Martin Mittelstaedt
RTGAM



Another day, another record high for gold.

The yellow metal surged as high as $1,278.90 (U.S.) an ounce on the spot market, up nearly $10 at its best point Thursday morning, the second fresh all time high this week.

With gold rallying so strongly, the big question for investors is how much further it can go and how best to play the upsurge.

Many gold analysts believe the rise has a long way to go, years possibly, saying the factors propelling the metal - jitters over paper currencies, super-sized government deficits, and the fragility of the global economy - are unlikely to subside any time soon.

"This is really a long-term bull market," predicts Ronald-Peter Stoeferle, an analyst at Erste Group Bank AG in Vienna.

Mr. Stoeferle, who tracks Canadian gold stocks on behalf of European investors, thinks the bullion price will match the peak levels reached in January, 1980, when inflation since then is taken into account. That inflation adjustment would take the metal up to about $2,300 an ounce.

"I'm always saying that this is not a sprint. It's a marathon," he says the pace of the gold market upturn.

But some market watchers are hesitant, at least for the near term, given that gold has rallied nearly $60 in the past month. Most bull markets move in fits and starts, with frequent pullbacks after sharp gains.

Bob Tebbutt, vice-president of corporate risk management at commodity firm Peregrine Financial Group Canada, thinks the gold upturn could be due for some profit-taking.

"I am surprised it is as high as it is. I thought there would be a setback," Mr. Tebbutt says of the recent action. "In my opinion gold is probably overpriced."

But Mr. Tebbutt is optimistic on the precious metals, preferring to play the market by purchasing silver. Often viewed as gold's poor cousin, silver, he contends will outperform the yellow metal because it is benefiting from both high industrial demand, as well as from interest by investors who view it as an alternative to paper currencies.

Mr. Stoeferle has been watching the increased volume of trading in large-cap gold stocks like Barrick and Goldcorp, saying this is a sign that there is a "massive inflow of capital" into these issues.

He attributes this buying to fund managers who have never considered gold before, getting into the market for the first time by purchasing big producers, which have the benefit of being highly-liquid, household names. As the bull market matures, the next step will be for more money to flow into the speculative junior stocks and small-caps with decent exploration prospects, he contends.

Among his favourites are Osisko Mining, a junior developing the highly regarded Malarctic gold property in Quebec; Golden Star Resources, a mid-tier company with operations in Ghana; and Rio Novo Gold, an exploration play with property in Brazil.

Another analyst who sees the best prospects at the junior end of the market is John Ing, who follows the sector at Maison Placements Canada and believes many promising smaller miners are takeover candidates.

Large producers need to maintain reserves and are "are getting desperate for ounces," he says. "This tells me that exploration is the next wave of companies that will do well."

East Asia Minerals, a company with an exploration play in Indonesia, is one of his top picks, along with junior Quebec gold company Aurizon Mines.

When will the bull market end? Mr. Stoeferle thinks he knows the telltale clues for which gold investors should be on alert. At the end of every big, upward price move in any market, huge numbers of speculators flood in for a buying frenzy, for a time driving prices almost straight up. He thinks gold isn't anywhere close to that point.

"At the end of every trend you see this parabolic rise, and we're far away from that," he says.