Back in 2002 the editors of Profit Confidential started telling their readers it was time to jump into gold related investments. If there is one thing we know well, it’s about investing in gold. Our investing in gold advice has proved to be extremely timely. Yes, back in 2002 we started offering gold advice to our readers and we still do it today. We have been recognized as one of the first investment letters to tell its audience to jump into gold stocks, very early in the gold bull market. The investing in gold guidance we provided resulted in many stocks we follow rising in price 100% or more in short periods of time. Today, you can regularly find investing in gold advice in Profit Confidential. Each time gold prices moved higher, we told our readers to buy more gold related investments. See what we have to say about investing in gold dally in Profit Confidential.

The stock market and a number of commodities are in correction and this is no surprise at all. I want to repeat my view that all kinds of solid, growing gold mining companies are becoming very attractively priced right now and, as a sector, it’s worth putting gold stocks on your radar screen.

It’s a bit too early to jump right in with the spot price of gold likely to experience more downside. From a stock market perspective, most gold stocks began pulling back hard in mid-March, affecting even the best stocks within the sector. We’ve got to see the spot price of gold bottom out from its current downtrend and then I think we’ll have another really good entry point for considering new positions.

Investing in gold has always been a risky business, but it’s a worthwhile endeavor if you’re a stock market and commodities speculator. The key, like always, is to get the cycle right—timing in the investment business is everything. Even though the long-term trend might still be intact, the spot price of gold could easily go down to $1,200 or $1,100 an ounce. Why not? Gold has been in a bull market since 2002. The current price action in spot gold is very similar to the correction that occurred 2008/2009 and I wouldn’t be surprised at all if it repeated this trend: correction, recovery, consolidation, and then re-acceleration. It does take time.

Right now, there are large, medium and small producers of gold trading for reasonable prices on the stock market. A lot of these companies have little to no debt and are sitting on large cash hoards, waiting to put that money into new exploration and development. (See Everything Gold Is Turning Into Some Serious Green.) Even though gold stocks aren’t going up right now, it is an exciting time to be in this industry.

Speculating in gold mining stocks is a difficult business. You can find the best growth story out there, but if the spot price isn’t going up, then you aren’t likely to make any money. That’s why, as a stock market speculator, the majority of the time you need the spot price tailwind behind you. Or you go the other way and short these stocks when spot prices are falling. Just like in the oil market, spot price action is everything.

What I find attractive in a gold mining stock is finding a company that offer a “package” of good business fundamentals. This means that a gold mining company should already be producing and selling ounces of gold with detailed expectations for increased production over the coming quarters and years. The company should have other properties that it’s exploring, even in conjunction with other, perhaps larger mining companies. There needs to be a track record of financial growth, along with lots of cash in the bank for further exploration activities. Finally, a decent track record on the stock market is always helpful; it shows that institutional investors know about the business and are willing to invest and/or trade the stock.

I think we have more downside ahead in the stock market and in precious metals and other commodities. We’ve been due for a correction and here it is. I do see an underlying strength in the U.S. economy that, while not robust, is a good foundation for the future. For stock market investors, be prepared for further correction.

Over the past three trading days, gold bullion has lost roughly $100.00 an ounce. This correction is good medicine! The speculators who got into gold late are being taught a lesson. The weak money is leaving gold. This is exactly the type of healthy correction in the 10-year bull market in gold that I’ve been waiting for!

Here are some important words from my esteemed colleague, and resident gold expert and historian, Robert Appel, BA, BBL, LLB:

“After the gold mining stocks had been overvalued in 2008 and 2009, they went the other direction for 2010 and 2011. In fact, on a relative basis to their assets, going into fall 2011, gold mining stocks were selling at 30-year lows. To put that in perspective, if you are, for example a 50-year-old investor, you have only seen these sorts of bargains on gold mining stocks once previously in your entire life.

“Much of the ‘fast cash’ went into the ETFs, because they are quick, they are liquid and they allow investors to avoid the drama queens who often run the mines. In the past, many gold mining companies had treated their shareholders like garbage. The year 2011 was payback for the gold mining stocks. And this in spite of the fact that serious issues have been raised as to whether many of the gold ETFs actually have the gold they claim, and as to whether these same ETFs are used by the Big Boys to ‘manage’ their shorts.

