Resource Stocks Still Got Spunk

This summer, there has been a dramatic change in the macroeconomic outlook in the U.S. The summer of 2007 started with talks about taming the inflation and curbing the U.S. economic “enthusiasm;” yet, it is ending with interest rate cuts and fears that the U.S. economy could be heading into a recession.

As fear spread like an airborne killer virus, global financial markets have been thrown into turmoil. Among other sectors, mining and energy stocks have also been yo-yoing all over the place, despite of four years of spectacular performance.

However, a number of mutual fund and hedge fund managers, as well as long-time fans of metal stocks in the independent research sector — such as Lombardi Financial’s analysts and editors — still believe that resource stocks have spunk! The global demand for industrial and precious metals, as well as energy, is surging and showing no signs of a slowdown.

This is a familiar tune, yet no less true. The main reason why the demand for resources is not abating is the emerging markets. Some economists are going so far as to claim that the demand from emerging “giants,” such as China or India, is not likely to slow down for years to come, if not decades.

The problem that investors currently have is that the resource sectors’ fundamentals do not correlate properly to stock prices. Partly to blame for this discord are global fund managers, who have misinterpreted the mild correction that China and India are currently experiencing to be part of the overall economic slowdown, and who have been restricting capital investments in the sectors as a result. Adding in the pain caused by the credit market fiasco and considering that resource sectors have been known to fly, crash and burn in the past, it is no wonder why investors are choosing to remain on the sidelines.

Yet, there are numerous indicators pointing to higher prices of resource stocks in the coming months. Just to give you a few teasers, copper and zinc inventories are decreasing, for example, while buyers are still knocking on the suppliers’ doors in large numbers. The supply of oil and natural gas has also been steadily declining; yet, consumers are not driving less or heating their homes less.

Gold prices are expected to maintain the overall positive momentum, particularly considering that the Federal Reserve is likely to keep decreasing interest rates, in the short term at least. In addition, the U.S. dollar’s dismal performance in comparison to other world’s major currencies, as well as gold’s traditional role as a safe haven whenever investors switched focus on capital preservation, indicate that the outlook for gold remains very bullish.