Three important points on gold this morning:
This is not the time to trade gold.
As we move from the second phase to the third phase of the gold bull market, the metal is having $20.00 to $30.00 per ounce daily moves. These types of gyrations make trading the metal almost impossible. As I have been saying since 2002, take a position in the metal, buy more on big price dips, and just sit tight.
The non-believers are slowly jumping on the bandwagon.
Ask investors just a year or two ago about gold and they had no idea it was in a bull market. Today, we have more financial analysts getting on the gold bandwagon than at any time since the gold bull market started…and that’s getting me nervous about a price correction.
Last week, a report from RBC Capital Markets said that it expects gold to reach $3,800 U.S. per ounce in three years. I’d prefer to see this kind of exposure well into phase three of a bull market, not at the end of phase two.
(For new readers: In a bull market, phase one is when the very smart money gets into an investment because they see an investment undervalued [think gold 2002-2006]. Phase two is when other prudent investors get in [think gold 2007-?]. Phase three is when the rest of the investing public and the speculators get into a bull marker looking for quick profits. We have yet to enter phase three in this gold bull market.)
Follow the bellwether stock.
The granddaddy of gold stocks, Newmont Mining (NYSE/NEM), reported yesterday that it made 537 million dollars in the third quarter (up 38% from the same quarter last year) on sales of $2.6 billion. Newmont says that its overall cost to mine gold is about $500.00 an ounce. The higher gold prices go, the more money this baby makes.
The price of Newmont stock on the NYSE continues to move to record highs.
Michael’s Personal Notes:
Growing up in my parent’s house as a child, if there was one thing my mother taught us, it was that if you don’t understand something, don’t fake it.
And, in all honesty, I can’t figure out what is going on in Washington.
I heard President Obama’s White House news conference yesterday. As CNN Breaking News put it in a news release, “Midterm elections confirm Americans are deeply frustrated with pace of economic recovery, President Obama says, ‘No kidding.’”
So Obama is saying he wants to do more for small business. He’s finally getting it that small business in America make up most of the employment in this country and they are ones that need to be helped.
Here’s what I don’t get: it took the Democrats losing control of Congress to get the message that voters don’t like excess government spending and non-focus on small business?
A Bloomberg Global Poll back in September found that 77% of investors say Obama is too anti-business. If business fears the current Administration, how will they ever loosen their purse strings and spend the trillions in cash they’ve accumulated?
Where the Market Stands, Where It’s Headed:
The Dow Jones Industrial Average opens this morning up 7.6% for 2010.
The bellwether Dow Jones Industrials is only 42.88 points away from breaking to a new 52-week high. I mentioned this because of the technical importance behind it. If the Dow Jones breaks to a new 52-week high (as I predicted it would a few issues ago), the “head and shoulders” pattern that was established this past May will come into question.
While the majority of stock market advisors (especially the old-timers) have been negative on stocks for the majority of 2010, I have remained bullish. I’m sticking with what I believe: corporate profits are better than expected, monetary policy cannot possibly be more accommodative than at present, there are not many investment alternatives to stocks.
I’m looking for the bear market rally that started in March of 2009 to keep moving higher.
What He Said:
“Home sales down 8.4%, could be the bottom,” read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in PROFIT CONFIDENTIAL, January 31, 2007. While the popular media were predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.