Dear Readers,

I'm back at my desk after a busy week in Vancouver, attending both the Vancouver World Resource Investment Conference and the BC Roundup, the latter being mostly for geologists and people in the industry.

Both conferences were very well attended - I haven't seen official numbers yet, so I don't know if any records were broken, but both events were madhouses, swarming with people. It was more like the shows that I've attended when the market has been manic than the quieter ones we usually see when the market is fear-driven, as it has been recently.

Rock & Stock Stats	Last	One Month Ago	One Year Ago
Gold	1,726.00	1,571.00	1,334.50
Silver	33.48	28.65	27.39
Copper	3.87	3.36	4.33
Oil	99.76	99.44	84.45
Gold Producers (GDX)	57.14	50.06	53.73
Gold Junior Stocks (GDXJ)	29.84	23.01	33.92
Silver Stocks (SIL)	24.79	20.14	21.74
TSX (Toronto Stock Exchange)	12,466.50	11,728.41	13,410.00
TSX Venture	1,628.92	1,451.08	2,233.97

That's interesting in and of itself. The market has been down, and many of our stocks are down from recent highs, even though gold has held up very well. People have been puzzling over the disconnect between precious metals prices and the lack of performance in the relevant mining stocks. And yet, here we are in a standing-room-only zoo of people looking for investment opportunities.

There was standing room only at the talk I gave on The Top 10 Things to Look for in a Gold Company -
I like that people were taking notes and thinking hard on how to apply what they learned. Thanks to all who participated!

I think this is quite bullish, actually. My take is that with each passing day that gold does not head back to the dark netherworld whence it came, more and more investors are starting to see that gold is not in a bubble and that the $1,910 peak we saw last year was not the top. With each new gold miner's earnings report - most with new production records, at least among the companies we follow - more and more investors are realizing that the producers are making money hand over fist. With the average industry cost to produce an ounce of gold still under $700 and gold over $1,700, good companies are generating spectacular margins. This reality is sinking in, and investors are returning to the market.

This is clearly upbeat for the producers, but remember: a mine is by its nature a depleting asset. To make money mining is to use up one's asset base. Mining reserves must be replaced or even the biggest and most successful mining company becomes a smaller company and eventually disappears. That means producers must discover or buy up more resources - or face extinction. That's bullish just now for smaller producers and even the junior exploration companies which the market usually holds in such low esteem: the good ones are takeover targets.

And that, dear readers, is a tremendous opportunity. The market doesn't like something that has future buyers who have no choice but to buy or cease to exist. This is precisely how shrewd speculators willing to take some risk can make huge profits buying low and selling high.

In fact, on the first morning we were at the investment conference, Pan American Silver (T.PAA, NASDAQ.PAAS) announced the $1.5 billion acquisition of Minefinders (T.MFL), a company in our BIG GOLD portfolio. MFL promptly jumped 22.2%. We're seeing more such acquisitions lately, and we expect that trend to continue and even accelerate. With share prices generally starting to rise from their December lows, such M&A activity could heat up quite a bit in the near term.

Anyway, back to the show. It was great to meet so many new readers these last few days and to shake hands with old friends again. I was very impressed with how many of you have understood and implemented our speculative strategy; buying in tranches, benefitting from the upswings, taking profits, preparing for sale prices. All good.

The questions were great too. What happens to gold if a weaker euro makes the dollar look stronger? What happens to our stocks if there's a 2008-style crash? Why are these stocks on sale when gold and silver remain strong, anyway? This all shows that you're paying attention and you get it. That means you stand a much better chance of profiting from the volatility ahead rather than getting crushed by it, like so many others will be. What a great tone to start the year with!

2012 - End of the World, or Beginning of a New Life?

Speaking of starting a new year, let's have a peek into the Casey Crystal Ball. Of course, there really is no crystal ball, and Doug Casey himself is always reluctant to play the guru role when people ask him what will be. But, for what it's worth, here's how the year looks to your metals team:

• The Mayans were very sophisticated astronomers, but no, the world won't end in 2012.
• Still, we could indeed see a crash like 2008 - only if we do, it will likely be much deeper and last much longer, since confidence in the con game of the current world order is already badly shaken. If we get a crash, there will be a short-lived, illiquidity-induced opportunity to buy precious metals cheap and related stocks even cheaper, but base metal prices and stocks will crater and could take much longer to recover.
• If things don't crash, the amount of inflationary "stimulus" implied would be extremely bullish for commodities. That's especially so for gold and silver, now that the world is reawakening to their use as financial assets. But it would also boost base metals, as all that phony money would flood into make-work projects that require vast amounts of raw materials.
• If we see actual deflation this year (a concern some of you have expressed) even as the governments of the world are "stimulating" to save their regimes, the implication is one of massive value destruction in various asset classes. That would be catastrophic for related industries: real estate, finance, banking, and autos are a few examples. If that happens, it's bearish for base metals but bullish for precious metals. That's because gold is not priced by industrial demand; it moves as a barometer of financial fear in the world - and there would be a lot of fear in the world.

Now, before you complain that I'm not telling you what will be, but only what may happen under alternative, equally plausible scenarios, let me point out something that can make you a lot of money: precious metals gain in any of these scenarios. Inflation or deflation could both be good for gold (and silver). Not so base metals.

So a clear picture does emerge, even if I can't predict the future: A). Base metals could make a lot of money for investors this year - or the opposite. That's a toss of the gambler's dice. B). Precious metals win in any likely scenario, and that's the kind of trend an intelligent speculator can assess with confidence.

Even as I was saying the above from the podium, gold staged a rally. Not my doing, but still nice. However, we don't really need a major rally in gold, nice as one would be. If gold does nothing but trade sideways all year, the producers will still rake in tons of cash and the best of the smaller companies will still hand investors profits as they get bought out by the larger ones.

So, here's a summary of our recommended strategy: If you are risk averse, focus on the stable, low-cost producers with good growth potential. If you can tolerate greater risk for greater rewards, look for the best of the best junior explorers with strong takeover potential. Don't be shy about buying now in case the real gold mania gets going this year, but don't go all in, in case there is a 2008-style crash ahead that could bring us fantastic bargains on great companies.

Next Up

So there you have it. If you missed the show, this is a bird's-eye view of what happened and the short version of your metals team's contribution. Your next opportunity to meet with us and ask us your questions will be at the PDAC convention, March 4-7 in Toronto. After that, we'll have our next Casey Summit back in Florida this time. Details will be forthcoming.

I enjoy working for you and look forward to meeting more of you in the future.

May we all have a tremendously happy and profitable 2012!

Sincerely,

Louis James

Senior Metals Investment Strategist
Casey Research