Back in 2002 the editors of Profit Confidential started telling their readers it was time to jump into gold related investments, specifically gold stocks. This gold stocks guidance and analysis proved to be extremely timely. Yes, back in 2002 we started offering gold stocks analysis to our readers and we still do it today. We have been recognized as one of the first investment letters to tell its audience to jump into gold stocks, very early in the gold bull market. The gold analysis we provided resulted in many stocks we follow rising in price 100% or more in short periods of time. Today, you can regularly find our gold analysis in Profit Confidential. Each time gold prices moved higher, we told our readers to buy more gold related investments. See what we have to say about gold’s future dally in Profit Confidential.

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 and a number of commodities are in correction and this is no surprise at all. I want to repeat my view that all kinds of solid, growing gold mining companies are becoming very attractively priced right now and, as a sector, it’s worth putting gold stocks on your radar screen.

It’s a bit too early to jump right in with the spot price of gold likely to experience more downside. From a stock market perspective, most gold stocks began pulling back hard in mid-March, affecting even the best stocks within the sector. We’ve got to see the spot price of gold bottom out from its current downtrend and then I think we’ll have another really good entry point for considering new positions.

Investing in gold has always been a risky business, but it’s a worthwhile endeavor if you’re a stock market and commodities speculator. The key, like always, is to get the cycle right—timing in the investment business is everything. Even though the long-term trend might still be intact, the spot price of gold could easily go down to $1,200 or $1,100 an ounce. Why not? Gold has been in a bull market since 2002. The current price action in spot gold is very similar to the correction that occurred 2008/2009 and I wouldn’t be surprised at all if it repeated this trend: correction, recovery, consolidation, and then re-acceleration. It does take time.

Right now, there are large, medium and small producers of gold trading for reasonable prices on the stock market. A lot of these companies have little to no debt and are sitting on large cash hoards, waiting to put that money into new exploration and development. (See Everything Gold Is Turning Into Some Serious Green.) Even though gold stocks aren’t going up right now, it is an exciting time to be in this industry.

Speculating in gold mining stocks is a difficult business. You can find the best growth story out there, but if the spot price isn’t going up, then you aren’t likely to make any money. That’s why, as a stock market speculator, the majority of the time you need the spot price tailwind behind you. Or you go the other way and short these stocks when spot prices are falling. Just like in the oil market, spot price action is everything.

What I find attractive in a gold mining stock is finding a company that offer a “package” of good business fundamentals. This means that a gold mining company should already be producing and selling ounces of gold with detailed expectations for increased production over the coming quarters and years. The company should have other properties that it’s exploring, even in conjunction with other, perhaps larger mining companies. There needs to be a track record of financial growth, along with lots of cash in the bank for further exploration activities. Finally, a decent track record on the stock market is always helpful; it shows that institutional investors know about the business and are willing to invest and/or trade the stock.

I think we have more downside ahead in the stock market and in precious metals and other commodities. We’ve been due for a correction and here it is. I do see an underlying strength in the U.S. economy that, while not robust, is a good foundation for the future. For stock market investors, be prepared for further correction.

Gold prices have been all over the chart and moving in a sideways consolidation channel since late September, caught between $1,800 at the top end and $1,550 at the bottom end.

After a recent move towards $1,800 in late February, the metal topped, and it is again struggling to hold ground at around $1,650 with key support at $1,600 to $1,625.

Gold had been on a four-day winning streak, but the June Gold remains below its 200-day moving average (MA) of $1,702 and 50-day MA of $1,680. There is a bearish death cross on the chart, so there could be more weakness.

Failure to rally to the 50-day MA could see a subsequent move down towards $1,600, which I would view as a decent buying opportunity to buy or add to a position. Moreover, a further decline to $1,550 would represent an excellent buying opportunity for the metal.

The reality is that the price of gold is currently driven by two key variables—global risk and world demand. I feel both factors are supportive of higher prices.

I feel there will be tough years ahead for the European Union and eurozone, along with the debt mess here. Spain is in its second recession and in trouble. Read my thoughts in Don’t Jump on the European Bandwagon Yet.