“The hedge funds found a ‘play’ that worked—buy gold and sell the gold mining stocks. Now, we need to take a moment and try to understand how these guys think. If you told a hedge fund manager that a comet was approaching earth and we had only hours to live, they might produce this hedge—buy companies that sell survival gear, sell the credit card firms and the banks. The fact that this hedge might only work for a few hours (until the world ended and the comet struck) is simply not on their radar (pardon the pun). You don’t get to be a hedge fund manager by looking at the big picture; all you care about is the short term. So, short-term, the gold mining stocks were (and still are) whacked. In fact, many gold mining stocks are selling below asset value!

“Finally, the gold mining stock ‘whackers,’ as we like to call them, those privileged brokers who clandestinely represent the western central banks, smelled the blood in the water. especially since the mess in Europe created a liquidity crunch late in the year, just at a point where it seemed, briefly, that the gold mining stocks were just about to take off as promised. With the help of their pals on the regulatory side, margin requirements for gold traders were raised under conditions where, usually, just the opposite happens

“Result? They whacked the gold mining stocks like they were playing whack-a-mole. This in spite of shortages; in spite of the lack of new finds; and in spite of the fact that their own clients, the central banks, were net buyers for the year, after years of dumping gold.

“Bottom line? We do not believe these conditions will prevail for 2012. In fact, we expect a reversal. We say buy or accumulate gold mining stocks at bargain rates. That is the best play for 2012. We maintain our call for gold to ultimately level out at around $2,400 an ounce after spiking much higher first. And we note that the recent announcement from Japan offering gold/silver backing for their bonds is the start of a trend, and in time will not be seen as a unique event.” (Also see: Eleventh Consecutive Year of Higher Gold Prices a Shoe-in.)

There is one strategy investors have (or at least this investor has) been following for 10 years to make money in this treacherous market.

The strategy is quite elementary. Every time the price of gold bullion moves down three percent, I like to go in and buy more gold-related investments. This strategy has worked for 10 years and I still see the opportunity continuing in buying gold stocks when the yellow metal has sharp, one-day corrections.

I need to tell you, dear reader, I laugh when I read reports try to explain why the price of gold bullion is falling or rising. Yesterday, a well-known financial site said that gold bullion was down sharply, because rating agency Fitch said that big U.S. banks could see their credit ratings downgraded because of their exposure to the eurozone’s debt crisis. How ridiculous.

It doesn’t matter to me why gold bullion prices are rising or falling on a daily basis. What matters to me is the long-term direction of the financial markets. We know that the Federal Reserve initiated an unprecedented expansion of the money supply in the U.S. over the past three years. We also know that many eurozone members need a big bailout from the European Central Bank. The numbers I have read say that the financially challenged eurozone countries need a $2.0-trillion bailout.

The bottom line: the more fiat money created in America or Europe, the less the value of money, the greater the risk of inflation, and the higher the price of gold bullion goes. (See Top Five Reasons Why Gold Bullion Prices Will Move Even Higher.)

The real reason gold bullion goes up or down daily? I believe investors and traders are simply taking the opportunity to take some profits off the table. As gold bullion prices decline, gold bugs move in and buy more, pushing the prices of gold stocks up.

Yesterday, the December gold futures contract fell $54.40 to $1,719.90 an ounce…what an opportunity for investors to jump in and buy more momentarily depressed gold stocks! And talking about gold stocks, I was very impressed Thursday that, in spite of gold bullion being down three percent for the day, gold stocks did not collapse as they normally would on a day where gold bullion is down over $50.00 an ounce.

While I’ll talk more about this next week, world central banks bought more gold bullion in the third quarter ended September 30, 2011 than in any other quarter in the past 10 years! I wonder why central banks are suddenly running out and buying gold? Must be all those issues of PROFIT CONFIDENTIAL (10 years of them) where I’ve been pushing gold-related investments.

Next week, I will be writing more about the recent actions of world central banks rushing out to buy gold.

In turns out that gold stocks are resuming their upward price trend in an environment where the spot price is ticking close to its all-time record. Gold stocks are the place to be if you’re a stock market speculator and if you believe that investing in gold will be fruitful in a slow growth environment. Nobody can with any real expertise predict where the spot price of gold will trade in the future, but all the fundamentals continue to line up. Investing in gold is something that I really believe in.

