Investors are understandably confused - and concerned- as metal prices and share prices bounce around through wild gyrations.

With so much uncertainty in metal markets, it is only natural that many investors have headed for the exits. The gold price is $887 after a recent run up to $930, then a hasty retreat to $880. Silver went through a similar swing, settling today at $16.88.

That action is natural in the context of what has happened in the financial world over the past few months. With the U.S. banking system on the brink of collapse, the gold price soared to $1,020 as investors sought security. When it became clear that the government would do whatever it took to bail out the banks, investors abandoned the safe haven of gold to go back into paper that suddenly appeared risk free, with the backing of Uncle Sam.

The irony is that the bailout of the banks is furter eroding the value of the dollar. More greenbaacks are being printed, further debasing a currency that has already lost nearly half of its value over the past few years. Once more, investors find the short-term view-point is more expedient than the longer term perspective.

The base metal prices have also come under pressure, as speculators bail out on concerns that softening demand in the U.S. will impact world metal markets.

Speculators move markets up or down in the short term, but in the longer term, it is fundamental supply and demand that impacts prices. There is no change to the strong demand for metals, nor to the constraints in supply.

It is extremely important to understand the distinction between short term moves in the commodity markets and the process of finding and developing new mines. Commodity speculators see profits only where the metal price makes a big upward move in the near term. On the other hand, mine developers are generating value that far out weighs the short term moves in the metal price. At this time, mine development projects are being valued at metal prices that are far, far below the current market prices.

For every seller of a mining share, there is a buyer. Looking back in a few months, it will be the ones who are now buying who are smiling.

(From Lawrence Roulston's Resource Opportunities May 2008-1 edition)