China continues to stall, with the first-quarter gross domestic product (GDP) at 8.1%, below the 8.3% to 8.5% estimates, and the lowest reading in 11 quarters.

In the Middle East, there are mounting issues in Syria and speculation that Iran is close to having the knowledge to develop nuclear weapons.

The second major variable that could drive gold higher is the higher demand from China and India. China is expected to jump ahead of India as the top consumer of the yellow metal in 2012. China’s demand for gold is estimated to surge 20% this year, according to the World Gold Council. This demand has helped to drive up prices and will continue. Moreover, there are thoughts that China wants to reduce its buying of U.S. debt and instead accumulate physical gold. Should this happen, it would give a major push for prices.

Staying in the Asiatic region, I also expect gold to continue to be in high demand in India, a major consumer of the precious metal. Demand in India could be massive and expand at 10% to 15% this year, up from an estimated five to seven percent in 2011. India imported a record 969 tonnes of the yellow metal in 2011, according to the World Gold Council.

Given the current downward pressure, my advice is to buy gold stocks on price weakness, with a break below $1,600 representing a great opportunity to buy.

The unemployment rate in the eurozone reached a 15-year high in March at 10.9%, up from the previous record set just a month earlier at 10.8% (source: The Guardian, May 2, 2012). This is the highest unemployment rate since the inception of the eurozone.

March 2012 marks the 11th month in a row that the unemployment rate has increased among the 17 nations that make up the eurozone.

The European Central Bank (ECB) kept interest rates at one percent at its last meeting saying that its policies need to change so that growth is given as much emphasis as austerity. (It would have been nice if the ECB would have thought of that a year ago, before hundreds of thousands of more people joined the unemployment lines.)

I spoke about the quickly deteriorating conditions in Spain recently in these pages. It is worse than most could have imagined. Spain holds the highest unemployment rate in the eurozone. As of March 2012, almost one in four people is unemployed: 24.1%. Spain also has the second-highest youth unemployment at 51.2%.

One in two young people under the age of 25 is unemployed in Spain…an absolutely mind-numbing statistic.

In Greece, the latest unemployment figures available are for January. Its unemployment rate stands at 21.7%.

I’m going to list the youth unemployment rates for March 2012 for the eurozone (except for Greece, whose latest statistics are for January), so my readers understand that some of these countries are placing their youth in a severely dangerous position of being a lost generation. Or will this be the center of the social unrest and the reason why the eurozone will unravel?

  (Source: Reuters)

Going back to the regular unemployment rates…the unemployment rate in Portugal is 15.3%, while the unemployment rate in Ireland is 14.5%.

Some analysts have been saying Germany would be able to decouple from the rest of the eurozone and experience strong economic growth. I don’t but this. In fact, I believe Germany’s economy is contracting while its manufacturing numbers continue to deteriorate.

Germany cannot decouple from the rest of the eurozone as much as the U.S. can decouple from the global economic slowdown. The big question on my readers’ minds: How bad will unemployment eventually be here in the U.S. as world economic growth falters?

The pressures in the eurozone are mounting. Something will have to give soon, as the situation is clearly unsustainable. This weekend, France took a big step to the left and ushered in a socialist government led by new French President Francois Hollande. The new President campaigned on a variety of promises, including an easing of austerity measures.

A reduction in austerity measures…so where will the money come from? Better crank up those money printing presses again.

Michael’s Personal Notes :

Moving to our own problems…

American April 2012 unemployment numbers released Friday disappointed. Economists were looking for 160,000 in new jobs growth, but only 115,000 in new jobs growth was created (source: Bureau of Labor Statistics). However, mysteriously, the unemployment rate fell from 8.2% to 8.1% (more on that in moment).

Looking closer at the unemployment numbers; temporary help, general merchandise stores and food and drink places contributed the most to jobs growth by adding 62,000 jobs. This means that these low-paying jobs represented 54% of the new jobs growth created.

With this persistent theme of low-paying jobs growth being created in the U.S. economy, it is no surprise the jobs growth report showed average hourly earnings were flat in April 2012, when compared to March. Year-over-year, average hourly earnings have increased by a measly 1.8%, but when one adjusts for inflation, the average American’s real disposable income is declining!

