Gold remains in correction mode.
Even if gold were consolidating bullishly (from an immediate perspective), it would need more time to build a viable handle on the 9-year long cup pattern. Long-term volatility indicators, as well as historical analogs, argue it needs more time.
Here is how the current correction in gold compares to the average of six bull market corrections and the three worst (1976-1976, 1999-2001, 2016-2018).
Gold Correction Analog
The current correction will create the opportunity for many future 10-baggers, as did the last one (from 2016 to 2018).
But we have to understand that the market is correcting, which will create excellent values and entry points in many companies. Timing is also important concerning where each junior company is in its life cycle.
This chart won’t explain every 10-bagger opportunity, but it’s essential to keep in mind because it shows the two best points to buy.
You buy before or immediately after a company makes a discovery or when a company is building a mine.
Brent Cook’s Life Cycle Of A Junior Company
The easiest and fastest way to catch a 10-bagger is pre-discovery “drill plays.” These are exploration companies with a very low market capitalization that are going to drill a specific target. If they hit something good and can grow that discovery, the reward for early shareholders is massive.
However, the problem is an incredible amount of luck is involved. Unless you have real inside knowledge, you are gambling to a high degree.
When it comes to exploration, I prefer to focus on post-discovery situations. These companies have already found something or have some defined value yet believe there is potential for significant growth and expansion.
There is much less risk relative to drill plays, but the market capitalization has to be low enough for 10-bagger potential. The current sector correction could place quite a few companies into this niche. Think of market capitalizations below $100 Million.
Finally, the most predictable path to a 10-bagger is with developers and junior producers.
If you can buy these companies after a severe correction and they grow production significantly while the sector runs for a few years, you could have a 10-bagger on your hands.
In terms of producers, exploration success is a huge catalyst. Look at the success of Kirkland Lake (NYSE:KL), Wesdome Gold Mines Ltd. (NLB:WDO), and K92 Mining (OTC:KNTNF). All have production growth driven by exploration success.
To find developers with 10-bagger potential, look for junior companies that can finance and build a mine with growth potential beyond the initial build. Thus, look for the best combination of low CAPEX but significant production potential.
Another reason I favor these types of companies is that they are predictably adding value. It’s easier to hold them for a few years because their outcomes (first pour or production growth) are more predictable than exploration companies.
I’ve positioned myself in companies with the best combination of upside potential and fundamental quality. These companies can add value irrespective of metals prices and have the potential to be 5, 7, and 10-baggers after gold makes a new all-time high.