Archive for the ‘gold prices’ Category
The spot price of gold is now well above $1,800 an ounce and gold stocks are reaping the benefits. Right now, the stock market is experiencing a crisis of confidence—not in the ability of corporations to generate earnings, but in the macro sense of country economies, debt and deficits. The global debt crisis is just that—a crisis—and it’s been building up for years.
What a few months it has been for gold. With war worries in Libya to debt concerns in Europe and the United States, along with rising demand out of China and India, it appears to be the perfect storm for driving gold prices higher. In fact, the break at $1,500 was much sooner than I had expected and, based on the chart, prices could go even higher, albeit the buying may be somewhat ahead of itself and hence vulnerable to some profit-taking.
The June gold broke to a record high of $1,535.10 on April 28 and is looking to go higher. The chart showed a bullish inverse head and shoulders formation in March. Prior to this, there was a bullish V formation in January and early February. The June gold made a strong breakout at the $1,440 resistance that was in place since November 2010 in early April.
Three major trends in the financial markets, all from which investors can make money, continue their development this morning…
Trend #1: Rising long-term interest rates. The 10-year U.S. Treasury hit a yield of 3.6% Friday morning. My forecast calls for the bellwether 10-year Treasury to easily sail past 4.0% this year.
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I think that investors should be keeping a close eye on the spot price of gold and be ready to consider new positions in gold stocks if there’s any meaningful correction in the commodity. Spot prices seem to be taking a bit of a rest here, but they’re still holding up relatively well. In fact, we may not even get a correction in gold prices due to the seemingly universal agreement on a weakening U.S. dollar.
Investment money has a tendency to run to the place where it has the potential for the highest return.
In the late 1990s, we saw investment money run into tech stocks as the NASDAQ hit 5,000 (only at 2,209 today, 10 years later). In the mid-2000s, we saw money run to real estate as property prices boomed on interest rates that were low and easy-lending policies (residential property prices have fallen about 30% since then).
When the Great Recession hit, “money” got scared and ran to the safety of U.S. Treasuries. But with so much money chasing T-bills, bond yields fell to their lowest rate of return on record. Money isn’t running to gold yet, because most investors have yet to realize there is a bull market in gold bullion prices (but this will eventually happen, propelling gold prices much higher than they are today).
By our estimates, the stocks that make up the Dow Jones Industrial Average will collectively pay $280.00 in dividends this year. Based on yesterday’s close, the Dow Jones Industrial Average is yielding 2.7%.
Compare the 2.7% dividend yield of the Dow Jones Industrial Average to the three-month U.S. T-bill yield of 0.15%, or the three-year U.S. T-bill yield of 0.77%, or even the five-year U.S. T-bill yield of only 1.42%, and suddenly stocks do not look expensive.
Historically, bull markets have ended when the dividend yield on stocks has fallen below three percent and bear markets have ended when stock dividend yields have hit six percent. However, we must realize and acknowledge that these old guidelines were based on normal interest rates. A Federal Funds … Read More
Over the last two years, it took five attempts for gold’s price to finally break above the psychological resistance at $1,000 per ounce. Though gold has been in a secular bull market in all currencies, much of the “credit” for the decisive breakout to the all-time high above $1,000 per ounce goes to the sliding U.S. dollar. In contrast, gold has yet to make any comparable breakouts to new all-time highs in the other two big currencies, the Euro and the Yen.
The news is pretty grim and there is a lot of liquidation going on in the equity market. I can imagine that the only people making any money in this market are those who are any good at trading S&P 500 Index futures. And the global coordination of the current financial market turmoil is a real sign that investors are expecting a serious, worldwide economic slowdown.
Investment risk remains very high and we’re in one of the climates where anything can happen to a financial instrument. There is a lot of cash sitting on the sidelines right now and some institutional investors are adding to their positions in their core holdings. There will also be a lot of tax loss selling, so we can expect a really tough climate for stocks until the end of this year.
The declining price of oil is a real help to the economy, acting like a tax cut for all consumers. I have to admit that I’ve been surprised by the weakness in gold prices. The trading action in spot gold has been so negative recently that investors aren’t buying the commodity as a safe haven. You know you’ve got a serious crisis of confidence in the marketplace when gold falls commensurate with equities.
Jim Rogers is still advocating a resurgence in commodity prices, but he freely admits that he is often early with his calls. No, the markets are still in confidence crisis mode and investors have basically rejected all the actions taken by policy makers.
Investors have weighed the actions of the Federal Reserve and government and they are betting that these … Read More
It’s just after World War II and the strength of the U.S. military
reigns supreme around the world. With the end of the war, a
construction and manufacturing boom starts in the United States
that will last at least half a century.
Not since the days of the Enron collapse have the banks received so much publicity in print and electronic media. The only thing banks may like about all the attention this time is that it comes free of charge.
What started the credit market problem was the collapse in the U.S. housing sector. This exposed the irresponsible and outright stupid practices in subprime mortgages that were packaged by financial institutions and re-sold as investment-grade securities to investors. This created a spectrum of esoteric debt derivatives developed and sold by the wizards of Wall Street and Bay Street to investors hungrily looking for extra yield on their holdings.
An underlying cause for the current mess in the credit market was the financial contraptions based on issuing short-term debt and investing the borrowed funds in higher-yielding, longer-term securities. This is not the first nor probably the last time that borrowing short-term and investing long-term has eventually backfired.
