Formally established in 1993, the eurozone, often referred to as the “European Union,” is a political and economic union established after the ratification of the Maastricht Treaty by members of the European Community. It has since expanded to include some Central and Eastern European nations. The establishment of the eurozone provided for the creation of a central European bank and the adoption of a common currency: the euro. The idea behind the eurozone is to create a single geographical market where goods, services, and money can be exchanged freely.

Gold has shown some good support and buying after recently declining below $1,550. The June gold remains extremely bearish on the charts and is searching for oversold buying support at around $1,500 to $1,525. So far we are seeing support emerge on weakness.

I continue to like gold going forward given the possible exit of Greece from the eurozone after the failure to form a coalition government. New elections are set for June 17, but the uncertainty will be an overhang on equities. A number of Spanish banks were also downgraded, as the 10-year bond yield surged towards seven percent, which inevitably is not sustainable for the country given the current weak financial position.

As I discussed in recent commentary, I do not feel it is time to dump gold stocks and I believe that major price weakness should be viewed as an opportunity to accumulate stocks.

I favor the metal plays and continue to smell opportunities, especially in the mining companies and junior gold miners.

China and India continue to be the world’s top buyers of gold and this is expected to continue. The Chinese have also been buying mining companies around the world in an effort to increase its reserves. This is a reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground waiting to be developed and needing a cash-rich partner to get the ore out of the ground.

You can consider buying the major gold players such as Freeport-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX), and Newmont Mining Corporation (NYSE/NEM), as I discussed in The Gold Stock at the Top of My List, but, for an opportunity for some real big gains, you need to own some of the smaller miners.

If you want to play the small mining companies, there are hundreds of plays.

I have listed several small mining companies below that look interesting for the speculative trader. Note that these are not necessarily recommendations to buy right now; but just suggestions of the types of stocks you should be looking at.

Small-cap gold miner Jaguar Mining Inc. (NYSE/JAG) is an interesting miner. The stock surged in late 2011 on news of a potential $1.0-billion takeover bid from China-based Shandong Gold Group, but the bid never came to fruition for whatever reasons.

Keegan Resources Inc. (AMEX/KGN, TSX/KGN) continues to report positive feasibility results, specifically at its Esaase Project in southwest Ghana. I like this stock as an aggressive small-cap play with above-average price appreciation potential.

Another I like is Canada-based Taseko Mines Limited (AMEX/TGB), which mines for copper and gold in Canada. The small-cap has a market cap of $532 million and is profitable with above-average price appreciation potential. Trading at 5.32X its estimated 2013 earnings per share (EPS) of $0.42, I like the value here.

Take a look at small-cap Golden Star Resources, Ltd. (AMEX/GSS). The gold company has operating mines in western Ghana and southwest Ghana, along with exploration properties in Ghana, Sierra Leone, Burkina Faso, Niger, Cote d’Ivoire, and Brazil. Trading at 5.13X its 2013 EPS, I like the valuation and potential for long-term gains.

For gold traders, check out small-cap Nevsun Resources Ltd. (AMEX/NSU), which beat on EPS and revenues.

Within the non-precious mining companies, take a look at Thompson Creek Metals Company Inc. (NYSE/TC), a miner of molybdenum—a metal used for creating stainless steel and other applications, including the production of rare earth used in electronics.

My advice to you is to buy a mixture of exploration-stage gold mining companies along with small to large gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.

The stock market continues to be in correction mode and so are gold and oil prices. But, the trading action in the equity market isn’t that bad at all; the down days aren’t that pronounced and we’re seeing solid rebound days, which signals that buyers are definitely out there. Daily investor sentiment is no doubt affected by developments in the eurozone and I think it’s fair to expect things to get worse regarding the sovereign debt crisis. European policymakers are likely to apply another round of “patches” to the problem; but, next year, I think the eurozone will be in for some real turmoil.

This combined with the usual geopolitical concerns and slow growth in the U.S. economy means that there is no rush for stock market investors to take action. It’s like the domestic stock market is in some sort of holding pattern, waiting for a shock to occur. Regardless, investment risk remains very high.

The S&P 500 Index is now in danger of giving up all its gain since the beginning of the year. I suspect we’ll get some consolidation around 1,300 on the index, but if this breaks, we’re back to where we started. The stock market was due for a correction after this year’s solid price move. The problems in the eurozone are now compounding the pullback.

It’s my expectation that second-quarter earnings season will be just as solid as the first quarter. The stock market, however, just might look right past the numbers if problems in the eurozone get worse. It’s the uncertainty of it all that is keeping domestic investors from betting on domestic fundamentals, which are better than those in the eurozone. I repeat my view that stock market investors should be watching their favorite large-cap, dividend paying stocks closely for new entry points. I think the correction has further legs, but price-to-earnings ratios continue to be fair.

