The name of Silverado Gold Mines (symbol SLGLF.OB) is unlikely to trip off the tongues of gold stock investors these days. In fact, it is more likely to bring out the emotions of laughter, anger and a general shaking of heads amongst the gold-investing community.

But to those for whom it merely evokes curiosity, it is sufficient to say that back in 2002, this stock experienced a massive 840% run up in price from $0.09 to $0.76 as investors piled in before even more rapidly crashing back down to earth 4 months later to $0.10. The whole episode is charted below.

Since then, the stock has drifted ever down with the occasional and short-lived adventure upwards.

Readers may remember that the bust was triggered by an article by an analyst who suggested that all was not well in the Silverado camp. Within a day of that article appearing, the stock began the downward phase of its roller coaster ride.

By the time the plummeting was over, recriminations followed as Silverado CEO, Gary Anselmo, expressed disbelief as to why this had happened while a certain gold stock analyst mysteriously disappeared amongst accusations of pumping up the stock.

So much for 2003, but this is now 2006 and though memories may not have faded, I came to this stock as one who was a distant observer of that fleeting price spike. Below is the relative performance chart for Silverado and the HUI since gold stocks resumed their bull market back in May 2005. The daily chart for Silverado is also displayed here.

As a chartist, I have two things to note. The first is that Silverado hit a multi-year low of $0.03 a share in May before progressing to a recent high of just over $0.08. That is a 267% increase and by any measure a top performing stock over the last 8 months.

The second observation is the high correlation between the HUI and Silverado price over this period. Note how the Silverado price roughly tracks the rises and falls in the HUI index as they both advance to greater highs. There appears to be an unmistakeable correlation in price changes.

This leads us to the somewhat surprising conclusion that despite its recent history, Silverado is now a full-blooded participant of the gold stock bull market. Not only that, it has proved to be one of the best performers over that period!

Despite what you may think about this stock, its assets and management, I don't think you can argue with the price or the correlation, the only question left to answer is "Why?" why is this stock off and running and leaving even the favoured juniors coughing dust in its wake? Indeed, did any gold stock newsletter recommend Silverado after it crash-landed at 3 cents? Now that would be a true contrarian if ever I saw one!

To answer the question of why, I had a look at recent news releases about Silverado. The first was the huge granting of $0.05 stock options to Silverado executives this month. Indeed, it was a rather large grant of 37 million options including older options being reset to the same price. In fact, this raised a further question about how many fully diluted shares existed for Silverado and what proportion was held in the form of stock options? Looking around suggested a figure of over 300 million shares outstanding with at least 10% as much again held as stock options.

Well, despite that news release of January 6th, and assuming the market reacted accordingly, the price began to rise to greater heights.

Secondly, there were further announcements on the 19 th of private placements of over 17 million shares completed by Silverado in the month of December 2005 and an substantial number of warrants as well. Furthermore, another astounding 85 million common shares were issued this month yet all this news of share issuance had the effect of adding more fuel to the share price.

So, we had a massive granting of stock options and private share placements. Does this mean anything? Is it just coincidence or do these participants think something is afoot?

At that point I was tempted to think it was all to do with Silverado's coal to oil project that for some time has been pursuing government funding. Do some think that funding is afoot? Perhaps, but if this stock was acting like an energy stock, why was it closely tracking the HUI index? The answer is obviously because most regard it as a gold stock first and an energy stock second.

So, with nothing positive to say in terms of the fundamentals but with this interesting action in the issuance of shares and options, one is led to the other theory of "price by association". By that I mean that Silverado is a low priced gold stock and that is good enough for people to invest modest sums in it. Are they crazy? Do they like losing money or what? I suggest there is more to it than just hating your money.

As someone once eloquently put it, "When the tide comes in, all boats rise." when the gold bull market begins to really takes off, any gold junior company looks attractive even if you just place 1% of your portfolio in it.

Of course, some boats look more the worse for wear, but they still rise and that is why people invest in them. They see it as a gamble with which they may punt a few hundred dollars. If they win, they may win big time. If they lose, that's okay, it's only 1% or so of their portfolio and they are diversified in their risk allocation. It's not a big deal, it's a low risk to reward ratio with potentially big gains.

If the saga of the low grade NASDAQ IPOs of the 1990s teaches us anything, it is that when a mania takes hold, there is too much money chasing too few stocks. The money has to go somewhere and the psychology of low priced stocks will have its way as investors hive off a few percent in the direction of speculative stocks.

Now, don't get me wrong. Silverado may have some good fundamentals that justify a higher price than $0.08. It's just that I don't see them at this point in time! If anyone knows what they are, send me an email. The main focus of this article is to answer the question of why Silverado has been one of the best performing stocks of this second phase gold bull so far despite the reputation it has and despite massive share issuance.

I hope I have partly answered that question. I have bought my modest position in the company and we'll see where it ends up in the new two or three years. I expect some medium term correction in the gold bull soon, but this bull market is far from over. When the totals are added up at the end of it, we may yet be surprised by some of the names that get near the top of the performance list.

The author received no solicitation of any kind in writing this article. It was written under his own initiative and research.

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99.

To view a sample copy of the New Era Investor newsletter, please go to www.newerainvestor.com and click on the "View Sample Issue Here" link to the right.

Comments are invited by emailing the author at newerainvestor@yahoo.co.uk.