The spot price of gold really needs to hold above $1,700 an ounce in order to maintain its positive short-term price momentum. There is good underlying strength for gold long-term and, to illustrate it, just pull up a five- and 10-year chart on the spot price. The outlook for gold remains positive and the same goes for silver.
Like other sectors of the stock market, there is no rush to be taking on new positions in mining stocks. It’s still one of the most attractive areas for risk-capital speculators, but, like the rest of the stock market, a lot of the upward price move has already occurred. This is why I’m not advocating that investors consider new positions in stock market index funds. The stock market should keep ticking higher this year, but the move is likely to be incremental. Economic fundamentals are getting better, but not that quickly.
This leads me to one of the best, but most difficult, investment strategies to try to be consistently good at—the buy low/sell high strategy. Just in recent history, gold and mining stocks were good trades after the spot price corrected. (See Opportunity for Gold Investments: Gold Stocks Sell Off, While Spot Price Hangs Tough.) But the price action can be swift and the major gains can slip away from you very quickly. If you were buying the stock market today, for example, you’d be buying at its three-year high. That doesn’t really fit the buy low/sell high investment philosophy.
Good opportunities for investment do not come around very often (in gold, the stock market, business, or real estate). There have been only three really attractive times to buy the stock market in the last four years; the first obviously being in March 2009, then June 2010, and September 2011. Around these time frames, the stock market corrected significantly and it was a good time to go against the herd and buy low. As I’ve written before, the only urgency in financial markets is from someone who is trying to sell you something. Right now, I wouldn’t be a buyer of the stock market, and would only consider buying more gold if it broke down to around the $1,600 level. I would wait for the next correction to consider new positions.
Gold is an investment theme that I really believe in for the long term, and a number of higher dividend paying stocks. But that doesn’t mean these assets are good buys all the time. The buy low/sell high investment strategy takes a lot of patience and it takes a lot of discipline not to be a buyer when everyone else is. But, I think it’s the one investment strategy that pays off the most over time.
There continues to be a real fragility in the stock market today, as well as in some commodities. The fragility is about sentiment, global uncertainty, and the modest expectations the marketplace has for the future. I think the stock market will keep its upward trend over the near term. My best guess for gold is that it will trade range-bound near-term. Spot gold should then move higher later in the year. For those who are already invested with diversified portfolios, I don’t see any big reason to be buying in the stock market at this time. For a buy low/sell high type of investor, current market action isn’t attractive for new positions.