Allofthesefactors,coupledwiththegeopoliticalconcernsaroundtheglobe,ledforeigncentralbanksandahandfulofshrewdinvestorstoquestionwhetherholdingUSdollarswasreallyasafethingtodo。

Afewbravesoulsdecideditwasnot。

Sotheysmartlysoldtheirpaperassets(dollars)andboughtgoldatruestoreofvalueinuncertaintimes。

Forthefirsttimesincethe1970s,bothdemandandthepriceofgoldincreasedsignificantlyasthevalueofUSdollarsfellinhalf。

Thismarkedthefirstphaseofthemetalsrally。

Ofcourse,notmanypeopleboughtgold(oranypreciousmetal)in2001。

Themainstreamnevercatchesanideainitsearlieststages。

Peoplearetooafraidofbeingwrongandgoingagainsttheherd。

Sotheywaitforconfirmationfrommainstreambeforetheybuy。

Thatisexactlywhynoticeablebuyingdidntoccurinthegoldmarketsuntillate2004andearly2005whenthesecondstageofthegoldrallybegan。

Thesecondstageofthegoldrally:thestartofretailinterestingold

By2005,globaldemandforgoldwaslargeenoughthatspotpricesactuallyrosenomatterwhatthedollardid。

Forinstance,in2005,theUSdollargainedabout9%versusabasketofotherworldcurrenciesasitbouncedoffits10-yearlowandastheUSstockmarketrose。

Meanwhile,theshinymetalroseintandemwiththedollarfrom$420anounceto$520。

ThisdivergencefromtheUSdollarcoupledwiththefirstsignsofretailinterestingoldandsilverasalegitimateinvestmentopportunitymarkedthesecondphaseofthemetalsboom。

Duringthetime,BarclaysunveileditsiSharesCOMEXGoldTrustETFandthefirst-eversilverETF。

Sincethattime,moneyflowandvolumeforthegoldETFprovesthatthereisinterestingoldasaninvestmentvehicle。

AveragedailyvolumeforIAUhasmorethandoubledinthelastyearandtotalassetshavegonefromnothingto$1。

2billion。

Butthisinterestingoldisstillverytiny。

Wal-Martaloneisa$200billioncompany!

Inotherwords,despitetheinterestthathasbeendrummedupinthegoldworldtodate,itishardlyindicativeofamainstreamrally。

Thethirdstageofthegoldrally:willgoldgomainstream?

Thethirdstage(themainstreamstage)ofthismetalsrallyhasyettobegin。

Butwhenitdoes,itwillbequick,explosiveandverylucrative。

Tounderstandwhatthismaniaphasewilllooklike,weturnbacktothe1970s。

Duringthelastmetalsboom,stocksrosefastandfuriouslyinthefinalstagesofthemetalsrally。

*Bankenorosefrom$1。

25to$430ashare*Resourcesrosefrom$0。

40to$560ashare*SteepRockrosefrom$0。

93to$440ashare*MineralResourcesrosefrom$0。

60to$415ashare*AzureResourcesrosefrom$0。

05to$109ashare*AndLeonMinesrosefrom$0。

05to$385ashare。

Althoughmanysmall-capgoldstockshavealreadyrisenhundredsofpercentsince2001,wehavenotyetseenmania-buyinglikeinthelate1970s。

Infact,sinceMayofthisyear,goldstockshavesoldofftoseveralyearlows,despitebetterunderlyingfundamentals。

Whyaregoldminingstockssocheap?

Lastyearatthistime,anounceofgoldtradedinthe$470range。

AsIwritethisessay,theshinymetalisat$60128%higher。

Yetmanygoldcompaniesaresellingforlessthantheywere12to24monthsago。

Forinstance

IAMGOLDisajuniorminingcompany(marketcapof$1。

5billion)with4。

6millionouncesofprovenandprobablegoldreserves。

At$8。

50ashare,itistradingforthesamepriceittradedforbackinDecember2004。

Yetitsreservesareworth$430millionmoretoday。

BemaGoldisamid-tierproducerwith11。

4millionprovenandprobableouncesofgoldintheground。

BasedonFY2005numbers,thosereservesareworthanestimated$4。

9billion。

Yet,BemastockistradingforthesamepriceasbackinDec。

2003whenitsreserveswereworthabout$1。

1billion。

AndNewmont,amajorgoldproducerwithamarketcapof$20。

1billionand93。

2millionouncesofprovenandprobablereserves,tradesforthesamepriceasitdidinSept。

2003。

Yetitsreservesareworthabout$4。

1billiontoday,versus$2。

9billionin2004。

Thispriceactionisnot,inanyway,indicativeofafierce,mainstreammetalsrally。

Whilethepriceofgoldhassignificantlyincreasedinthelastyear,miningstockshavenotfollowedsuit。

Shouldyouinvestnoworwaitfortheherd?

Asinvestors,youhaveachoicetomake。

Youcaninvestingoldstocksnowbeforethethirdstageoftherallybegins(andwhilepricesaretrailingtheoverridingfundamentals)。

Oryoucanwaitforconfirmationfromtheherd。

Thosewhobuynowmusthaveastomachmadeofsteel,patienceandathickskin。

Whileitmaybearollercoasterintheshortterm,itwillbethesepeoplethatwalkawaywiththelargestprofitsintheend。

Ofcourse,thosewhobuynowwillonlyhaveonegroupofpeopletothankfortheirrichesthosethatwaitforconfirmationfromtherestofthemarketbeforetheygetin。

ByJamesBoricforTheDailyReckoning。

YoucanreadmorefromJamesandmanyothersatwww。

dailyreckoning。

co。

uk

Editorsnote:JamesBoricisoneoftheleadingsmall-capanalystsintheUS。

HebeganhisfinancecareeronWallStreetsuccessfullypickingwinningstocks。

Withtimeandexperience,Jamesrealizedhisgoal:tofigureouthowanaverage,everydayinvestorwithlittlecapitalcouldbecomewealthy。

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