The best investment opportunities are usually the most obvious and will be staring you in the face. That is the case at the moment with smaller gold and silver producers and the precious metal exploration companies.
Gold and silver are in powerful secular bull markets but have yet to match their consumer price inflation adjusted all-time highs of 27 years ago, respectively over $2,500 and $125 an ounce, and much higher if adjusted for monetary inflation.
Higher prices for gold and silver are naturally great news for the profits of the mining companies that produce the metals. Indeed, the share prices of the bigger producers have shown some strong upward movements in the past two years.
However, hedge funds have been buying the larger producers and shorting the smaller gold and silver producers and exploration companies, and this has kept the price of the latter artificially low in comparison to the price of gold and silver.
In fact, a recent study by Eric Hommelberg on the website Golddrivers.com
concluded that this is now the lowest ratio between the prices of these junior shares and precious metals in history.
Famous gold investor Jim Sinclair is telling investors to fill their boots with these stocks on his JSMineset.com
website and has just boasted of having put $23m into one junior exploration company himself.
When the smartest gold bugs in the business spot a historic opportunity then trend followers should sit up and pay attention. But which shares should you buy?
Eric Hommelberg gave AME Info a list of his current hot tips:
Rainy River Resources (RR)
Endeavour Silver Corp (EDR)
Candente Resource Corp (DNT)
ECU Silver Mining (ECU)
Victoria Resource Corp (VIT)
Kodiak Exploration (KXL)
Peter Spina, the owner of Goldseek.com
offers Timberline Resources (TBLC) and Gold Resource Corp (GORO).
Star 1970s gold analyst Joseph Granville, now in his mid-80s, has Royal Gold (RGLD) and Linux Gold (LNXGF) as the smallest caps on his stock pick list. He says with patience these stocks will show much higher capital gains than the larger firms but now is the time to buy as prices are so cheap.
Another veteran of the 1970s gold bull market, Howard Ruff, is keen on pure silver stocks because if silver outperforms gold as he expects then these companies will deliver even higher returns. His picks include: Hecla (HL), Pan American Silver (PAAS) and Silver Wheaton (SLW).
Howard Ruff has turned positive on gold and silver again, for the first time since the 1980 peak, and in 1996 published his book 'Ruff's Little Book of Big Fortunes in Gold & Silver', which is an excellent guide for anybody who doubts that precious metals are heading higher and a best-seller on Amazon.com.
When this book first appeared the gold price was $650 an ounce and silver $11, compared with gold at close to $1,000 and silver over $20 less than two years later. Of course this upward momentum has not been in a straight line but precise market timing is impossible.
You need to buy and hold with resolve to profit from precious metals, and accept that market volatility is the price you have to pay for the high returns. And if you want the highest returns from this bull market in precious metals then the smaller stocks are a historic buying opportunity, or as Howard Ruff puts it 'a middle class license to print money'. See also:Part 1: How to ride the gold and silver bull market