Copper's Record Price Says It All

01/31/2011 11:36 am EST

Focus: COMMODITIES

Lawrence Roulston

Editor and Publisher, Resource Opportunities

The near-record price of the red metal is more telling than all the gloomy predictions for Western economies put together, writes Lawrence Roulston in Resource Opportunities.

Investor sentiment is dominated by the recent $78-an-ounce drop in the gold price.

The reality is that whatever happens to the gold price in the coming days or weeks, one thing remains abundantly clear: The gold mining industry is clamoring for new mines. Rather than trying to guesstimate the near-term outlook for the price of bullion, we remain more committed than ever to our investment model: owning companies that are finding and developing gold deposits and thereby generating shareholder value.

We could say exactly the same for silver as for gold. And likewise, the pullback in the silver price provides abundant buying opportunities for those investors with a slightly longer-term outlook.

[Such opportunities should only increase over the next few weeks as precious metals correct further, writes Tom Aspray—Editor.]

A few investors are starting to understand the base metals story, as evidenced by a selection of junior companies in that space that have seen price gains. Copper is trading near $4.40 a pound, well into record territory. Uranium is up 50% in the past few months. [Gordon Pape recommended a major beneficiary of this trend in November, and despite a modest rise since it remains below his buy target—Editor.] Nickel is on the move. Zinc is overdue for a big gain.

But again, I am not suggesting anyone gamble on moves in metal prices. Instead, look at the companies that will contribute to future supplies. [Jim Jubak is sticking with his favorite copper miner, for example—Editor.] The mining industry constantly needs to replace mines to maintain production, and it needs further new mines to keep up with growth in demand.

Charts, Travels Bolster Outlook
In looking at the metals markets, don't be fooled by the talk of doom and gloom in America and Europe. China, India, Latin America and the rest of the developing world are the driving force for metals. The clear evidence of the copper price is far more meaningful than any theoretical economic analysis.

The last four months have involved extensive travel for me: twice to Europe, four countries in Asia, property tours in South America, and participation in investment conferences in four cities in North America. Seeing so many parts of the world first-hand is extremely useful in understanding the outlook for the metals markets. The picture now is more clear than ever: There will be continued near-term volatility in metal prices and exceptionally strong long-term demand for all of the metals.

The recent pullback in gold and the softening of share prices for many companies presents buying opportunities. Many exploration companies are now well-financed to continue to advance their projects over the course of this year. In spite of investor uncertainty at this moment, the news flow from the active companies will be a powerful driver for the share prices in the coming months.

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