Has gold moved too far, too fast?

There are basically two views. The bears argue, quite correctly, that commodity run-ups are always self correcting: consumption drops just as production increases and prices retreat. They also point out, correctly, that the longest bear market ever is actually in commodity prices, which have been dropping, in real terms, since the beginning of recorded history. The bulls, including myself, argue that, while these things are true, both fundamental and monetary factors militate for perhaps a decade of higher prices until the fundamental trend reasserts itself. In other words, I think we're in a period that's going to run against the norm. Stocks, in bear markets, tend to fall twice as fast as they previously rose. Commodities, in bull markets, rise twice as fast as they previously fell. We're in one of those times. I, like everyone else, would be much more comfortable in conventional, prosperous times. But I like to be a realist and make the trend, whatever it is, my friend.

When the bubble arrives -- and I'm very confident it will -- it will be easy to tell. The magazine cover stories, the cocktail party buzz, the talk of legislation in Washington to "do something" about high prices, the reports from brokerage firms -- there will be lots of indicators. Of course, few people will pay attention to them in the right way -- they'll think they're accurate descriptions of reality, not indicators of a mania. It was the same with the Internet stocks a few years ago.

Generally there are three stages to a bull market. The first is stealth, when prices go up but nobody cares or even notices. With commodities, that happened from about 2000 to 2003. Next is the "Wall of Worry" stage. People see that prices are rising, but expect them to fall back to the bear market levels they'd gotten used to. People come up with all kinds of reasons why they're overpriced. They are confused by the new reality, and many "old hands" and commodity producers take the opportunity to sell, since they haven't seen good prices for years. This is the stage of the market we're now in. Finally, there is the mania stage, when broad masses of the public get involved. It's where the big profits -- but also the big risks -- are. Personally, I'm more comfortable buying when everyone says you're an idiot for doing so, or at least when they're skeptical. When we're all hearing about what a great investment gold is, I'll be looking for other opportunities. But my guess is that we won't really be there for another year. And when it arrives, the mania should last for some time, as it did most recently with the Internet stocks.

While I was expecting to see a big surge -- and went on record with that expectation on March 22 when gold was trading at $550 -- there's little doubt that gold and silver may be getting ahead of themselves for the short term. A market trend, even an unstoppable one -- which is how I view the current metals bull market -- is still going to periodically correct.

Get used to it.

That is especially true if you're an investor in the mining shares, which is absolutely, without question, the right way to play this market. Buy on dips (historically, we see buying opportunities in the summer months) and don't be chased out of the market by volatility.

When this thing does finally come to an end, the better-managed gold and silver stocks will be trading for many multiples of what they trade for today.

This trend is your friend... get comfortable with it.