In past instances, this play on an interest spread came to a halt when the Federal Reserve temporarily pushed short-term interest rates above long-term maturities. What was fatally different this time was the sudden collapse in short-term commercial paper, which made it impossible for financial institutions to refinance (roll over) their maturing short-term borrowings.
The latest financial derivatives that have exploded are something called structured investment vehicles (SIVs). The estimated face value of these now crashed vehicles runs anywhere from $350 billion to $400 billion. They have typically been set up by large banks eager to earn fees and harvest the yield spread between short-term and long-term maturities.
While the plight of the overextended homeowners … Read More
With all the volatility hitting the stock market over the past few weeks, one would rationally expect gold prices to rise as stock investors seek stable refuge.
But if we look deeper, we realize that a run-up in gold prices could cause the financial panic hitting the credit market to run even deeper. I personally believe that the last thing central bankers around the world want to see is gold prices shooting higher. Such an event would signal a lack of credence in the financial markets and in our free enterprise system.
At its current price of $660.00 U.S. per ounce, gold is within striking distance of the multi-year high the metal reached only last year, when it broke above $700.00 U.S. per ounce. A look at the price chart of gold bullion prices illustrates a perfect rising trend over the past few years… a trend I expect to continue.
The golden opportunity, as I see it today, lies in purchasing quality gold producer stocks at what I believe are fire-sale prices. The recent market sell-off has not been kind to any given stock market sector, including gold stocks.
Stock prices of major gold producers are off. The Dow Jones U.S Gold Mining Index is down 21% over the past 12 months. And if you are a gold bug like me, you see the sell-off in quality gold producer stocks as an opportunity to enter the gold market or to dollar-cost average your position down.
Rising debt levels, instability in the financial markets and a weakening U.S. currency are all the ingredients needed to cause gold prices to rise. Regardless … Read More
Markets are now proceeding into the second half of the year, where investors are expecting to see better earnings and a possible cut in interest rates.
At the midpoint, the technology-laden NASDAQ is leading with a 9.51% gain, and has essentially matched its return of 9.52% in 2006. With six months to go, the NASDAQ could achieve its best performance since reporting a 50% return in 2003 during the bear market reversal. The DOW is up nearly nine percent, while the S&P 500 is up about 7.45%. The small-cap Russell 2000, which was the best performer earlier in the year, is up 7.66% as concerns regarding economic growth are impacting small-cap stocks, which tend to move in the direction of the economy.
Trading has been largely apprehensive given the higher bond yields, which makes stocks less attractive. Gold prices have been trending lower on the higher bond yields, which make bonds more attractive as a safe haven investment than gold.
The ability of stocks to hold is somewhat worrisome. I see some froth in the current market. A good example of this was the market’s anticipation for the IPO of private equity firm The Blackstone Group L.P. (NYSE/BX). The stock was oversubscribed numerous times, but the IPO launch was not as expected. Blackstone traded at a high of $38.00 on the opening day, well above its IPO price. But since then, the stock has retrenched below its IPO price to below $30.00 on valuation and tax concerns. My view on this matter is that the stock was overhyped and overpriced, which indicates froth in the market and could point to … Read More
As long-term interest rates in the U.S. continued to rise last week, the stock market put in worse performance in about three months. The Dow Jones Industrial Average was down 1.4% for the week, the S&P 500 down 1.3%.
With interest rates rising in the U.S., the fear banks would be caught in a profit margin squeeze spooked the markets and sent the prices of most financial stocks down. The biggest U.S. banks, like Citigroup Incorporated and Bank of America, saw their stock prices “hit” this week.
My concern is that as the reality of higher interest rates and the pathetic housing market start to be discounted by investors and consumers, consumer stocks will be the next to come under price pressure. Mortgage payments for many Americans are rising quickly as interest rates rise and old “low-priced” mortgages are reset to higher rates. As that happens, consumer spending eases, slowing the economy further.
Looking ahead, I see more difficult weeks for the stock market. In fact, the week we just had might be paltry compared to what’s in store for us. Keep an eye on the consumer stocks, as the next soft action will be there.
I continue to see gold producer shares as a bargain. With gold basically in a trading range for the past year, I expect to see gold bullion prices rise as interest rates rise. Investing in gold stocks over the past five years has been a very patient buy-and-hold play. But the strategy has paid off for investors willing to be patient.
NEWSFLASH-Construction of new homes fell in 2.1% in May according to the U.S. … Read More
Look north, my dear reader, look north. Because just north of the U.S., in our very own back yard, the best performing stock market in the world just continues moving higher and higher.
I’ve often written about the merits of investing in the S&P/TSX Composite (what could be called the Canadian equivalent of the Dow Jones Industrial Average). For Americans, investing in securities outside the U.S. might make sense right now because of the mounting pressure on the Greenback. As the U.S. dollar falls in price, other world currencies rise in price. Hence, if you can find that right foreign investment, you could very well see a profit on the currency play too. And I believe the best stocks with best potential for capital appreciation right now are in resource rich Canada.
The Canadian government announced today that the country created five times as many jobs in March as analysts had expected, closing the strongest quarter in job creation the country has seen in five years. And unlike the U.S., the Canadian real estate market is strong. In Canada, the subprime lending market is almost non- existent. There’s a program for first-time home buyers where a new buyer only needs a down payment of 5% to 10% of the price of the home — but that market is very small, too. Most homes are purchased with a minimum 25% down payment. Canadian banks (there are only six banks chartered by the government to operate as schedule “A” banks in Canada) are also amongst the most profitable and solid banks in the world.
But the real reason I like Canadian stocks: … Read More
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