Mr. Market is on bailout watch. The Dow has been whipsawing wildly since news of the bailout first broke. The index is currently 3,454 points off its 52-week high.

Hard assets aren’t doing much better. Crude oil is selling for about $97 a barrel. Analysts at Merrill Lynch say prices may fall as low as $50 a barrel next year.

Gold prices have also been volatile. Nevertheless, Ed Bugos says, “Gold is the safest asset class to be in right now.” He also says it’s a great time to cherry pick gold assets and pick up “alpha” gold stocks at bargain prices.   

This from Ed in The Daily Reckoning:

In the context of a fear-driven gold price advance, in which stock prices are generally in decline, the companies most likely to benefit are those that can translate the gain in gold prices most immediately to their own bottom lines. These include all producers, junior and major alike. Although at first, the market will probably prefer the safer large caps.

But as they rise the pressure will build and spread to the emerging producers – and even development assets if they are close enough to production.

Exploration stocks have a life of their own. There are terrific buys in that space today too, but I believe the values in the near production stages offer just as much upside with a little less risk here.

The right strategy will outperform gold and the average major gold stock over time. The million-dollar question, therefore, is which juniors offer the best risk-reward?

I’ve looked through hundreds of companies over the past two months alone.

I’ve assessed our general strategy and wondered whether to sell some of the stocks in our portfolio.

In fact, the reason this month’s issue is late is that I have gone back to the drawing board a few times in the search for the most appropriate investment strategy in this space.

Notwithstanding the shifting macro winds, I think that in light of the significantly improved gold price outlook, it makes sense to hold onto the bulk-tonnage low-grade development assets in our portfolio.

However, the demoralized level of sentiment has opened up a new window of opportunity to cherry-pick those top-quality gold stocks for which we normally must “pay up.”

These are the “alphas.” These are companies that either can generate cash flows internally, by actually mining, or are led by people with deep pockets or credibility… companies with strong balance sheets and diversified portfolios of high-quality assets in politically secure regions… with growth potential whose premium is lost in the current slaughtering.

They are not cheap relative to their peers, but they probably never will be.

They are cheap in the context of the gold price cycle.

And this may be one of the few opportunities we get to accumulate such assets at favorable terms. The market has discounted their growth profiles and prospects for higher gold prices as it has with any others.

PS: Ed says he’ll be rolling out a good opportunity in his Gold & Options Trader service within the week. It is a buyer’s market in a bull market for good-quality gold assets. To learn more, click here.

Source: Time to Cherry-Pick Gold Assets