April 25, 2006

Roller Coaster

It’s a crazy new world out there in the metals markets, and only those who can keep focused on the long view will be able to remain ulcer-free.

You didn’t have to be a rocket scientist to see that the metals markets were about to go on a roller coaster ride. Given the ability of the sector to post new, multi-decade highs with impressive regularity over the past few months...and given the vast amounts of new money that the stellar performances have been drawing into this relatively small arena...predicting volatility has become the surest bet around.

But, as last week’s market action has shown us, predicting volatility and actually living through it are two entirely different things.

There’s not a ride in the Six Flags arsenal that could compete with the ride gold and its metals brethren have sent us on in the past few trading days, a ride that has whipsawed investors, with lightning speed, between euphoric jubilation and abject terror.

The events of last week have demonstrated the power that the broad investing public will bring as they continue to discover the tiny resource markets. Much of the last $100 in the gold price is due to the spark of interest the metal has attracted from mainstream investors.

That spark will, eventually (and hopefully not too soon), turn into a raging fire. At that point, these markets will reach their secular peaks, at multiples of current levels.

Turning back to the current situation, the financial media blamed last week’s spike in the metals on inflationary fears spawned by the latest CPI numbers. That’s true to some extent, but much of the blame/credit goes to the nuclear standoff with Iran — a geopolitical time bomb that has helped gold to barrel through a season that has been historically accompanied by price weakness.

In addition, a price melt-up of such magnitude...accompanied by no significant increase in open futures positions, absolutely screams “short covering,” and that is precisely what I believe is behind much of the recent action. The massive short squeeze engendered by years of central bank gold loans and the gold carry trade may well be in effect here, as predicted by us, GATA and Frank Veneroso since the late 1990s.

The confluence of all these factors makes it seem very plausible that we will not see the typical springtime correction that I’ve been expecting. Nor would I be surprised to see a correction of longer duration than yesterday’s single-session setback.

In truth, the only thing we can be confident in at this point is that gold, silver and mining equities will trade much higher over the long term, as the Fed’s campaign of rate hikes reaches its end...as Main Street investors continue to discover the metals...as commodity-driven inflationary pressures build...and as the world continues to lose faith in currencies, while gaining confidence in gold.

Brien Lundin is the editor and publisher of Gold Newsletter, a publication that has ranked among the world’s leading precious metals and resource stock advisories since 1971. To learn more about Gold Newsletter, visit www.goldnewsletter.com.

Mr. Lundin is also the host of the famed New Orleans Investment Conference, the world’s oldest and most respected gold investment event. This year’s New Orleans Conference will feature Steve Forbes, Jim Rogers, Dr. Marc Faber and Dennis Gartman...plus dozens of today’s top gold and resource stock analysts...and a blockbuster debate between Doug Casey and Newt Gingrich. To learn more, visit www.neworleansconference.com.