Debt Crisis in Europe Highlights Continued Strong Fundamentals for Gold
Wednesday, October 5th, 2011
By Mitchell Clark, B.Comm. for Profit Confidential
It’s pretty difficult to get enthusiastic about the stock market with sentiment so focused on the sovereign debt situation inGreece. Even in the face of solid earnings expectations for the third quarter, investors are looking into the future and seeing slow economic growth, translating into slower earnings. It’s the perfect storm for equities and it makes choices for equity investors very limited.
The one sector that continues to stand out in my mind as offering the best risk-versus-reward scenario is precious metals, especially gold and silver. Both these commodities are experiencing a well-deserved correction and the fundamentals for higher spot prices remain intact. With investment risk very high in the equity market and so much uncertainty surrounding European banks and the euro currency, gold is going to be a key asset over the next several years.
And, even without all the turmoil surrounding sovereign debt in Europe, the fundamentals for gold are strong in the face of a huge increase in the U.S. money supply, inflationary pressures, and central bank demand for gold bars.
And don’t tell me that inflation isn’t an issue. The last time I checked, prices for things weren’t going down. Inflation jumped to three percent in the month of September in the 17 countries that use the euro currency, which was the highest inflation rate since October of 2008. And this is happening in a slow growth environment. I understand reduced expectations for global economic growth, but with the world awash in debt and countries stimulating their economies with increased money supplies, inflation is a very real threat and potential wealth destroyer over the next several years.
In any case, gold investments are one of the few asset classes that should outperform over the medium term and gold stocks should be on every investor’s radar screen.
The stock market is going through a tumultuous time right now, and has been doing so since the end of July. The S&P 500 Index just recently broke through its 25-day moving average and does not look healthy from a technical perspective. I wouldn’t be surprised at all if the Index hits 1,050 or even 1,000.
The saving grace over the near term should be third-quarter earnings, but any good news from corporations will be usurped by the debt crisis in Europe. Accordingly, equity investors will be well served by keeping a close eye on the spot price of gold and the opportunity for a new entry point. If everything comes apart in Europe, cash, gold and the U.S. dollar will be the marketplace’s only friends.
Next Post: Four Reasons Why Stock PricesWill Bounce Higher Now
Previous Post: Stock Market Charts Looking Dangerous
Tags: debt crisis, European debt crisis, gold, gold investments, gold stocks, precious metals, S&P 500, sovereign debt problems, stock market
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.
