On Track for a New Reserve Currency
Monday, November 1st, 2010
By Mitchell Clark, B.Comm. for Profit Confidential
I think that investors should be keeping a close eye on the spot price of gold and be ready to consider new positions in gold stocks if there’s any meaningful correction in the commodity. Spot prices seem to be taking a bit of a rest here, but they’re still holding up relatively well. In fact, we may not even get a correction in gold prices due to the seemingly universal agreement on a weakening U.S. dollar.
As is usually the case, a lot of money has already been made speculating in gold-related securities, but this is an investment with very attractive, long-term fundamentals. Even with gold prices already trading near their highs.
With an economy faced with huge government debt and deficits, and an inability on the part of government to raise taxes, the global marketplace is vying for a weaker U.S. currency. As the world’s reserve currency, this makes owning gold more and more attractive as a store of value. There just aren’t that many places for large investors to park their money.
For small investors, the gold mining industry continues to be awash in cash and awash in opportunity. It’s a great industry to be going into for sure. Merger and acquisition activity in the sector is heating up and it’s pretty much assured there will be more deals happening among junior- and mid-tier players who would like more economies of scale to control their costs.
Some of the hottest gold stocks have actually come down in price, as the spot price of gold is now consolidating. In many cases, equity valuations among these shares are still high. But, it’s the kind of market sector where it’s very difficult to find value, because the fundamentals for gold mining are so transparent. Here is our property; here’s the amount of gold in the ground and what we’re producing; and, finally, here’s the spot price of the commodity. One thing you can count on when speculating in mining shares: the underlying fundamentals get reflected in share prices very quickly.
So, I think it’s a good strategy to be watching a number of gold stocks now, especially if you haven’t already speculated in the sector. The global investing marketplace is running out of attractive places to put their money and gold is about to become a reserve currency once again
Next Post: Why You Shouldn’t Get Too Comfy Trading the MarketsPrevious Post: November Technical Outlook for Stocks
Tags: gold prices, gold stocks, reserve currency, silver stocks, U.S. dollar
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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.
