Gold Prices
Gold prices have been used as a store of wealth for centuries. Naturally, prior to the modern period, the monetary system was quite basic and rudimentary. Gold prices can be quite erratic and have a history of massive swings. One issue with gold prices is that supply can and does come back into the market. Unlike other commodities that are used up, such as oil, when gold prices move up, people can sell their holdings, which can be melted down and added to the world supply again. High gold prices are usually a sign of a lack of faith in paper money, usually due to inflation, which erodes the value of fiat money.
Buy Low/Sell High the Best Way to Conquer This Market?
By Mitchell Clark, B.Comm. for Profit Confidential
The buy low/sell high investment strategy requires a ton of resolve.
Going against the stock market that just proved an asset is not attractive is not only risky, but it is counterintuitive to the emotional decision-making that takes place in financial markets.
I always scan the stock market for positions at their 52-week lows.
The reason for doing this is twofold: 1) to identify potentially attractive buy low/sell high assets; and 2) to assess what Wall Street dislikes for the purpose of honing my market view.
What you want to look for isn’t a company that is going broke or whose business plans have failed, but a large-cap, brand-name company—a leader within its industry that is down on the stock market for its own specific set of reasons.
One company that exemplifies the scenario I’m describing is Barrick Gold Corporation (NYSE/ABX).
This blue-chip gold producer has been having a very tough time on the stock market. The position is down another 10 points since April and has been cut in half since last November.
Barrick Gold’s stock chart is below:
Chart courtesy of www.StockCharts.com
Barrick Gold looks like a good buy low/sell high trade candidate. But obviously, there are two immediate explanations as to why the position just bounced off a major low: weaker gold prices and rising production costs.
The company did particularly well on the stock market between the mid-1980s and mid-1990s. Then it took a break for a good 10 years, doing nothing except paying its dividends.
I would now keep a sharp eye on Barrick Gold for a buy low/sell high trade. But here’s the thing: … Read More
How a Little Piece of Rock Could Turn the Global Economy Upside Down
By Mitchell Clark, B.Comm. for Profit Confidential
It is not usually a good idea to try and catch a falling piano.
So much change is in the air: the stock market breakout, declining commodity prices, and a world awash in cash.
Thinking about gold, it is just a piece of soft rock. But it’s a rock with a special connotation and with unique properties. It did a fantastic job helping the space shuttle, and a lot of people think it looks pretty good.
The first gold jewelry-makers must have been jumping for joy when they found a shiny rock they could shape without breaking. I read that approximately just 10% of gold production is used in industry; the rest is for jewelry and physical investment.
Because people throughout the centuries attributed value to gold, the soft rock has some worth.
Today, gold prices are determined by derivative traders, central banks, and what barterers believe it to be worth. This is not a group of market-makers that inspires confidence.
I certainly see a role for a little gold as part of an overall portfolio. It has always been a diversification, fear, and inflation-related hedging tool.
With lower gold prices, gold miners are struggling on the stock market. Even the best-quality, fastest-growing gold miners can’t get their stocks to move.
This is the inherent difficulty with resource stocks, and it will never change.
Predicting gold prices is a crapshoot. For the most part, it seems to me that gold prices just trade off their near-term directional momentum, save for a shock. Figures on the supply and demand of the commodity seem to play a lesser role in … Read More
Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be
By George Leong, B.Comm. for Profit Confidential
Commodity prices have been heading lower on the charts.
In fact, it has been an awful few days for gold as prices plummeted, failing to hold $1,500 an ounce.
Prices dove right through support at $1,400 to $1,385.62 on Monday—the lowest level since 2011.
The shiny yellow ore is in a bear market. Down 27% from its magical peak of $1,920 in September 2011, it has been nothing but turmoil for investors in the yellow metal.
As I said in a recent commentary, I have lost confidence in the metal as a safe haven investment at this point. I’m not even sure I would enter on the current weakness.
