The buzz around precious metals isn’t going away. My prediction is that this sector of the market will be the big story in 2006. Gold, copper, zinc, you name it — if it’s metal, it’s going to be hot.
You’ve got to stick with the winners if you want to profit from this trend. Many of the precious metal stocks have already gone up in value, but I believe they are going to continue going up because these are the best stocks in the sector. These stocks include Goldcorp, First Quantum Minerals, Yamana Gold, Aur Resources, and FNX Mining, to name a few.
Also, don’t forget what happened to energy stocks in 2005. The price of oil and gas was going up, and so did the stock prices of the major producers. But, oil and gas service companies also took off, and they now represent the stocks that are outperforming as big oil and gas producers spend money like crazy for exploration and development.
The same trend is now occurring in the mining sector. Many mining companies are flush with cash, and they are beginning to spend money like wildfire to find more ore in the ground. Naturally, drilling service companies like Joy Global and Major Drilling Group will outperform going forward.
It is always useful to think about how you can profit from the current “buzz” in the marketplace. For example, the price of copper has been on a tear for a number of months. If you don’t want to speculate in the derivatives market by owning futures in the commodity itself, you can consider copper producer stocks and companies selling to those copper producers.
With raw commodities, the spot price always moves first, then existing producers benefit, then the companies that service those producers benefit. You can use these fundamentals to your advantage right now.