If the Fed Is Printing Money, I'm Buying Junior Gold Miners

March 19, 2009 | By: Microcap Speculator

In the back of our minds, we all knew Helicopter Ben Bernanke would eventually begin to monetize debt. I just thought he would do it slowly and quietly.

I was wrong. In a tribute to Johannes Gutenberg, Bernanke announced that the Fed would print money to buy Treasuries. It's also ramping the presses to fund purchases of distressed RMBS and agency securities.

This could be a watershed event. And not just for the U.S. When the world’s largest fiat currency joins the race for competitive devaluation, other nations will also be encouraged to print more money.

Equities were up on the news, but the real moves were in commodity, currency and Treasury markets. For my purposes, the most important of these markets is gold. Gold was off more than 2% in the morning, but spiked up on the Fed announcement to close up over 4%.

There is a good chance that yesterday’s move was the beginning of another up leg for gold. I expect new highs for the metal before year end.

I bought junior mining shares hand-over-fist yesterday, in part because I had sold off much of my position a few weeks ago, but mostly because over the next few weeks I want to have as much exposure to gold as possible.

Here are the junior gold mining stocks that I bought yesterday:

U.S. Gold (Amex:UXG)

New Gold (Amex:NGD)

Golden Star Resources (Amex:GSS)

Banro Corp. (Amex:BAA)

With the exception of GSS, I bought these shares after the Fed announcement so I largely missed Wednesday morning’s rock-bottom prices. But now is not a time to focus on pennies. With gold itself moving so violently to the upside, and being within 20% of all-time highs, I’m looking for large moves in junior miners. As an added bonus, these stocks are currently hated. Last week’s Barron’s, for example, identified Golden Star Resources (GSS) as the most-heavily shorted stock on the American Stock Exchange.

Bottom line: Unless gold drops sharply, the junior miners should have much further to run. If gold breaks to new highs — a distinct possibility in coming months — I think many juniors will see 200-400% appreciation.

DISCLOSURE: Long UXG, GSS, NGD, BAA.

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