The price chart says “sell.” Follow the trend, and you may be able to squeeze out some profits on an oversold bounce trade; but extending the trend forward, things don’t look good for gold.
Now we will need to see if the precious metal can hold $1,400.
As we move lower, there are now concerns of a meltdown in the gold sector, especially if prices continue to trend lower toward the $1,200 level.
Goldman Sachs, which recently turned bearish and advised shorting the metal, is fearful of gold prices dropping to the $1,200-an-ounce level—as this level also represents the cash cost to produce gold at this point. (Source; Cosgrave, J., “The Scary Number for Gold Investors: $1200,” CNBC, April 15, 2013.)
The $1,200-an-ounce cost of production is clearly an issue, especially for the smaller mining companies that are not as cost-effective or able to survive a cash crunch, compared to the mid- to large-tier producers, like Newmont Mining Corporation (NYSE/NEM). (Read … Read More
Already Fragile Economy Hit with Falling Retail Sales, Rising Business Inventories
By Michael Lombardi, MBA for Profit Confidential
Gross domestic product (GDP) in the U.S. economy mainly consists of consumer spending. Hence, the more consumers spend and buy, the better our economic conditions become. In 2012, consumer spending in the U.S. economy accounted for more than $11.1 trillion. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 12, 2013.)
Unfortunately, as we finish the first quarter of 2013, economic indicators are suggesting U.S. consumer spending is under severe pressure.
Retail sales in the U.S. economy just took a wrong turn and dropped 0.4% in March from February’s sales. Consumer spending at electronics and appliance stores, health and personal care stores, and general merchandise stores posted a negative growth compared to the same period in 2012. (Source: U.S. Census Bureau, April 12, 2013.)
Similarly, a key indicator of future consumer spending, the Thomson Reuters/University of Michigan’s preliminary consumer sentiment index declined to the lowest point in nine months in April. The preliminary consumer sentiment index registered at 72.3 in April, down from 78.6 in March. (Source: Reuters, April 12, 2013.) Remember: consumers turning pessimistic means a pullback in consumer spending.
At the other end of the equation, we see businesses in the U.S. economy increasing their inventories. According to the U.S. Census Bureau, manufacturing and trade inventories in February of this year edged up almost five percent from a year ago. (Source: U.S. Census Bureau, April 12, 2013.)
Businesses often build up inventories in anticipation of demand, but looking at consumer sentiment and retail sales, I highly doubt that’s the case. It’s actually the opposite; business inventories are increasing because of a lack of demand…. Read More
Base Metal Demand Turning Bleak; Not a Good Sign for Global Economy
By Michael Lombardi, MBA for Profit Confidential
The threat of an economic slowdown in the global economy is increasing each day, but thanks to the optimistic stock markets flaring due to easy money, the threat goes unnoticed.
Copper stockpiles in the London Mercantile Exchange warehouses have reached a 10-year high. Since the beginning of this year, copper inventories have surged 84%. (Source: Wall Street Journal, April 11, 2013.)
According to the World Steel Association, steel demand in Japan is expected to decline (for the second year in a row) by 2.2% in 2013 and a further 0.6% in 2014. Similarly, the use of steel in the U.S. is expected to slow this year compared to 2012. (Source: World Steel Association, April 11, 2013.)
Other base metals, often referred to as “industrial metals,” are witnessing their demise as well. Consider the chart below of the Dow Jones-UBS Industrial Metals Index.
Chart courtesy of www.StockCharts.com
This index, comprising different base metal prices, has been declining since February and has shed more than 11% of its price. Base metals are used in many different industries, and if their demand slows and prices decline, then that’s not a great sign for the global economy.
Dear reader, it’s not a hidden fact: major economic hubs in the global economy are slowing down. In the U.S., we have high unemployment. Once-strong nations like Germany and France are being suppressed by an economic slowdown in the eurozone. Japan is in an outright recession. China’s economy is slowing, too.
After the economic slowdown of 2009, central banks in the global economy were able to inject significant amounts of money into their countries. Looking … Read More
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