Sep 9 2010 11:38AM

www.resourceopportunities.com

Investors remain downbeat, with their spirits dampened by the constant stream of negative economic news. Amid the gloom, there are bright spots where investors have prospects of near-term gains.

Gold is gaining in popularity among investors looking for a secure store of wealth in these times of financial turmoil. Looking longer term, gold is seen by a growing number of investors as an inflation hedge and as protection against currency devaluation.

The short-term volatility in the gold price can be alarming to those seeking stability. Investors would do well to keep their focus on the longer term, rather than trying to react to the short-term dips and spikes.

An alternative to investing in bullion is to look at gold equities. I continue to favour emerging producers, as they offer favourable leverage to bullion and at the same time offer the upside potential of emerging growth companies. The small gold companies are still largely under the radar of investors. Many of these companies are fundamentally undervalued in the context of the current gold price.

Furthermore, the gloomy near-term economic outlook, at least in America, has led most investors to totally discount the base metal companies. Few investors have noticed that the copper price has climbed 18% over the past ten weeks. The other metals are also showing strength, as demand grows in the face of constrained supplies.

Whatever the economic situation is at the moment, there is absolute certainty that the mining industry will develop new mines in the near future. The larger mining companies are acutely aware that they need to secure new metal deposits. To meet that objective, they are aggressively seeking opportunities to acquire juniors. Talking to the juniors, it is clear that a feeding frenzy is developing. There are not a lot of high-quality deposits available to the industry, which will lead to competition to secure future metal supplies. (One junior recently told me that they have signed twelve confidentiality agreements giving larger companies the right to review the technical information for a modest-sized deposit that is only at the preliminary assessment stage.)

There will undoubtedly be more takeovers of juniors in the coming months, and the prices paid in those deals will be well above the prices at which those companies currently trade.

The quiet summer period is about to roll over into a busy fall season. Investors will be back in front of their computers and exploration companies will be announcing results from a busy summer field season. Investors were not completely absent over the summer and companies have made progress: two of our companies have doubled in price over the past few weeks and eighteen other are up at least 20% from the start of the summer. Now is a great time to be building positions in juniors.

Lawrence Roulston