Early last month, I told you the best way to make money in commodity stocks was to sell them.

You’re not going to hear that often from a guy who writes a commodity-focused advisory. Most advisors in my sector are in the “keep holding, keep hoping, and don’t use trailing stops” camp…

But as I explained, in the boom-and-bust commodities market, you’ve got to be ready to “ring the cash register” when you’re sitting on big gains… and when everyone wants to buy what you bought a long time ago. That’s where we were in May. Things had gone too far, too fast. Here’s my warning…

Before you call me crazy, consider some numbers: The benchmark commodity index has skyrocketed 60% since the March 2009 bottom… with a lot of the gains coming in the past eight months. Since September, crude oil is up 46%… silver is up 140%… and corn is up 65%… Remember, huge moves higher in resources can’t go straight up without an interruption.

[ad#Google Adsense 336×280-IA]I published that essay one day after the peak. The benchmark CRB commodity index fell nearly 10% in a week. Oil fell 14%. Silver fell an astonishing 30%. Most commodity stocks corrected by at least 15%. Readers of my S&A Resource Report were stopped out of big short-term winners like Magnum Hunter (a 78% gain) and Vanguard Natural Resources (a 39% gain).

So where does that leave us? When it comes to resource stocks, should we stay on the sidelines… or is it time to hunt for bargains the shakeout left lying around?

The answer is a “two-parter”…

1. When it comes to oil stocks and base metal stocks (like copper and nickel), I’m still generally avoiding them. Despite the recent correction, most of these companies are still up massive amounts from their 2009 levels. Plus, we’re starting to see weak economic data. A weaker global economy means less demand for fuel and building materials.

2. When it comes to precious metals stocks, like those that produce or explore for gold and silver, I’m still interested…

You see, in addition to all of the number crunching I do, working in the same office as Steve Sjuggerud exposes me to the incredible work he’s been doing with his True Wealth Systems service. He’s able to process huge amounts of fundamental and technical data in seconds.

The idea and chart he recently presented agree 100% with the opportunities I’m seeing in precious metals stocks. Specifically, many are cheap when compared to the price of gold.

Here’s that chart again, which shows how gold stocks are near record levels of cheapness relative to the price of gold:

I think it’s unlikely gold itself will correct much in the coming months. It’s enjoying incredible buying support from the world’s central banks (who want to avoid holding too many weak dollars and euros), big institutional investors, and individuals around the world who want to own “real money.” For example, folks in China and India are getting richer every year… and they have a centuries-old love affair with gold and silver.

[ad#article-bottom]That’s why, when it comes to the resource sector, I encourage you to lean toward gold and silver stocks… and be extremely selective with your buys if you go into “economically sensitive” areas like copper and oil.

There’s no guarantee gold and silver stocks will soar this year. A general stock market correction will damage share prices here. But these stocks are cheap… and gold is in a tremendous uptrend. This makes this sector one of the best risk/reward bets in the resource market today.

Good investing,

— Matt Badiali

P.S. As I noted, China’s and India’s citizens are getting rich enough to start accumulating gold… And China in particular is going after gold in a big way. My readers have made an average gain of 146% on six China mining companies… and we’re just getting started. To get the details on this huge precious metals trend, click here.

Source:  Daily Wealth