Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Gold Stocks

Gold stocks are a speculative stock market sector specifically dealing with publicly traded gold miners and exploration companies. They fall under the category of risk-capital equity securities and, because their underlying businesses are based on a resource commodity, are mostly considered to be speculative.

Up until recently, gold stocks have been good performers on the stock market, following the spot price of gold commensurately. The current market for gold stocks is subdued due to the significant price consolidation taking place in the gold market. In addition, higher production costs on an industry-wide basis have made profitability more difficult for many gold mining companies.

Gold stocks come in all sizes and market capitalizations. Some large-cap gold miners offer shareholders quarterly dividends. Many micro-cap explorations companies are just that; they raise money to explore for gold and then come back to raise additional money if they find the precious metal in sufficient deposits to warrant building a mine.

If There Ever Was a “Buy Low, Sell High” Play, This Is It

By for Profit Confidential

Only Place I See Value in this Stock Market TodayWhen it comes to investing, history has taught us one very important lesson: ideal buying opportunities are formed when there’s significant pessimism towards an investment. In other words, to make it really big, you need to have the guts to buy an investment when everyone else is selling it…when it’s completely out of favor with the majority of investors.

While the general stock market is up close to 150% since March of 2009, there is only one investment that has been hard hit over the past couple of years. Long-time readers of Profit Confidential know exactly what I’m talking about: the shares of quality gold producers have taken it on the chin.

The contrarian in me couldn’t be talking louder; “buy when there’s blood on the street.” Very few investors like gold producers right now. In fact, the Dow Jones U.S. Gold Mining Index is down 60% since October 2012. Over the same period, the Dow Jones Industrial Average has risen nearly 30%. Gold stocks have fallen at twice the rate industrial stocks have risen. This is a rarity.

But the reasons to own the gold producers are becoming more compelling each day.

After putting on a relatively flat performance in 2012 and then declining in 2013, gold bullion prices now appear to be bottoming out. This can be great news for the gold producers whose stocks really trade on the rise and fall of gold bullion prices. The higher gold bullion prices go, the higher the profits of quality gold producers and the higher their stock prices go.

“Michael, it’s not good enough just to say gold bullion prices … Read More

Uncertainty in Emerging Markets Creating Certainty in Only One Market

By for Profit Confidential

This Is the Only Play that Will RewardFasten your seatbelt, dear reader. We’re in for a global financial crisis, a currency fiasco, and a stock market collapse all in the same year!

I’m being too bearish? Not after you read this…

In their search for economic growth in 2009, the Federal Reserve and other major central banks in the global economy started lowering interest rates and printing paper money.

While the central banks of the world wanted economic growth, they inadvertently created the “trade” for big investors like financial institutions and banks. I talked about this last Friday. (See “Stock Market: The Great Collapse Back to Reality Begins.”)

The “trade” had investors borrowing money from low interest rate countries and buying bonds in high interest rate countries, pocketing the spread. In the world of finance, this is often referred to as the “carry trade.” It works as long as the currencies of the low interest rate country and the higher interest rate country stay stable.

But now, the “trade” is backfiring as the currencies of emerging markets go into free fall.

China, the biggest economy in the emerging markets and second-biggest in the global economy, got most of the “trade” money. According to the Bank for International Settlements, in 2013, foreign currency loans and borrowing by Chinese companies from other countries was close to a trillion dollars. In 2009, it was only $270 billion. (Source: Telegraph, February 1, 2014.)

European banks have the biggest exposure to emerging markets, having lent them $3.0 trillion. Breaking down this number even further, British banks have loaned $518 billion to the emerging markets; Spanish banks come in second with $475 … Read More

If Gold’s a Bad Investment, Why Is This Country Buying 150% More of It?

By for Profit Confidential

150114_PC_lombardiI see more negativity towards gold bullion these days than ever before. And the more pessimism I hear and see, the more bullish I get on the precious metal.

After a bull market in gold bullion that lasted 12 straight years, 2013 was the correction year for gold bullion. It was the year that “separated the men from boys,” the investors from the speculators, when it came to gold bullion.

