The dramatic fall in the juniors makes them interesting investments said Rick Rule, who explained the sharp decline in the junior market.
In an interview with CNBC, Rule said that the demand is still there.
“The idea that mineral commodities will go out of favour doesn’t make sense,” said Rule, chairman of Sprott US Holdings.
The drop has been precipitous. The gold juniors (NYE:GDXJ) have dropped 62% year-to-date.
Asked what happened, Rule blamed the juniors.
“Their worst wounds were self-inflicted.”
“We had a bull market in the juniors from 2003 to 2010, and the over-valuations, the over-capitalizations were from a historic point of view really, really, really dramatic.”
Rule said it takes time to “wring out the sin that exists in the sector.”
“Because capital was so cheap the misallocations the junior sector made were truly legendary.”
Rule said investors have every right to hold those errors against them.
Rule also noted that the commodity sector is extremely cyclical and extremely volatile.
“And investors who don’t understand the sector are unnerved by this.”
Reprinted by permission of MINING.com