By Adrian Day, editor The Global Analyst

"Despite the expected correction, there is much further to go for gold and gold stocks. Gold saw its ninth annual advance, to new highs before a 10% correction at the end of the year.

Gold certainly was helped by the weak dollar—and the year-end sell-off was provoked by a dollar recovery—but it’s much more than an anti-dollar play.

"Gold saw its ninth annual advance, to new highs before a 10% correction at the end of the year. Gold certainly was helped by the weak dollar—and the year-end sell-off was provoked by a dollar recovery—but it’s much more than an anti-dollar play.

"Gold is up in terms of all currencies, boosted by concern about inflation and extraordinarily low interest rates. Mostly, it’s a vote of no confidence in the world’s paper monies, and skeptism of central bankers’ abilities to effect stable money, and specifically to exit stimulus programs in an orderly manner.

"Nothing has changed, and gold is becoming a new de-facto alternate currency. And there is a lot further to go.

"Most significant perhaps, central banks have switched from being net sellers to buyers. As we have discussed before, banks that built up their reserves in the last couple of decades tend to have the highest levels of reserves but the lowest proportion of gold (India, China, Korea etc.).

"The overall level of gold in central bank reserves has dropped from over 30% a decade ago to just over 10%, the lowest level ever. The ease with which India (and Mauritius) scooped up half the IMF’s gold for sale shows clearly that demand overhang is not a problem. Central banks are likely to be net buyers for years to come.

"Producers are still selling at historically low prices relative to bullion, and at the lowest price-to-earnings and price-to cash flow ratios in over 20 years. The major producers have problems, however,most importantly the difficulty in replacing.

"Given these difficulties, we favor the juniors and exploration companies; these dominate our buy list. This is where the best value is often found as well as the growth.

"So we are comfortable holding and adding to the exploration stocks, on a selective and patient basis. Among the stocks on our list, at current price levels, we would look to buy Vista Gold (NYSE: VGZ), Virginia Mines (Toronto: VGQ), and Royal Gold (NASDAQ: RGLD)."

Learn more about this financial newsletter at Adrian Day's The Global Analyst.