We are going to begin to issue new gold stocks pick in our free stock market newsletter. I've been active in gold stock investing since 2002 and have played many of the big rallies we have seen in gold stocks since then. Since August of 2007 the gold stock sector has been one of the best performing sectors in the stock market and with the credit crunch likely to continue I expect gold to remain bullish well into the end of this year. There have already been several big rallies and pullbacks in gold, but this last pullback is providing a good buy point for gold stock picks.

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There are several factors that make now a good time for gold stock investing.

Seasonality is Now Favorable for Gold Stock Picks

As you can see gold has a tendency to make a short-term peak in the April-May time period and then consolidate through the end of August and then breakout in September and have its best months through the end of the year.

If the pattern repeats again then we can expect gold stocks to rally until the end of the May and then retest their lows, maybe even making a slight minor low, in June or July and then base for a few weeks and breakout at the end of August or September to rally through the end of the year. This would fit the scenario I came up with yesterday from the overall gold and gold stock chart patterns.

Most people are familiar with many of the large cap mining stocks, such as Yamana Gold, Newmont, or Barrick. I think these stocks make good trading vehicles, but they could possibly dip if gold makes a minor new low later in the summer. Right now I believe the best gold stock picks are undiscovered small cap stocks in the junior mining category of gold stocks that are poised to go up no matter what gold does. To get my future gold stock picks just join my free newsletter by clicking here.

Types of Gold Stock Investments

The safest gold stocks are the large producing gold companies. In this inflationary environment every investor's portfolio should now have a 10% position around a core holding in a few of the largest producers. These companies include Anglogold, Barrick Gold, and Newmont Mining among others. They are the stocks that become institutional favorites of mutual fund managers. In fact if the gold bull market continues the way that I expect it will then Newmont will become a must own stock, much like Cisco Systems was in the 1990’s.

Generally speaking the higher the potential gain the higher the risk that an investor takes in a stock. Higher returns are available to gold investors from mid-tier producing gold companies that mine anywhere from 100,000 to 1,000,000 ounces of gold a year. These stocks have smaller share floats so it takes less money flowing into the stock to make it go up in value. The companies have at least one producing mine and often own several mines, some of which may have higher production costs and were closed during the last gold bear market. As the price of gold advances these mines reopen, to provide a boost to the company’s profits. A lot of these companies end up getting bought out. Bema Gold, Wheaton River, and Cambior were all mid-tier producers who got bought out at huge prices.

Mid-tier mining companies can become takeover targets and often engage in gold exploration activities. Often they join smaller exploration companies in developing potential mines. Mid-tier mining companies are very dependent on the price of gold and often take on debt to develop mining properties. As a result if the gold price drops they often have to scramble to raise more capital, which means diluting shareholders or floating more debt, and some of them often become insolvent during gold bear markets.

Below the large and mid-tier producers are exploration and junior mining companies, which make up most of the gold companies on the Canadian exchanges. Exploration companies consist of only a couple of employees, most of whom are geologists, who search for new gold deposits in hopes of finding the next big discovery. They raise money to purchase claims on properties and drill them to define their potential. Their shares are penny stocks and are akin to lottery tickets. Only one in a thousand pay off in the end. Of course the reward when one of these companies hits pay dirt is enormous.

Junior mining companies try to transform exploration properties into producing mines. Some junior mining companies have mines in production, but most of them are only a step above exploration companies. Those that do have mines usually have ones of a lower quality and need to open new ones to replace them when they run out of ore. However, when a new mine comes on line earnings for these companies go through the roof so these stocks have huge potential and are less risky than pure exploration plays. Both the exploration and junior mining sectors are riddled with stock promoters and are high-risk speculations. There is a reason why penny stocks are worth only pennies, but the legitimate penny stocks can turn thousandaires into millionaires.

Now is the Time for Gold Stock Picks

Many small cap gold stocks have been basing for over a year and are just now breaking out to new 52-week highs. With large cap stocks already posting large valuations money is likely to rotate into the more cheaply valued small cap gold stocks that have true potential. I have already recommended three of these stocks in the past few weeks. They are all already up over 10% and I expect them to double before the year is over. Now is the time for gold stock picks.

Over the next few weeks I will recommend more gold stocks in my newsletter. Now is the perfect time to start a free subscription. I'm even throwing in as a bonus a booklet discussing the most common mistakes that new investors make. As part of my free newsletter I have a series of emails educating you about gold stocks and some simple strategies that make investing in the market easy. To start your subscription just click here.

Who is Mike Swanson?

Statistics show that only five percent of professional investors make life changing profits in the stock market while half of all investors actually lose money even if the market is going up, because they buy the wrong stocks and ride them down as they drop. What separates the top five percent from everyone else is simple - knowledge and experience.

Most investors do not understand market trends. They simply buy into a stock on a hot rumor or from the recommendation of an expert they have seen on TV without any game plan. They come into the stock market without any knowledge of what really makes a stock go up.

Professional trader Mike Swanson learned this the hard way. He started trading back in the mid-1990's. In his first year of trading he lost half of his money. He learned from that experience and built a trading system that has generated him substantial returns year after year ever since.
In 2002 he won a coveted Robbins Trading Championship Trophy. From 2003 to 2006 he co-managed a hedge fund that generated a return of over 47% and was in the 98th percentile of thousands of hedge funds for posting one of the biggest annual returns on Wall Street in 2005. He has been interviewed by Thestreet.com, Marketwatch, the Wall Street Journal, and has appeared in Barrons.

"Making money is simple," he says, "You buy stocks that are cheap with the best chart patterns, insider buying, and whose earnings are poised to explode to the upside. You buy industry leaders and emerging companies that are going to come out of nowhere and surprise the street. You get in on the ground floor."

This strategy led him to buy health care stocks in the second half of 2000 that went up despite the market drop and led him into commodities beginning in 2002 when he began to recommend gold stocks right at the start of the gold bull market. Mike believes that "the leading commodity stocks are going to double over the next year and the top stocks in mining will do much more than that."

"There are also small developing mining plays poised for even larger returns. Small acorns grow into trees and exploration and junior mining companies that execute can go up 1000% in a bull market. We've seen it before and we are about to see it again,' he says.
The real secret to generating massive returns in the financial markets is to identify the leading companies in sectors that will outperform the rest of the market over the next year.

Often these are sectors totally ignored by the financial press and big brokerage houses. They may be sectors that have been out of favor for years and are about to experience a huge turnaround or newly emerging industries arising out of nowhere thanks to technological innovation.

Whatever the case, the story is always the same. Those who get in early reap the benefits.

To find out more subscribe to Mike's free stock market newsletter. Just click here.