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Waiting for the Next Wave

Written by Greg McCoach
Posted July 21, 2006 at 8:00AM

DENVER, CO -- The current situation in junior mining stocks 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.

It was always fun however to be in the water or near the beach when the waves suddenly kicked back into gear. Many times those who waited patiently got the greatest reward and enjoyed the best surfing with the least amount of people. As the crowd of surfers who were not near the water would get word that 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!

As I write this, gold recently had its biggest daily rise since 9/11/01. Does this mean that the correction we have just experienced is coming to a close? In my opinion, yes we are starting to build our foundation for the next major wave higher in both the precious metals and the mining stocks.

Things may remain quiet with the stocks 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. As one looks around currently at the world at large does anyone out there really wonder why this is happening?

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Well for starters, China and India are still growing at a strong pace, the U.S. dollar is in a major bear market, the huge debt loads of the US Government are completely unsustainable, and the geo-political front looks tenuous at best.

If that is not enough -- Add the insane financial risk that abounds at almost every level in society. Derivative risk with the major banks and business, two trillion dollars worth of adjustable rate loan debt that soon needs to be rolled over to higher rates, personal and business debt loads at all time highs, etc, etc, etc. The list can go on and on and on............

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.

Plus, investor demand was up 37% last year while global demand for gold jewelry was up 5% due to the exploding wealth in Asia and the Middle East.

Meanwhile, gold supply is not increasing but looks very stagnate. Mining companies cut exploration budgets in the 1990s when gold was out of favor which has now put them behind the supply/demand curve. Now that they're scrambling to catch up with the higher gold price, it is going to take some time to bring this new supply online.

Overall, gold production was only up 1% last year and in South Africa, production is at the lowest level since1923. The bottom line is that demand is expected to outstrip supply for at least another five years and probably longer. These factors will push gold up for years to come.

So the commodity bull market is climbing that troublesome and nerve-racking wall of worry, and there is no doubt that it is indeed climbing. Despite all of the negative talk about commodities in the main stream media, the CRB Index has closed higher in 5 of the 6 months so far this year. That's an impressive measure by any standard, even for a bull market.

In France they have a saying that the more things change, the more they stay the same. Despite all the mainstream rhetoric that this or that has changed, in my opinion, nothing ultimately has.

So, I 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!

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