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Dear Daily Crux reader, When gold hit its all-time high last year, many gold and gold stock investors were downright giddy. But now that gold has pulled back a bit, the excitement surrounding the sector has dropped off considerably. With the media talking about a potential gold “bubble,” some investors are worried gold's bull market could be faltering. To get an update on where gold and gold stocks are today - and where they may be headed next - we sat down with one of our “go-to” gold experts: Jeff Clark, editor of Casey's Gold & Resource Report. Jeff is one of the world's most respected authorities on the sector... so we knew he'd have the answers we were looking for. If you're interested in gold or gold stocks, be sure to read on. Good investing, Justin Brill Managing Editor, The Daily Crux www.thedailycrux.com ------------------------------------------ The Daily Crux Sunday Interview An expert's advice on when to buy gold and gold stocks The Daily Crux: Well Jeff, not long after we spoke last fall, gold made another move past $1,000 and quickly hit $1,200 in December, setting a new record. Gold's big gain created a noticeable increase in excitement and investor interest. Since then gold has pulled back, and has basically been treading water... trading back and forth between $1,050 and $1,150. Gold stocks have been more volatile... as they usually are... but have followed a similar pattern. Can you update us on your thoughts on gold and gold stocks? Is this year setting up to be more like 2008, where we saw them tumble hard after trading in a range for the first half of the year... or 2009, where a similar consolidation lead to new highs? Jeff Clark: [Laughing] Well, I wish I could give you a definitive answer to that question... but there are a few things we can look at to get an idea of where gold and gold stocks are now, and where they might be headed. Let's start with gold. As you mentioned, gold pulled back after peaking at $1,221 in December. It traded all the way down to below $1,075 at one point in February, but has generally been hovering around $1,100 since then. Since hitting that high in December, gold has fallen about 13%. That's not out of the ordinary. To put it in perspective, since gold started its current bull market 9 years ago, it has had 16 corrections of greater than 5%. The average of those corrections has been 13%, exactly what we've seen this year. The two worst were both about 27%. The pullback we've seen is not a reason to be concerned. It's actually quite normal. Like you said, gold appears to have established a trading range here. And if we have another correction sometime this year from current levels, gold could actually fall back into the $900 range. That might frighten some folks, but again that wouldn't be abnormal. In fact, I would consider that a great buying opportunity. Another thing to keep in mind is that most assets, including gold, have been trading in tandem over the past year or so. By that I mean that gold and stocks have mostly been rising and falling along with the rest of the market, and when stocks have corrected gold has tended to correct as well. With stocks looking toppy here, it's likely gold could temporarily fall as well. Now at some point we at Casey Research expect the public to become interested in gold, and when that happens, gold will begin trading independently of the broader market. We can't give you a date to circle on your calendar, though. One other factor to consider is seasonality. More often than not, gold peaks late in the year... usually between September and December, which we saw last year... then sees a period of weakness for the first part of the year. So again, that makes what we've seen so far this year fairly normal. Seasonal weakness tends to last into the summer, setting the stage for a rally in the second half of the year. So the takeaway is that it would be normal to see a few more months of price weakness, and it would be just as normal for gold to see a tailwind in the fall. Obviously, seasonality isn't a guarantee, but it suggests price weakness may not last too much longer. Crux: Would you buy gold now? Clark: Well, if you don't own any gold, then you should buy some. We've been advising readers to keep at least two month's worth of income in physical gold, in addition to any cash savings they keep on hand. If you don't have that, then that would be something I would take care of immediately... whether that means buying some over a few months or buying it all at once. Once you've met that requirement, then you can afford to be pickier about the price. I would add to your holdings on pullbacks. I can't guarantee it, but most of the signs point to lower prices in the short-term, so you'll want to have plenty of cash to take advantage of that opportunity. Crux: How about gold stocks? Are they in the same boat? Clark: As you know, gold stocks tend to follow gold but with much more volatility. One thing I was eager to see this year were earnings for the gold companies. The gold price last quarter was much higher than it was a year before during the heart of the crisis ... so the expectation was that the