If you follow Goldgroup Mining, you know that the company issued a press release stating that Cerro Prieto had its first gold production. What is a bit shocking is how the market reacted to this news, sending the stock price soaring so much. At the end of the day, the stock closed at $0.195 per share, but it got as high as $0.21 per share, which means that the price was up 50 percent in a single day. This means that Goldgroup is more than a 5-bagger from the lows in November.
Some of you have been e-mailing me saying that you wish you had more shares. This is why investing is so frustrating. Others are asking whether it is a good buy from here. Well, this is a hard question, because it depends on your time frame. If you bought it today at $0.20 per share, you might be down 30 percent or up 30 percent by tomorrow. This stock is extremely illiquid and literally anything can happen to its price. Today, there was panic buying and people were crawling over one another to get shares.
However, if your time horizon is five years, then the probability of this stock being higher from today’s levels is pretty high. The reason for this is because the company has four properties and each of these properties is worth more than the market cap today. But, this is long term. In the next week or month, Goldgroup can easily go back down to $0.15 or even $0.08 per share. People are still convinced that gold is going to $1,000 per ounce. If enough Goldgroup shareholders start believing this, they might sell you the shares at ridiculously low prices. Actually, when I was buying my shares several weeks ago, I listened to a podcast with Gary Savage on Korelin Economics Report, and he said that in five days gold would go to $1,000 per ounce. I thought, perfect; I will probably get my shares at stupid prices, because others are also thinking this. And, this might very well be true but it doesn’t matter. Goldgroup can make money with gold at $1,000 per ounce. It will just make less money.
Anyway, the bottom line is this. Yes, Goldgroup is cheap today, but the price can do whatever tomorrow or next week. However, now people know that Cerro Prieto is in production and this includes buyers and sellers. Before this information was known, sellers thought that this company was going bankrupt, so they were willing to sell their shares. Today, they think to themselves, “Wow, Cerro Prieto is in production, why should I sell now?” So, buyers have to convince them to part with their shares by offering a higher price. But, just a few weeks ago, the sellers were begging the buyers to take their shares off their hands. Now, it is the buyers who are doing the begging.
Disclosure: Long Goldgroup