Rapid Recovery

Gold, silver and the rest of the metals are on the rebound, and seem set to send mining shares higher.

Since the global market melt-down that began on February 26, gold and gold stocks have recovered nicely. In fact — daily fluctuations aside — both gold and silver seem determined to climb above their pre-correction peaks in the days ahead.

Of course, recent history has taught us that anything can happen in the metals over an hourly, daily or even weekly basis. The lesson we need to take away from the early-spring volatility is the need to keep focusing on the long-term picture for precious metals and commodities in general.

And that picture is looking better and better every day.

The most obvious change has, of course, been the change in the Federal Reserve’s stance toward monetary policy in their last meeting. It wasn’t much of an overt change — just the deletion of a few words in the policy statement where it had previously referred to the possibility of further firming.

But the impact on the markets from this small change was gigantic.

Immediately upon the release of the policy statement, the dollar was quickly sold off, and investors rushed to buy metals and mining stocks. But, again, this was just the immediate, short-term reaction. The great importance of this shift in Fed sentiment was in how it has colored investor thinking ever since.

To put it simply, the market has now come to realize that, to avert a potential economic catastrophe, future U.S. monetary policy will be one of accommodation.

Given the extreme leverage employed in today’s markets, and how extensively interconnected global markets are today, the U.S. subprime mortgage/housing crisis cannot be allowed to spread. And, as with the Y2K “crisis” and the Tech Wreck, the Federal Reserve will not hesitate to open up the flood monetary flood gates in defense of the U.S. and global economy.

In an environment in which Asian economies are racing ahead...in which the dollar is dropping...and in which gold and silver demand is rising while supplies are falling — this will be the perfect recipe for an accelerated bull market in metals.

In other words, over the long term, the future looks very bright for gold, silver and the rest of the metals sector.

So we must continue to ride out the short-term fluctuations...and in Gold Newsletter, I will continue to focus on identifying the best bargains that the market volatility will create.
Which brings me to a very important point....

How YOU Can Profit

As the metals have rebounded over the past year, one of the strange attributes of the market has been how unenthusiastically the mining stocks have followed gold and silver along.

The investing public assumes that the shares of companies involved in exploration, development and mining will leverage the gains in the underlying metals. In truth, however, the record shows that the metals and the shares exchange leadership back and forth during a long-term bull market.

And over the past year, the metals have been the leaders...while the shares have been the laggards.

That’s not to say that investors should focus on the metals instead of the mining stocks. Far from it, in fact.

For one thing, when determining which sector is leading, analysts typically compare the price performance of the metals with indices of the major producing miners, such as the Gold Bugs Index (HUI) or the Philadelphia Gold and Silver Mining Index (XAU).

These big-cap mining companies almost always follow the metals step-by-step, only exaggerating the degree of the moves when they show their typical leverage. However, a number of investors have found that far greater profits are generated by the smaller-cap explorers and developers.

Because these smaller companies are not tracked by the widely followed market indices, they can get lost in the shuffle.

But we focus precisely on these stocks in Gold Newsletter...and the results have been nothing short of fantastic. Gains of five, 10, 20 — even 30 times over — have been realized by readers who bought some of our early-stage recommendations before they hit the steepest portion of their value-creation curves.

Now, as gold and silver are enjoying what appears to be a new rally, we’re seeing some tremendous relative values in mining stocks, and it seems likely that the equities are about to regain their leadership position in this bull market.

In short, the leverage seems ready to return. But just to make sure, we’re focusing on high-potential, smaller-cap exploration companies that could create huge shareholder value with discoveries they’re now closing in on. In other words, these companies could soar in value as the metals rise in price...and even if they don’t.

It’s a strategy that’s already built fortunes for many over the past few years...and we’ve only just begun.

*****

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. To learn more, visit www.neworleansconference.com.