Over-Recent-Weeks,-I-Have-Tossed-And-Turned-(Even -146

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Over recent weeks, I have tossed and turned
(even toiled and troubled) over my top stock pick
for 2011. Eager to repeat the success of my
pack-devouring selection of Silver Wheaton
(NYSE: SLW) for 2010 which has rewarded
like-minded Fools with a dramatic gain of more
than 140% I was determined to identify the next
stock that could muster that sort of one-year
return. This article is part of our "Best Stocks for
2011" series where our Foolish writers pick their
top stock ideas for the year ahead. Click here to
see a review of last year's picks and our 12
recommendations for the year ahead. I will
wrestle with this decision no longer.
silver stocks

And then I realized I had it made You see, looking to the correct
sector in the first place is half the battle Over the past couple of
years, in particular, gold and silver have stunned the investing
mainstream with the strength and persistence of their ongoing bull
market trend With leveraged debt instruments continuing to fester
deceptively in the shadows of fanciful accounting methods and
cleverly named "legacy" portfolios and considering all the resulting
implications both for nation-states in Europe and the 50 states here
at home I still maintain that precious metals offer a rare form of
protection from risks that have not yet been defused within this
powder keg that we call a financial system

However convenient it may have been, it is no longer permissible for
those opting out of the precious metals bull market to dismiss
expectations of substantially higher prices as the ravings of some
misguided fringe within the investing populace Indeed, the
managing director of Barclays Capital, Paul Horsnell, sees gold
reaching $1,850 during 2011 Goldman Sachs has set its sights on
$1,690 by year's end Suddenly, my long-term price target of
$2,000, which I've kept unchanged for several years running,
seems decidedly less controversial

With the right catalysts in place, even a consummate
underperformer like Gammon Gold(NYSE: GRS) is capable of
surging dramatically to play catch-up with this advancing bull market
for gold and silver Adversity becomes the advantage:- It's a
rough road indeed that leads a gold mining stock down a multi-year
decline in the midst of a historic bull market for the metal Alongside
silver's whipping post Coeur d'Alene Mines(NYSE: CDE),
Gammon Gold may be one of the least-loved stocks in the precious
metals patch For many, the 2010 closure of the El Cubo mine
(following irreconcilable labor disputes) may have added the final
silver stocks straw to a continuum of justifiable frustrations

For this bargain-seeking Fool, however, the El Cubo debacle yielded
a massive distraction that I believe prevented the market from
evaluating a vast array of positive achievements for the company
during 2010 These achievements form the core of an exciting
turnaround story in the making and recently led me to place
Gammon Gold at the pole position of my top-ten gold and silver
stocks for 2011 Gammon's bread and butter:- It was precisely
Gammon's prowess on the exploration front that led me to build
an initial position several years ago, so I find it fitting that
Gammon's recent exploration success forms a core of my
updated investment thesis During the first half of 2010 alone,
Gammon discovered three new deposits at its Ocampo gold and
silver mine, and it swiftly replaced nearly two-thirds of estimated
2010 production with 127,750 gold-equivalent ounces (GEOs) in new
reserves

One of those three deposits, Santa Eduviges, has been fast-tracked
for development, and production is expected to commence any day
now This month, Gammon's year-end exploration update
included four more newly discovered veins at Ocampo El Rayo, just
100 meters from existing underground infrastructure, looks
particularly promising with concentrations as high as 33 29
(gold-equivalent) grams per ton (gpt)

Thanks to Gammon's enhanced development capacity (now
that El Cubo resources have been reassigned to Ocampo), several
newly defined deposits may be mined as early as mid-2011 Beyond
the Ocampo camp, Gammon has moved to test the district-scale
potential of the region by securing strategic option agreements for
highly prospective nearby properties Gammon's growth
capital:- Capital Gold's (AMEX: CGC) board has unanimously
endorsed Gammon's proposed merger, and in this Fool's
view, the pro forma company emerges as a titan among the smaller
mid-tier gold producers Capital Gold's El Chanante mine will
double Gammon's gold reserves to 3 million ounces apart from
Gammon's existing trove of 66 million ounces of silver

Using robust silver production as a by-product credit, Gammon sees
pro forma production averaging 230,000 ounces of gold per year for
2011 and 2012 at a jaw-dropping production cost of $78 per ounce
As of Sept 30, Gammon held a cash balance of $107 million and
carried a debt-to-equity ratio of just 3

7% Between that capital strength and the prospect of a Capital Gold
merger, I see a golden opportunity for Fools to capitalize upon one of
the industry's most promising turnaround stories A forthcoming
preliminary assessment of Gammon's Guadalupe y Calvo
project, a cementing of the Capital Gold merger, and impressive
reserve expansion from that successful 2010 exploration campaign
could all provide dramatic upside catalysts during 2010

Sure, Yamana Gold (NYSE: AUY) could yet prove the greater
bargain of the two, and the potential for silver to outperform even
gold could propel small-cap silver stand-outs like Endeavour Silver
(AMEX: EXK) and Alexco Resource (AMEX: AXU) to the pinnacle of
the sector's scoreboard That's why my own precious
metals portfolio contains them all! Given the unique combination of
persistently negative market sentiment with an impressive
succession of overlooked upside catalysts, however, I encourage
Fools to select Gammon Gold as their top stock pick for 2011