Last week, gold closed above $480 an ounce. That's the highest it's been in more than a month. Silver prices rose above $8 and ounce. That's the highest price silver has seen in a year. You can attribute this to many factors including:

• inflation fears
• dropping oil prices
• central bank gold buying
• reports of decreasing mining (lower supply)

Many analysts also see the world's largest gold producers having difficulty keeping production up while demand seems to be increasing. Newmont mining recently bought a 10 percent stake in Miramar Mining in a move than many industry insiders see as a desperate attempt to keep production up. It all paints a fundamentally strong picture for gold stocks and silver stocks.

Chart

Gold and silver stocks are represented here by the PHLX Gold and Silver Index. The index has recently broke though an area of resistance at 240 and has reached a 17-month high. You can see below that the relative strength indicator is about to break through the 70-mark as well. The index is also holding well above the 10-day moving average as well the 50-day line shown here in purple.

Key Sector Players

Barrick Gold Corp.

Newmont Mining

Price Headley is the founder and chief analyst of BigTrends.com.