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

Is the Economy Getting Better? Oil Prices Say No, Gold Says Maybe

Monday, November 26th, 2012
By for Profit Confidential

Economy Getting BetterOne of the best barometers on the state of the stock market and investor sentiment is actually the price of oil. Obviously, low oil prices are helpful to consumers, but from a financial market viewpoint, they express the opinion from speculators that economic activity is challenged. On the other hand, it’s arguable that gold prices represent fear in the global economy. But as a commodity, gold can’t seem to accelerate in this market; it’s just holding around $1,730 an ounce.

One precious metal that is slowly ticking higher is silver. It’s doing a bit better than gold lately, and silver-watchers argue that the commodity is due to catch up to the price of gold, as it’s been laggard over the last few years.

Even though gold prices are holding at their current levels, a lot of gold miners have done terribly on the stock market this year, especially in the large-cap space. You’d think that the stability in gold prices would be helpful, but one material trend among gold miners this year is that costs have gone way up. From start to finish, it costs a lot of money to produce a bar of gold. Barrick Gold Corporation (NYSE/ABX) illustrates this poor stock market performance. This stock has been trending lower for the last two years.

Barrick Gold Corp Chart

Chart courtesy of www.StockCharts.com

There is an underlying trend in the stock market as it relates to precious metals. Producing mining companies don’t really advance on the stock market unless the underlying spot price of the commodity is doing so. You can have the best business growing its revenues and earnings, but if spot gold isn’t advancing, it’s highly likely that the stock won’t either.

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This is the reality for gold stock investors. You can argue that gold prices are strong and certainly stable, and this stability should be met with solid earnings growth. (See “Look at These Big Capital Gains in Gold and Silver Stocks.”) But the stock market performance of many gold stocks has only been mediocre, and the selection of the best gold mining companies is very small.

Gold is an important component for any stock market portfolio. What gold needs to accelerate in price is a catalyst, and there isn’t one right now. A large drop in the U.S. dollar or a major acceleration in the Chinese economy would be possible catalysts. I’m bullish on gold prices and some gold stocks going into 2013. So far, however, getting spot gold over $1,750 an ounce has proved to be difficult.

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  • Bruce Miller

    We used to say: " As goes GM, so goes the nation". You know where that got us don't you? Fact is: America is over-drawn around the world. Remedy: Belt tightening from the bottom up as far as possible. Result: a stalling depression then full nightmare depression a resetting of American values taking a decade, and the final admission that the Chinese version of communism served it's people better than barracuda Capitalists did in America, as we beg for Chinese Thorium reactors to burn the nuclear waste contaminating our country.
    America is long passed the magical "Tipping Point" sells few domestic cars even locally, hardly produces steel, only produces corn in abundance, and spends so much warring on behalf of others as to be hated world round. Expect our largest debtor to be served well in the South China Seas, even as well as the Saudis were served in Iraq, and Israel is to be served in Iran.

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
    ― Napoleon Bonaparte

    "A politician is a fellow who will lay down your life for his country." – Tex
    Guinan

    “How can a country have a world empire when it can’t finance its domestic budget? It’s not possible.” — Paul Craig Roberts

    “Democracy is four wolves and a lamb voting on what to have for lunch.” ― Ambrose Bierce

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Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 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. Add Mitchell Clark to your Google+ circles