Metals and Mining Shares Update
Special Alert Friday April 7, 2004 12PM ET

Peter Grandich
Grandich Publications, Inc.
Posted May 9, 2004

2003 was a banner year for goldbugs. But, thus far, gold's performance in 2004 appears to have been a major bust for all goldbugs. However, before you place your mouth over your car's tailpipe, I would like to suggest that which currently appears to be bad news, may, in fact, be the best possible news for the longer-term. And the long-term is the reason for investments - unless you want to use the markets as a casino instead.

Interestingly, today's employment numbers led to a strong sell-off in gold because the current common theory is that strong economic results lead to higher interest rates that lead to a higher U.S. dollar, which can only result in bad news for gold. However, that common theory has one major flaw - the inflation equation.

Although gold has managed to hit $430, silver $8 and most other metals at multi-year (or decade) highs, metals prices have since fallen sharply. Mining and exploration shares have performed even worse. After nearly two decades of an overall declining inflation rate, the seeds of higher inflation are all around us - Oil is nearing $40 a barrel; Gas is at record highs; Food prices are rising.

The "Talking Heads" on CNBC-TV will tell you that only the "core" rate of inflation (which excludes food and energy) is all that really counts. But if that were the case, the "Talking Heads" all seemed to have eaten food today and they have somehow been transported to the studio by a vehicle that has used oil. As far as the gas part is concerned, they seem to be full of that (at least a lot of methane gas!). The truth is that inflation is rising. Even wage inflation, the last missing ingredient to the inflation argument, has increased substantially in the latest employment number.

In the final resolution, the sole - and most potent - impact to currency valuation is inflation. So, although the emotions of the moment are forcing gold downward, clearer heads will recognize that increasing inflationary pressures will only force gold to rise. Can gold continue to be pressured until such time this factor takes hold? Absolutely! This emotional period is simply a blessing in disguise. Cooler heads will prevail.

Mining and exploration shares are all about the price of the underlying metals. History has proven that they were far ahead of themselves and those who had joined the party late are the ones being hardest hit. It is these late investors who are selling the bulk of their investments into a highly illiquid market. Accordingly, this has made the losses appear even worse and it creates a panic-selling environment. Although it is impossible to determine the exact bottom, it is now evident mining shares are no longer overvalued. When the emotions depart from the stage and logic prevails, I believe that we will experience higher share prices

"Adversity creates opportunity."

I believe that the events of this morning may become one of the best buying opportunities since the bottom in 2001. Do not let your emotions control your investment sense.

Peter Grandich
Grandich Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com

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