent-sized phone order now takes up to 60 business days to ship. This is one of those rare cases where the investing public has the power to purposefully affect a commodity market; if we all order physical silver the supply shortage will become impossible to hide. Just one New York Times story and it's game over for the shorts.

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