Since 70% of gross domestic product (GDP) is consumer spending, I don’t see how consumer spending can increase in 2012 with pathetic jobs growth and no meaningful increases in average hourly earnings.

U6, as reported by the Bureau of Labor Statistics, is a broader measure of the unemployment rate, because it takes into account discouraged people who are still looking for work, as well as those working part-time, who want full-time work. The U6 unemployment rate was flat in April 2012 when compared to March at 14.5%.

The good news (yes, there is some) is that the previous two months saw higher revisions to jobs growth, with 54,000 more jobs created than originally reported. Not to take away from that positive news…typically in an economic recovery we should consistently be hitting 200,000 news jobs a month. We are far from this number.

One more quick note on U.S. April job numbers…

The labor participation rate measures all people in the working population (from ages 16-64) who are actually employed. In January, the rate hit a 30-year low of 63.7% (that is, only 63.7% of the people who can work and want to work are actually working). In February, it improved somewhat to 63.9%, but in March it dipped to 63.8%; while, in April, it fell further to its lowest level since December 1981 at 63.6%.

So how does the “official” unemployment rate drop to 8.1%? Simply, the figure is misleading. Discouraged workers who stop looking for work and those unemployed after one year are no longer counted in the unemployment rate.

Accordingly, the number of persons not in the labor force continues to climb higher: 88,879 million people, with the seasonally adjusted number being 88,419 million. This is absolutely mind-boggling.

Where the Market Stands; Where it’s Headed:

After a difficult Friday for stocks, stock market futures point to a weak opening this morning, with the Dow Jones Industrial Average slated to open below the pivotal 13,000 range again.

I continue with the belief that the market is putting in a “huge” top here. The stock market rally that started in March of 2009 is near the end of its cycle.

What He Said:

“Despite all my ‘yelling’ and ‘screaming’ about gold, I believe only a few of my readers and a small fraction of the general public haven taken a position in gold. Why? Because gold’s not trendy…buying condominiums for investment is! If you are an investor, you need to seriously look at investing in gold stocks, because gold bullion prices will likely continue to rise.” Michael Lombardi in PROFIT CONFIDENTIAL, September, 21, 2005. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.

Before the financial crisis hit in 2008, Spain enjoyed a property boom similar to what we experienced in the U.S., pre-2008.

In 2009, home prices fell 7.7% in Spain and are currently 20% off their 2008 peak (source: Wall Street Journal, Mar. 15, 2012). The problem is that, in 2012, the housing market and home prices in Spain are collapsing at an accelerated rate. In the fourth quarter of 2011, home prices were off 11.2% from 2010’s fourth quarter.

In January of 2012, home prices in Spain were off 26% year-over-year! As with the U.S. housing market collapse, prices have further to fall in Spain.

How bad is the housing market crisis in Spain? In the U.S., our population is roughly 313 million and we had approximately 1.4 million homes in the foreclosure process. In a country of 44 million people, Spain has approximately 1.4 million homes empty in its housing market with foreclosures rising rapidly (source: Bloomberg, April 1, 2012).

There are those who remain optimistic and believe that the Spanish housing market will not fall that dramatically in 2012, but they are not basing their assumptions on facts. Where is the demand going to come for homes when the unemployment rate in Spain is 23.6% as of January, the latest data available (source: The Telegraph, April 2, 2012)?

Spain youth unemployment in January was 50.5%! The poverty rate is 21.8%, the third worst in the Europe after Romania and Latvia (source: Telegraph, Feb. 26, 2012)!

Spain is officially in a recession. Gross domestic product (GDP) contracted 0.3% in the fourth quarter of 2011 and 0.4% in the first quarter of 2012. The Spanish government expects GDP to contract by 1.7% this year!

Spanish banks hold €400 billion in mortgage-backed securities in the housing market. Right now, the Bank of Spain is saying that the Spanish banks need to take a loss of €88.0 billion, but that is based on the housing market stabilizing. Just the opposite is occurring, which means that mortgage-backed securities will continue to lose value.

