On October 07 The Gold Report conducted an interview with me just after gold broke out to new news above $1030. During that interview I made the case for $1300 gold by spring next year and advocated to be invested in high quality juniors which are poised for a multi year bull run that could even surprise the staunchest junior investors. This piece is an update on that interview and shines a light on how to approach investing in junior gold mining shares.

Massed bagpipes, fine malts and a bullish outlook for London's professional gold dealers...

RHONA O'CONNELL did it on the train home, John Reade managed it before the conference finished, and Ross Norman's team were at it throughout.

The S&P ADR Index is up 30.18% YTD. As Canada is a resource-rich country, nine Canadian companies are part of the materials component of this index. The majority of these companies are gold miners.

The Nine Canadian Basic Materials sector stocks that trade on the NYSE are:

So much about the success of a project depends upon the jurisdiction in which it exists that most institutional investors simply won’t put money into a company operating in certain countries. Sure you can find a deposit in Venezuela, for example, but leaders like Hugo Chavez, who are in the habit of decreeing bizarre legislation such as a recent ban on singing in the shower in Venezuela also have a penchant for stealing mineral deposits from whomever they please.

That’s right. It’s not a typo. We are indeed talking about gold, not silver.

Unusual Correlation

Options are becoming more popular as a hedging tool against the next big turn of the market. The next big turn of the market is, more and more these days, what you have to figure out because these big turns are dragging nearly everything along for the ride either up or down. With options, you can limit the damage if the market turns hard the other way from your plan. But options are expensive and take a big chunk out of your rate of return. And they are priced per implied volatility and are thus priced per the VIX - the higher the VIX, the more expensive options become. We are probably going to have to live with the VIX on the historical high side for awhile, so that makes using options to try to get good returns no matter what the market does a very complicated and difficult thing.

Well, put on your thinking cap and try this on for size. Why not just buy and hold gold stocks? It sounds too simple, but look at what gold stocks have done over a large variety of strong market disturbances - from deflation to inflation, from vicious bear to vicious bull:

With gold either steady (as in the '30s) or rising (as in the '70s and now) gold stocks do well no matter what the market does - up, down, or flat. What complicated options strategy can average much better than that? It's a buy and hold stock strategy where you don't have to make a directional bet on the market, freeing you from a lot of dangerous and usually self defeating week to week trading. The investment jungle rarely offers this good of a deal. You just have to be right on gold being in a bear or bull market.

At that forum, Bolivian President Evo Morales made some clear statements about his vision of the lithium industry. Specifically, he warned that lithium will not become a “new chapter” in his country’s “history of pillage and poverty.” And Morales admonished future foreign investors to become “partners—not owners—of the lithium industry.”

China Federation of Logistics and Purchasing reports October manufacturing (PMI – purchasing manager’s index) rose to 55.2, a full point increase over September 2009. Chinese manufacturing has risen for the eighth straight month, continuing signs that economic recovery in China is on stable ground.

Further, signs of a more robust expansion follow an already healthy economic recovery, with China reporting 8.9% GDP growth in the third quarter -- the highest rate for any major economy in the world. The China Gross Domestic Product is worth 4.326 Trillion dollars or 6.98% of the world economy, according to the World Bank.

It's been a dollar vs. gold story ever since the economy ran into trouble last fall, according to Blackmont Metals and Mining Analyst Richard Gray, who sees inevitable inflation down the road. "The trouble is there are no real applicable precedents we can use," he explains, noting the prodigious amount of stimulus money flooding the economy. In this exclusive interview with The Gold Report, Richard discusses major drivers behind gold's price rise, attributes of successful juniors and why he thinks gold's upside scenario is "maybe $1,100 or $1,200."

The Gold Report: Gold's on a roll. What's your take on what's driving the gold and precious metals sector right now?

(CEO) Mr Kloppers also warned that a recovery from the global downturn was expected to be weaker than in previous recessions.

It is a long-established pattern of the precious metals sector that in any long-term bull market the precious metals miners outperform bullion, itself – with this especially being true at any medium-term tops and (of course) at any long-term top. The fact that relatively few investors know anything about these companies is one indication that this market is many years away from peaking. However, with gold recently reaching a new nominal high it is only natural that investor curiosity about these companies should start to grow.

Unfortunately for investors, there is not a lot of guidance openly available on these companies. Those advisors who specialize in this sector and focus on the mining companies typically offer their advice by subscription only. For novices to this sector, even those who are willing to pay for a subscription , knowing who is worth the time and money for such a commitment can be a very difficult question to answer.

As a brand in the gold mining sphere, it's a powerhouse. The largest gold producer in the world by market cap and annual production, Barrick Gold is listed on the New York Stock Exchange under the ticker ABX. It has a market cap of $30.21bn (£18.43bn) and has a P/E ratio of 46.92.

With all the 'strong dollar' rhetoric coming from the Fed and broken-record Bernanke, it's a wonder any investors are making money. But one we know and trust is. . .because he's not listening. "The U.S. will continue to take a laissez faire approach to the dollar," says John Doody, Economics Professor for nearly two decades and current author and publisher of Gold Stock Analyst. In this exclusive interview with The Gold Report, John explains how he measures gold's price performance, why he believes most investors don't have enough gold stocks in their portfolios and which companies he's making money on right now.

The Gold Report: John, why hasn't the mainstream media caught on to what's going on with gold?

The dollar's not going to go straight down, according to Steve Palmer, president and CEO of AlphaNorth Asset Management:"I'm expecting the U.S. dollar to rally in the short term and gold to sell off." Forecasting a bit of a pullback in the next month or so followed by another rally before year's end, Steve also explains his 'bigger bang for your buck' penchant for exploration stories in this exclusive interview with The Gold Report.

The Gold Report: Since the last time we spoke, in February, your performance in your fund year-to-date is up, I believe, 138%. Can you tell us what sectors you focused your fund on during this year to produce that type of return?

Silver is often thought to be a metal and little else. It is often assumed that silver is rather cheap due to the lack of scarcity. But both of these assumptions don't reflect the true underlying dynamics.

1) The Navidad project (Argentina), currently under construction by Aquiline Resources, is among the top 5 undeveloped silver mines in the world. It is comprised of seven zones, one of which Silver Wheaton (SLW) has the right to purchase 12.5% of the silver produced over the life of the mine. This may not sound all that big, but this zone is expected to produce 16 million ounces of silver per annum, with a potential expansion project that will increase this to between 20-22m oz. Though this will likely only add about 3m oz to Silver Wheaton, it has already been paid for (less the $3.90 cost of purchasing the silver. This may prove to have substantial upside as the seven zones already have a resource base exceeding 750 million ounces and operations have yet to commence.

1) Silver Wheaton (SLW) - I have talked multiple times about this extremely dynamic business model and the transformational year 2009 has been for the future of this company. Management continues to execute deals and acquire a diversified group of royalty streams at bargain basement prices. Not only will they be the lowest cost producer (under $4.00/oz) but they will also become one of the world's largest producers (peak production of 50m oz per annum assuming 2 development projects come online within the next 5 years or another acquisition which they have made crystal clear in the most recent conference call). This is the best inflationary hedge in my opinion as they pay no income tax (has made arrangements with the Canadian government to either reinvest all excess profits or pay them out as dividends). That being said in one or two more years, these royalty streams will sell for a much bigger premium relative to today. This means a payout ratio of 75-85% will likely be in place by 2015 or so.