Montreal, Canada

I've been bullish on gold and the mining stocks since 2002. Personally, I hold far more physical gold than mining stocks because when push comes to shove, I like the metal more and believe it provides far superior financial insurance benefits than a gold mining company. On a risk-adjusted and total return basis since 1996, gold has severely outpaced mining companies.

Before this rally is over we'll witness some mind-blowing currency crashes, global exchange rate mechanism reforms and a new unit of value that will encourage price stability. The U.S. dollar will play a role in this new regime but by no means will it remain the world's reserve currency indefinitely. Emerging market giants like China and Brazil along with core European and natural resource-producing countries will all play an important role in this new currency. Gold and crude oil are also likely to participate.

Anyone that doubts we're on the cusp of a new exchange rate system isn't doing their homework.

The post-1971 system of free-floating currencies is a disaster; currencies are devalued or revalued constantly, businesses continue to spend a fortune trying to hedge their key markets from adverse currency fluctuations while currency volatility hurts world trade and individuals' purchasing power as fiat paper money is debased.

Currency unions, as evidenced by the EUR, are certainly no panacea for stability; we all know that Europe has historically failed to merge their economies into a currency mechanism that functions properly. Bismarck tried and failed. The ERM, or Exchange Rate Mechanism (ERM), ultimately failed and the EUR, though probably likely to survive this credit crisis, won't be as strong as originally forecast because of sovereign deadbeats in the Mediterranean and possibly elsewhere.

Gold senses big troubles. This, in part, explains why we've been in a secular bull market for gold since it bottomed almost ten years ago. But most recently the acceleration of deflation and the ongoing destruction of credit has boosted the metal's appeal because there isn't a single currency that represents true price stability; and in an environment when more investors distrust sovereign credit risk gold has gained more followers because it is an asset outside of the confines of the battered credit system.

Over the last eight years my Commodity Trend Alert (CTA) service has been riding this historical bull market with periodic defensive strategies ahead of major corrections for gold, silver and the mining stocks. Corrections are a normal process in a bull market and allow patient investors to accumulate assets at lower prices. Our model Gold-Bugs Portfolio, however, doesn't hold just gold stocks; we're also heavily weighted towards physical gold and silver, which tend to outpace the mining stocks sometimes.

Gold mining stocks have indeed lagged gold over the past 14 years. Yet, I think we might be on the cusp of a massive advance as the gold mining industry makes shrewd acquisitions and mergers, reduces operational costs and boosts profit margins in a big way. The major gold mining companies now operate with an average cost of $450 per ounce – leaving a fat margin as gold prices continue to climb year after year. The next phase of this bull market might be dominated by the laggards or the gold mining shares. I believe gold stocks do not truly reflect current gold prices.

Ahead of this secular shift in performance, however, we might be approaching a short-term correction for the asset class.

Gold stocks do tend to break away from gold prices amid severe market declines and this one might not be any different as stocks worldwide struggle since May. Use any intermittent price declines as another opportunity to accumulate the large-cap, mid-cap mining stocks and the juniors gold miners. The next phase should be quite rewarding as the miners finally catch up with gold prices.