Consumer demand for gold coins continues to accelerate, and central banks around the world continue to be net buyers of the precious metal. Even small countries are getting in on the action. In 2013, Turkey imported 150% more gold bullion than it did in 2012! Turkey imported 302.3 tons of gold bullion in 2013, compared to 120.78 tons in 2012. (Source: Hurriyet Daily, January 3, 2014.)

The mainstream argument against gold bullion is that since there’s economic growth now, you don’t really need the precious metal…there’s no “crisis,” uncertainty, or inflation to send gold bullion prices higher. I don’t buy this argument for a New York minute.

The global economy is in a very fragile state. Major economic hubs are facing issues. China, India, Australia, the eurozone, and the U.S. economy show bleak economic performance. Just look at how bad the U.S. December jobs numbers were. (See “Pathetic December Jobs Numbers Proof 2014 to Be Challenging Year.”)

The third-biggest economy in the world, Japan, after years of money printing, reported an account deficit of 592 billion yen in November 2013—the country’s imports were more than its exports, as imports were up 230% over the same period a year ago. … Read More

Two of My Favorite Gold and Silver Stocks

By for Profit Confidential

gold stocksIf there ever was an environment illustrating how risky and tough resource investing can be, the current conditions for gold stocks are the textbook example.

Resource investing is a risk-capital only endeavor. When it comes to equities, resource-related stocks should never make up the core of a long-term investment portfolio. In almost all cases, even the fastest-growing, best-managed gold stocks still perform commensurately with the underlying spot price.

One of the best junior gold mining companies I know of is Argonaut Gold Inc. (TSX/AR). The company has growing production, but the stock is way down and can’t generate any momentum.

One of the best silver companies I know of is Endeavour Silver Corp. (EXK). In the second quarter of 2013, the company’s revenues grew to $71.1 million, compared to $40.4 million. Total silver production was up 48% to 1.5 million ounces in the most recent quarter, with gold production up 159% to 19,914 ounces.

Like Argonaut, Endeavour Silver is trading near a multiyear low on the stock market. It’s followed the spot price of silver almost exactly, falling consistently in value since the beginning of 2012.

While both companies don’t seem to be doing so well on the charts, they are both good mining companies. They have growing production, are keeping cash costs below industry growth rates, and their stocks are very reasonably priced.

The problem is they will stay reasonably priced so long as the spot price of yellow precious metal either remains flat or goes down. That’s the way it works in the gold mining business. The entire industry comes down to one financial metric—the spot price.

In … Read More

Why Silver Prices Will Double from Here

By for Profit Confidential

U.S. economyAs gold bullion prices declined in the period from April to June of this year, so did silver prices. And just like gold bullion, the bullish case for the white metal’s prices continues to build.

Demand for the white precious metal is not just robust; it is rising. The chart below compares sales of silver coins at the U.S. Mint in the months of January to July of 2012 and 2013.

The demand for the precious metal is strong, having risen by 50% in the first seven months of this year compared to the same period a year ago.

Last week, Chris Carkner, the managing director of sales for bullion, refinery, and exchange-traded products at the Royal Canadian Mint, said, “Year-to-date, after the second quarter, we’ve had record (demand) volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them…” (Source: “INTERVIEW: Gold, Silver Product Demand Is ‘Very Strong:’ Royal Canadian Mint,” Kitco, August 14, 2013.)

chart

Data Source: U.S. Mint web site, last accessed August 23, 2013

Looking at the technical picture, the chart below clearly shows the bottom in silver prices and the new upward-moving price trend.

Silver-Spot Price Chart

Chart courtesy of www.StockCharts.com

Yes, prices for the white precious metal are down for the year, but after breaking below $19.00 an ounce, they quickly recovered and found support, as shown in the chart above. Unlike gold, silver prices tested the same support level ($19.00 an ounce) on several occasions, and they always bounced above that level whenever it was tested.

Have silver prices hit a bottom? Price manipulation aside, fundamental demand and technical analysis … Read More

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