I’ve learned over the years that anything can happen in capital markets and that, very often, price extremes are the norm. With the stock market being emotionally driven (just like the rest of the world), you have to expect the market to overdo the underlying fundamentals. I suspect that it won’t be too long before we get a small rally in the share prices. I don’t expect any major shock like a debt default in the eurozone to all of a sudden just happen. My best guess is that we’ll get a slow but continuous deterioration of investor confidence in eurozone bonds, which will precipitate a political crisis before a debt default or currency breakup. Institutional investors are just about done buying the bonds of weaker eurozone countries.

We’re in for a lot of change over the next 18 months and it isn’t going to be pretty. The stock market is rightly stalled over all the eurozone uncertainty, while domestic fundamentals slowly improve. If there was one industry where I’d like to see further price correction, it’s that of railroad stocks. (See U.S. Economy: What Freight Haulers Are Saying About It.) This is one sector where companies keep saying that the operating environment is getting better and, to be frank, I’m becoming less enthused about investing in businesses that operate outside of North America.

In the midst of the current market correction in the price of gold bullion, a Japanese pension fund, Okayama Metal & Machinery, is going to place 1.5% of its total assets ($500 million) in gold bullion-backed exchange-traded funds (ETFs) (source: Financial Times, May 16, 2012).

This is the first time the fund has bought gold bullion in its history.

The chief investment officer of the fund said explicitly that investing in gold bullion was meant to protect against sovereign risk.

Historically, the $3.4-trillion Japanese pension market has invested in bonds, with the balance finding its way to other assets, but not gold bullion…until now.

The perception in Japan has begun to change, as retail investors are beginning to view investing in gold bullion as a protection against a crisis—whether it is a tsunami or a debt crisis like in the eurozone.

The oldest and largest Japanese wealth manager, Normura, has added investing in gold bullion in its survey to retail investors. It has found—much to its surprise—that the average Japanese person views gold bullion as the third-most desirable investment.

The second-largest financial firm in Japan, Mizuho Financial Group, has begun to allow smaller Japanese pension funds to invest in gold bullion.

Unlike North America, the talk isn’t of investing in gold bullion as a commodity, but the perception is that of gold bullion as a currency.

Now that the tables have turned and Japanese pension funds are beginning to dip into gold bullion, while the average person in Japan is warming to the idea of investing in gold bullion, increased demand in Japan is just beginning.

Follow me here. If even five percent of assets are invested in gold bullion, then five percent of a $3.4-trillion dollar pension fund market is a staggering $170 billion.

You know what that would do for gold bullion prices…

I don’t believe I’m making an outrageous claim. If the perception of gold bullion as protection against a crisis takes hold in Japan, then five percent is a reasonable portion of one’s portfolio to set aside for insurance against a crisis. I’m not even counting the average person in Japan. The $170 billion represents just the pension funds.

Besides China, Japan is joining the group of gold bullion investors around the world. Central banks as well have been investing in gold bullion in the first few months of this year, as I’ve been writing about in these pages. (See: Half of World Gold Production Being Bought by Central Banks.)

If you want to sell your gold bullion, looks like there are plenty of Japanese investors who will be happy to take it off your hands.

Michael’s Personal Notes :

Last Friday came news that Hewlett-Packard Company (NYSE/HPQ) is considering cutting 25,000 jobs in an effort to help the company trim costs and increase profits.

With the second half of 2012 looking like a continued slowdown in economic growth, I believe we will see more companies like Hewlett-Packard announcing job cuts as the year progresses.

It’s been a snowball effect…

The recessions in various eurozone countries have resulted in big American companies that sell in Europe seeing softness in product/service demand. And the slowdown in China’s economic growth is causing a pullback in demand from one of the world’s biggest economies.

After a couple of years of solid earnings growth from big American companies, I believe earnings growth will falter this year.

Amid stagnant economic growth, companies are finding it difficult to deliver revenue growth. If revenue is not growing, and companies want to increase profits, their next logical move is to cut expenses.

Twenty-five thousand job cuts at Hewlett-Packard is a big number, but percentage wise, it’s only eight percent of Hewlett-Packard’s total workforce. As more companies cut payrolls in the second half of 2012, more pressure will be placed on the unemployment rate and, consequently, economic growth in this country could easily stall.

In a global economy, it is unreasonable to believe a country as big as America can isolate itself from worldwide slowdown in economic growth.

Because of what I have outlined above, the Fed will be forced to keep interest rates low for a very long period of time. As the stock market continues to struggle and economic growth falters, the Fed will be more aggressive in quantitative easing.

So, as investor, I believe you are looking at a prolonged period of low interest rates and more money printing by the Fed, both of which are inflationary.

Eventually, interest rates will be pushed up as a consequence of inflation. It’s just a matter of when. But in the meantime, just expect more of the same…record-low interest rates to continue, government debt to continue rising, and the monetary policy to be very expansive. Oh, and let’s not forget, economic growth to deteriorate rapidly.

Where the Market Stands; Where it’s Headed:

If I am correct, the stock market is just about finished putting in a huge top that will act as the right shoulder of a classic head and shoulders pattern. This means it is more likely stocks are headed down than up.