Gold stocks and investing in gold are the same thing as buying a future stream of earnings from a regular business, except the underlying asset can fluctuate significantly in value, thereby making or breaking the business model very quickly. Gold stocks have a lot of strength these days and it’s a trend that’s been building for a number of years. Stock market investors were recently presented with an opportune entry point for new positions in gold stocks, as the sector was much in need of a correction (see What the Investor Sentiment Shift Means to the Commodity Trade). While investing in gold might be just a sideline strategy for most investors, there is a lot of technical strength in gold prices today.

Investing in gold makes a lot of sense in the current environment, even as spot gold prices are near record highs. If the euro currency comes apart, gold will rally. If the euro doesn’t come apart and the sovereign debt issue improves, gold will rally. It can do so on a weaker dollar; it can do so based on rising core inflation. There are just so many reasons why the price of gold can stay strong and rally even further as we move into next year.

If you have experience investing in gold, then you know that gold stocks move commensurately with the underlying price of the commodity. This is unavoidable, no matter what the trade (inverse ETFs or derivatives excluded, obviously). Gold stocks are based on the underlying commodity price and, with this reality, price momentum is very meaningful. If you thought the trend was your friend in the stock market, history shows us that it’s even more pronounced in commodities. That’s the attractive part about investing in gold at this time; there’s very little price momentum anywhere else in the stock market.

Of course, investing in gold today isn’t without its risks. A good trading opportunity just came and went when the spot price corrected. But this is a stock market that remains very unsure of itself and I’d rather be investing in gold near price highs than trying to buy low and sell high in other sectors. Gold stocks are the place to be for the next several years. As long as there is too much debt and rising inflation (due to huge increases in sovereign money supplies), gold stocks should pay.

Gold bugs are feeling the pain, as precious metals continue with their slower-economic-growth correction. As well, the prospect of action on the Europe debt crisis is tempering the marketplace’s appetite for gold futures. My view is that gold and silver continue to represent some of the most attractive assets going forward over the next several years. We’re in a market where new trends take a long time to develop and we’ll likely see the spot price of gold trade around $1,600 an ounce for quite a while yet.

Of course, gold investments aren’t the only thing an equity investor should have in a portfolio. Gold offers attractive diversification and a store of value in a risky world. At the speculative end, I’d rather own two or three developing junior miners in this environment, over say a technology startup or a drug discovery company. At the speculative end, gold and silver investments make sense. At the blue-chip level, higher-dividend-paying stocks seem to offer better chances of a decent return on investment.

Precious metals are inherently risky assets to own because of their price volatility and sensitivity to the business cycle. Like everything in capital markets, price action tends to occur in major waves and there’s no exception with gold stocks for sure.

During an earnings season, smaller companies typically take longer to report their financial results, because they don’t have large accounting departments. As most mining companies have yet to report third-quarter earnings, it’s highly likely that the third quarter will reveal a blowout quarter on earnings, cash flow, and revenues. Even at $1,600 an ounce for gold, most producing miners are making money hand over fist with this business model. If you take the average miner’s cash cost of around $500.00 an ounce, you can see the attractiveness of the enterprise pretty quickly.

Right now, the spot price of gold is being somewhat hampered by strength in the U.S. dollar, which trades on a different set of fundamentals than other currencies (because of its reserve currency status). Most Street analysts maintain lofty price projections for the spot price of gold in 2012. In my view, the current price correction is a very healthy development and very useful for the long-term trend. I maintain solid expectations for gold and precious metals investments going forward, but picking price targets is arbitrary.

One thing I am predicting with confidence is that mergers and acquisitions in the first half of 2012 are likely to accelerate in the gold sector (see Precious Metals Sector Deal-making Padding Investor Wallets). If the spot price of gold (and silver) settles, rather than resuming an upward trend, precious metals producers are going to see the industry as a great buying opportunity. Both junior and intermediate producers will want to use their currency (share price) and cash hoards to buy up assets and properties. Virtually all mining CEOs are predicting higher spot prices for gold and silver in 2012. I’ll bet the buying and selling of whole companies accelerates in anticipation.