S&P has conducted a study that says if the housing market in Spain falls another 20%, which is very likely in their analysis and mine, one in four homes will have mortgages that will exceed the value of the home! This will mean that the Spanish banks will take more losses on their mortgage-backed securities, as people walk away from their homes and mortgages, like they did here in the U.S.

With skyrocketing unemployment, a contracting GDP, and a housing market that is falling at an accelerated rate, the Spanish government still has to implement European austerity measures. They cut spending in health services and education by €10.0 billion just last week, on top of the €40.0 billion cut in January of 2012. Unions have announced protests against the measures, to take place next week.

Spain has officially joined Greece in going into a death spiral. As the housing market continues to collapse in Spain, along with the value of mortgage-backed securities, the only way to save both Spain and Greece is if the European Central Bank steps in and prints money again.

Michaels’ Personal Notes:

In response to Spain, which I’ve detailed above, Greece, and other problem spots in Europe, the International Monetary Fund (IMF) has asked the world to provide more funds to help Europe out of its financial crisis.

Many parts of the world have expressed concern over Europe and have demanded the European Union do what is necessary to stem the financial crisis. Despite nations of the world feeling that Europe should handle its own financial crisis, the world has come together to provide the IMF with an additional $430 billion.

Japan is contributing $60.0 billion and the BRICS countries—Brazil, Russia, India, China, and South Africa—are providing $68.0 billion, although they won’t say how the money is split amongst their group. China has bought European debt in the billions of dollars to help support its largest customer during their financial crisis; China’s biggest export market is Europe.

The question I have, dear reader, is with China dealing with its slowing economy and Japan faced with its own financial crisis, and with their contributions to help Europe with its financial crisis, who is going to buy U.S. Treasuries?

In the first six months of the U.S. government’s fiscal year 2012, the budget deficit has reached $779 billion, which is better than the $829 billion in the first six months of 2011 (source: Congressional Budget Office). The U.S. Treasury is saying that, despite this better performance, the budget deficit for the full year 2012 will still come in at $1.3 trillion.

What is somewhat troubling—talk about a financial crisis of our own—is that, for February 2012, we recorded the worst monthly deficit in our history at $229 billion. The previous record was a year before in February of 2011: $223 billion. In February, the government spent $229 billion more than it took in!

In March, it was expected that the budget deficit would come in at $196 billion, but it came in worse than expected at $198 billion. However, this is much worse than March 2011, when the budget deficit came in at $188 billion.

I have written in these pages recently about the Federal Reserve buying 61% of net debt issued by the U.S. Treasuries. I have also written about the decrease in demand of U.S. Treasuries by our previous biggest buyers: China and Japan.

Japan has its own financial crisis to deal with, while China must contend with its slowing economy. Couple this with the fact that both Japan and China are pouring billions into the IMF and into Europe to help with the financial crisis, who then is going to buy U.S. Treasuries?

The only answer that makes sense is what worked in 2011 and that is the Federal Reserve. If that is the case, there will have to be a QE3. Gold bullion and those gold stocks are looking awfully cheap when QE3 is right around the corner.

Where the Market Stands; Where it’s Headed:

Yesterday, the tech-heavy NASDAQ had its biggest single daily advance in 2012, compliments of the better-than-expected quarterly earnings of Apple Inc. (NASDAQ/AAPL). It is quite interesting: The NASDAQ closed at 3,029 yesterday, still down 40% from its peak of over 5,000 in January 2000—12 years ago.

The Dow Jones Industrial Average and the S&P 500 continue to trade in a bear market rally that started in March of 2009. The rally is getting long and tired. I do not believe the potential upside reward is worth the risk for the majority of my readers.

What He Said:

“The conversation at parties is no longer about the stock market; it’s about real estate. ‘Our home has gone up this much’ or ‘Our country home has doubled in price.’ Looking around today, it would be very difficult to find people who believe that one day it could be out of vogue to own real estate, because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves.” Michael Lombardi in PROFIT CONFIDENTIAL, June 6, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.