March 20, 2006

"I'm just waiting on a trend..."

With profuse apologies to The Rolling Stones, the paraphrase above captures the current sentiments of the gold-investing faithful. Unfortunately, we may have to wait a couple of months before we find a trend we like.

As you may know, I’ve been bearish on gold’s near-term prospects for some time now. The metal’s inability to surpass its early-February high of $572 -- or to even mount a creditable attack on that peak -- led me to believe that a typical, seasonal correction of 10% to 15% was in the offing.

Moreover, the rallies gold has been able to launch have been spawned by geopolitical headlines, particularly the nuclear standoff with Iran. Besides being somewhat distasteful to bet on, these sorts of things can never be relied upon. Experience has shown that, despite consensus expectations (and sometimes hopes) to the contrary, peace and stability can break out at any time.

In my view, it will take a sustained and widely recognized economic trend of some sort to push gold above its $572 resistance and toward the next major goal of $600. We have not seen such a trend so far, although there are signs that the major one we are hoping for -- dollar weakness -- could be just beginning.

Having spouted all this bearish blabber, I must admit that I’ve been impressed again by gold’s resilience. I would have expected the price to have slid into the $530s or lower by now, but new buying keeps coming in to keep the metal range-bound.

It may turn out that the recent price weakness is all the correction we will get, and that the deep bargains I’ve been lusting for in the equities arena will never develop. If so, we will have to be content with the positions we have, and satisfied with watching them trade sideways, or even higher, as the markets and the individual companies mature.

While on the topic of the mining, development and exploration shares, I’ve got a few observations that I feel are important to pass along.

1) On the occasions in which gold has rallied, the mining stocks have tagged along only reluctantly. Some have attributed this to a change in leadership roles from equities to metals, and the ratios do show this. But I think the underlying cause is healthy cynicism on the part of equity investors, who are quietly taking profits during this slow period, and positioning themselves for the next big rally in the late-summer and fall.

2) I fully agree with this outlook, and advise all serious investors in these sectors to follow the same strategy. Don’t completely sell out your positions in good companies, but take some profits -- particularly large, long-term gains -- when you can. Build up some cash to redeploy in lower-priced, earlier-stage opportunities, or short-term bargains, as they develop. Again, this is what I’m doing right now, and I strongly recommend that you do the same.

3) Despite the range-bound nature of gold and the overall mining equity market, many of the junior shares have been quite volatile, based on the dynamics of the individual companies and/or their specific markets. Because of this, you must carefully review any company’s current situation before subjecting it to any broader-market strategy.

Fortunately, most of the volatility among the stocks recommended in Gold Newsletter has been the good sort. In particular, our silver and uranium shares have done very well.

The good news is that there are still bargains to be had, and outstanding opportunities continue to emerge. In our March issue of Gold Newsletter, for example, we highlighted five new picks — some of which are already up over 50% since our recommendation.

I’ve got a few more exciting picks lined up for our next issue — which is one reason why I’m hoping this market stays quiet for at least a couple more weeks!

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, visit www.goldnewsletter.com.