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Luke Burgess
Managing Editor, Gold World

The current situation in the junior mining stock sector reminds me of times when I enjoyed surfing as a young man.

While there were moments of shear exhilaration as the waves would suddenly come alive, there were also moments of monotonous boredom, waiting for the next big set of waves to arrive. In the process, the number of surfers in the water would dramatically change with the circumstances.

The parallels between surfing and investing in junior mining stocks at the moment seem applicable. We are definitely in the boring, monotonous phase where many investors get tossed off this bull’s back.

It was always fun, however, to be in the water or near the beach (market) when the waves suddenly kicked back into gear. Many times those who waited patiently got the greatest reward and enjoyed the best surfing (market action) with the least amount of surfers (investors). As the crowd of surfers/investors who were not near the water (market) would get word that the surf was up and head for the beach, the best action had already passed.

For now, we are just bobbing up and down with the gently rolling swells and positioning ourselves for the next big wave. The wave action is very volatile and can change very quickly just as our commodity and junior resource stocks have recently shown. But one thing is clear in my mind, the next big set of waves are on their way!

Bullish Outlook for Precious Metals and Junior Miners

The market is building a foundation for the next major wave higher in both the precious metals and junior mining stocks. Things may remain quiet with the junior sector for the balance of the summer, but I believe we are seeing the spot prices solidify because the fundamentals for this super bull market are not only alive and well but getting better by the week. Just look at the facts...

The U.S. dollar is in a major bear market, the US Government debt levels are completely unsustainable, and the geopolitical front looks tenuous at best.

On top of that, demand for gold is very strong. It’s being sought as a monetary asset, and as more central banks of the world add gold to their reserves. This trend will continue to grow.

Identifiable investment demand for gold was up almost 250% during the first quarter of this year, compared to the first quarter of 2008.

Meanwhile, gold supply is not increasing but looks very stagnant. Mining companies cut exploration and development budgets as a result of the global recession, which has now put them behind the supply/demand curve. And it always takes a long time to bring new supply to the market.

Overall, gold mine production was only up 3% in the first quarter of 2009 compared to the same period last year. And demand is expected to outstrip supply for at least another five years, probably longer. These factors will push gold up for years to come.

We continue to bob in the swells looking for value and exercise patience knowing that the next big wave for the precious metals and junior mining stocks will soon be on its way!

Good Investing,

Greg McCoach
Editor, Gold World
Investment Director, Mining Speculator

P.S. I recently uncovered a tiny $0.26 junior exploration stock that owns one of the best gold finds I've seen in the past decade-plus... one that holds massive upside profit potential. This unknown gold company controls a large area in a mineral rich region that has produced over 160 million ounces of gold in the past several years. To learn more about this play — and its insanely profitable potential — just follow this link.

After hitting a six-week low of $913.20 an ounce overnight, gold for August delivery is up slightly to $927.10 an ounce this afternoon as the US dollar fell against the euro and Japanese yen.

Concerns about reserve diversification away from US assets caused a drop in the dollar against the euro ahead of the Federal Reserve's monthly meeting, after Moody's said that America's AAA rating could be at risk if the dollar was challenged as the world's main reserve currency.

In other precious metals, silver was trading at $13.85 an ounce, platinum was down slightly to $1,162.90 an ounce, while palladium strengthened to $236.70 an ounce.

— Luke Burgess