First, a word about the pullback in our sector over the past couple months, something I know has shaken a few investors.

Yes, gold and especially silver have retreated hard from their August highs. Precious metals equities remain below their April peak (as measured by GDX) and are underwater year-to-date.

So, are we worried?

No.

Much of our confidence is rooted in the fundamental factors that will, over the long run, continue to drive precious metals prices higher, along with the better companies mining them.With mounting concerns about unserviceable debt in the
US and many other countries, gold’s attractiveness will continue, much like it has over the past decade, with natural
pullbacks along the way.

Further, the correction in gold had nothing to do with fundamental factors. It was largely the result of the 2,000-point decline in the Dow in August and the resulting need for liquidity. Institutions and large investors have to raise cash to cover margin calls and/or losses in other investments, and they may occasionally sell some gold to meet those needs. Further, the gold price ran too far, too fast and was due for a correction, if for no other reason than
profit taking. This headwind is thus temporary and should be viewed as such. In the big picture, the dollar isn’t any healthier, interest rates are still negative, and currency inflation is still an irreversible trend.

Remember, this is a massive trend that will take years to play out. Consider the following:

• The monetary base now exceeds $2.6 trillion, a mind-boggling 165% increase in just the past 36
months.
• The global economy is highly vulnerable and largely propped up by governments.
• The predicament of many European nations is inescapable, despite the recent “solution” announced
by leaders.
• In spite of the US dollar still being viewed by some as a “safe haven,” it has yet to experience its full fallout. Roughly 10% of federal revenue goes solely to debt payments, a figure that is projected to triple.
• How will the reckless path of deficit spending shift without causing some kind of major impact
on the economy? History shows that abject deficit spending leads to economic downfall, virtually
without exception.
• How do we avoid massive inflation, an outcome that seems so certain at this point that about the
only way to avoid it would be a massive global meltdown (and even then, the Fed would surely print to oblivion)?

All of these factors point to the gold bull market continuing for many years – and signal the increasing need for us to have significant exposure to precious metals and their stocks. Market setbacks can be unnerving. But selling in a panic and realizing a loss on gold, silver, or good stocks of companies that have what it takes to add a great deal of shareholder value going forward is the wrong answer. To combat the emotional temptation to sell, look at how much cash is in your portfolio. If you have little to none, I’m sure you’d feel differently if you had plenty of green ready to deploy.

We’ve been saying since September that gold producers are undervalued, and here’s some data that shows just how extreme the undervaluation is. The following chart measures the stock prices of major and intermediate gold producers against their Net Asset Value, based on the daily price of gold. In the simplest terms, a company should be worth more as the product it sells rises in price faster than the cost of those sales. In this case, gold has doubled in price over
the past three years while costs have not kept up, dramatically increasing the intrinsic value of a reasonably well-run gold producer.

Mike Clemson is a gold stock expert who can help you learn more about gold investments and gold stocks. He has managed to find the top gold stocks for the next year.