Facebook, Inc. (NASDAQ/FB) wasn’t able to change the market’s tide on Friday. If there is one thing I know about traders, when the market is fragile, like it was last week, they don’t like to go home for the weekend with too much stock on their books.

Expect a bad summer for the stock market. The economy is slowing rapidly, so corporate profits will be stretched. Those smart corporate insiders I’ve have written about a few times this year…they jumped off the bandwagon at just the right time. (For the benefit of my new readers, corporate insiders have been very big sellers of stock this year; see: Another Key Stock Market Indicator Flashes Red.)

What He Said:

“What group of stocks is next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.

Last Friday came news that Hewlett-Packard Company (NYSE/HPQ) is considering cutting 25,000 jobs in an effort to help the company trim costs and increase profits.

With the second half of 2012 looking like a continued slowdown in economic growth, I believe we will see more companies like Hewlett-Packard announcing job cuts as the year progresses.

It’s been a snowball effect…

The recessions in various eurozone countries have resulted in big American companies that sell in Europe seeing softness in product/service demand. And the slowdown in China’s economic growth is causing a pullback in demand from one of the world’s biggest economies.

After a couple of years of solid earnings growth from big American companies, I believe earnings growth will falter this year.

Amid stagnant economic growth, companies are finding it difficult to deliver revenue growth. If revenue is not growing, and companies want to increase profits, their next logical move is to cut expenses.

Twenty-five thousand job cuts at Hewlett-Packard is a big number, but percentage wise, it’s only eight percent of Hewlett-Packard’s total workforce. As more companies cut payrolls in the second half of 2012, more pressure will be placed on the unemployment rate and, consequently, economic growth in this country could easily stall.

In a global economy, it is unreasonable to believe a country as big as America can isolate itself from worldwide slowdown in economic growth.

Because of what I have outlined above, the Fed will be forced to keep interest rates low for a very long period of time. As the stock market continues to struggle and economic growth falters, the Fed will be more aggressive in quantitative easing.

So, as investor, I believe you are looking at a prolonged period of low interest rates and more money printing by the Fed, both of which are inflationary.

Eventually, interest rates will be pushed up as a consequence of inflation. It’s just a matter of when. But in the meantime, just expect more of the same…record-low interest rates to continue, government debt to continue rising, and the monetary policy to be very expansive. Oh, and let’s not forget, economic growth to deteriorate rapidly.

Where the Market Stands; Where it’s Headed:

If I am correct, the stock market is just about finished putting in a huge top that will act as the right shoulder of a classic head and shoulders pattern. This means it is more likely stocks are headed down than up.

Facebook, Inc. (NASDAQ/FB) wasn’t able to change the market’s tide on Friday. If there is one thing I know about traders, when the market is fragile, like it was last week, they don’t like to go home for the weekend with too much stock on their books.

Expect a bad summer for the stock market. The economy is slowing rapidly, so corporate profits will be stretched. Those smart corporate insiders I’ve have written about a few times this year…they jumped off the bandwagon at just the right time. (For the benefit of my new readers, corporate insiders have been very big sellers of stock this year; see: Another Key Stock Market Indicator Flashes Red.)

What He Said:

“What group of stocks is next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.

In a consumer-driven economy, what retailers say about their businesses is very important. For the most part, the retail sector has been saying that business conditions are getting better. A lot of retail stocks performed very well up until the recent stock market correction and valuations are reasonable. I’ve been writing about an underlying strength in the stock market and the U.S. economy and you can see it right now in the retail sector.

The strong first-quarter financial results of Wal-Mart Stores, Inc. (NYSE/WMT) beat consensus and the company expects strong profit growth in the current quarter. A lot of other brand-name companies in the retail sector reported very good numbers for the first quarter and many retail stocks are trading close to record highs on the stock market. Right now, with all the available news and lower oil prices, I’d say that second-quarter earnings season is shaping up to be surprisingly strong.

So, we have a stock market that’s in correction; however, economic news is showing mixed, but generally improving data. Lower oil prices stimulate consumers to spend and they lower the cost of doing business in the industrial sector. While speculators might bet that lower oil prices are a put option on the global economy, the spot price action directly affects the retail sector and that’s good for the economy.

As I keep saying, if we didn’t have the sovereign debt crisis in Europe, I believe the stock market would be a lot higher than it is currently. Corporate earnings growth may not be robust, but it isn’t flat either. The retail sector has been and should continue to be strong through to the end of this year. (See Wall Street Beats Main Street Again.) As well, a lot of industrial companies are expecting a solid bottom half to 2012. And the outlook for the consumer goods sector is also strong, with companies like Colgate-Palmolive Company (NYSE/CL) and Kimberly-Clark Corporation (NYSE/KMB) trading at all-time record price highs on the stock market.

The structural problems in the U.S. economy and the eurozone are almost entirely related to sovereign debt. This is a fundamental problem that needs to be addressed by policymakers. But consumers are doing their part and, as stock market investors, we can see this in the numbers. I fully expect the retail sector to keep outperforming over the coming quarters and the strength in this industry should trickle down to other sectors for a better-than-expected second-quarter earnings season. That’s my current view right now.