higher gold prices would lead to a big jump in profits in the gold stocks. And other things being equal, you'd expect a big jump in share prices too. Well, we were right about the profits... they soared for many companies. But we didn't see the rally in gold stocks we hoped for. Yes, as a group they're up significantly from their 2008 lows, but we were expecting a big rise in stock prices to go with that big rise in the gold price. Crux: So what happened? Clark: Well, a combination of factors acted to keep share prices down, but I think it's actually presented us with a longer-term buying opportunity. First, many gold stocks increased their number of shares outstanding in the past year. When companies need to raise capital, they sometimes issue more shares. The downside to this is that the more outstanding shares a company has, the lower the earnings per share, and the more trading volume it takes to push the stock higher. That leads to the second factor... the gold sector as a whole has comparatively low trading volume. Total volume barely increased in our sector, despite the increase in shares outstanding. And stock prices won't go to the moon until we see more trading volume in the sector. So what will it take to get trading volume up? Obviously, it will take more interest in the sector. That brings me to the third big factor... there is very little coverage of the sector by investment houses and even less in the media. Sometimes investors forget just how tiny the gold sector is. Because it's so small, many big institutions don't own it, most analysts don't cover it, and the public has little interest in it. There started to be some talk about gold when it was setting records in December, but that was fleeting. But this negative could turn out to be a huge positive for early investors. We think it's only a matter of time before rising gold prices begin to stir interest in the gold stocks, and when that happens it won't take much money coming into the sector to really get gold stocks moving higher. I often quote Doug Casey's famous saying that it will be like trying to “push the contents of Niagara Falls through a garden hose.” I think that's what it will feel like once the public really gets turned on to gold and then gold stocks. At that point, volume is going to skyrocket and the stocks will go higher than most believe is possible. It could be bigger than the Internet stocks in the 90's. Crux: That sounds great, Jeff... but would you recommend buying gold stocks now? Clark: Right now we're seeing a similar situation to what we're seeing in gold. Gold stocks have been trading along with gold and the general market since March or April of last year. So if the overall market keeps going up, our sector will likely march higher, too. The converse is also true; if the broad market goes soft or even crashes, I think our industry is temporarily affected. Gold stocks also have a bit of seasonality that's unique to just to them... they tend to correct during the summer, which usually offers a great buying opportunity before the seasonal rally in the fall. That said, when we compare gold stocks to gold, we see that gold stocks are relatively cheap. Of course, that doesn't mean they can't get cheaper. They definitely can. But in the big picture, gold stocks represent a good value today, and have a lot of upside compared to gold. So if you don't own any gold stocks today... and have a longer-term perspective... then speculating on a handful of quality companies makes sense. Otherwise, the answer depends on your individual exposure to gold stocks and how much gold and cash you have on hand. If you already own quite a few gold stocks, I would wait for the lower prices that will likely be available this summer. The more gold stocks you own, the more you can afford to be picky about price. And obviously, if you don't have enough physical gold and cash, then I'd put money there before buying gold stocks. Crux: That's solid advice. Any parting thoughts? Clark: At some point, I'm convinced gold and gold stocks will propel higher, regardless of what the overall markets are doing. When that happens, which our research suggests is likely to occur once gold moves above $1300 or so, it won't matter how the Dow or S&P are behaving. In the last great precious metals bull market of the 1970's, the S&P returned a wimpy 22% for the entire decade. Meanwhile, gold stocks had soared over 650% by January 1980. I think we'll see similar action before this bull market is over. To me, it's a question of when, not if. Regardless of what gold or gold stocks do over the next few months, the best advice I can give is to keep your eye on the big picture... don't fret pullbacks that are actually normal. Treat them as a chance to build your position to a meaningful level. Our day will come. Crux: Thanks so much for talking with us again, Jeff. Clark: Absolutely. My pleasure. Editor's Note: If you're interested in staying up to date on the gold sector and learning about the world's best and safest gold stocks, we highly recommend a free trial subscription to Jeff's advisory, Casey's Gold & Resource Report. You can learn more - and save 50% off the standard price - by clicking here.