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

Posts Tagged ‘gold stocks’

If There Ever Was a “Buy Low, Sell High” Play, This Is It

By for Profit Confidential

Only Place I See Value in this Stock Market TodayWhen it comes to investing, history has taught us one very important lesson: ideal buying opportunities are formed when there’s significant pessimism towards an investment. In other words, to make it really big, you need to have the guts to buy an investment when everyone else is selling it…when it’s completely out of favor with the majority of investors.

While the general stock market is up close to 150% since March of 2009, there is only one investment that has been hard hit over the past couple of years. Long-time readers of Profit Confidential know exactly what I’m talking about: the shares of quality gold producers have taken it on the chin.

The contrarian in me couldn’t be talking louder; “buy when there’s blood on the street.” Very few investors like gold producers right now. In fact, the Dow Jones U.S. Gold Mining Index is down 60% since October 2012. Over the same period, the Dow Jones Industrial Average has risen nearly 30%. Gold stocks have fallen at twice the rate industrial stocks have risen. This is a rarity.

But the reasons to own the gold producers are becoming more compelling each day.

After putting on a relatively flat performance in 2012 and then declining in 2013, gold bullion prices now appear to be bottoming out. This can be great news for the gold producers whose stocks really trade on the rise and fall of gold bullion prices. The higher gold bullion prices go, the higher the profits of quality gold producers and the higher their stock prices go.

“Michael, it’s not good enough just to say gold bullion prices … Read More

Uncertainty in Emerging Markets Creating Certainty in Only One Market

By for Profit Confidential

This Is the Only Play that Will RewardFasten your seatbelt, dear reader. We’re in for a global financial crisis, a currency fiasco, and a stock market collapse all in the same year!

I’m being too bearish? Not after you read this…

In their search for economic growth in 2009, the Federal Reserve and other major central banks in the global economy started lowering interest rates and printing paper money.

While the central banks of the world wanted economic growth, they inadvertently created the “trade” for big investors like financial institutions and banks. I talked about this last Friday. (See “Stock Market: The Great Collapse Back to Reality Begins.”)

The “trade” had investors borrowing money from low interest rate countries and buying bonds in high interest rate countries, pocketing the spread. In the world of finance, this is often referred to as the “carry trade.” It works as long as the currencies of the low interest rate country and the higher interest rate country stay stable.

But now, the “trade” is backfiring as the currencies of emerging markets go into free fall.

China, the biggest economy in the emerging markets and second-biggest in the global economy, got most of the “trade” money. According to the Bank for International Settlements, in 2013, foreign currency loans and borrowing by Chinese companies from other countries was close to a trillion dollars. In 2009, it was only $270 billion. (Source: Telegraph, February 1, 2014.)

European banks have the biggest exposure to emerging markets, having lent them $3.0 trillion. Breaking down this number even further, British banks have loaned $518 billion to the emerging markets; Spanish banks come in second … Read More

If Gold’s a Bad Investment, Why Is This Country Buying 150% More of It?

By for Profit Confidential

150114_PC_lombardiI see more negativity towards gold bullion these days than ever before. And the more pessimism I hear and see, the more bullish I get on the precious metal.

After a bull market in gold bullion that lasted 12 straight years, 2013 was the correction year for gold bullion. It was the year that “separated the men from boys,” the investors from the speculators, when it came to gold bullion.

Consumer demand for gold coins continues to accelerate, and central banks around the world continue to be net buyers of the precious metal. Even small countries are getting in on the action. In 2013, Turkey imported 150% more gold bullion than it did in 2012! Turkey imported 302.3 tons of gold bullion in 2013, compared to 120.78 tons in 2012. (Source: Hurriyet Daily, January 3, 2014.)

The mainstream argument against gold bullion is that since there’s economic growth now, you don’t really need the precious metal…there’s no “crisis,” uncertainty, or inflation to send gold bullion prices higher. I don’t buy this argument for a New York minute.

The global economy is in a very fragile state. Major economic hubs are facing issues. China, India, Australia, the eurozone, and the U.S. economy show bleak economic performance. Just look at how bad the U.S. December jobs numbers were. (See “Pathetic December Jobs Numbers Proof 2014 to Be Challenging Year.”)

The third-biggest economy in the world, Japan, after years of money printing, reported an account deficit of 592 billion yen in November 2013—the country’s imports were more than its exports, as imports were up 230% over the same period a … Read More

Two of My Favorite Gold and Silver Stocks

By for Profit Confidential

gold stocksIf there ever was an environment illustrating how risky and tough resource investing can be, the current conditions for gold stocks are the textbook example.

Resource investing is a risk-capital only endeavor. When it comes to equities, resource-related stocks should never make up the core of a long-term investment portfolio. In almost all cases, even the fastest-growing, best-managed gold stocks still perform commensurately with the underlying spot price.

One of the best junior gold mining companies I know of is Argonaut Gold Inc. (TSX/AR). The company has growing production, but the stock is way down and can’t generate any momentum.

One of the best silver companies I know of is Endeavour Silver Corp. (EXK). In the second quarter of 2013, the company’s revenues grew to $71.1 million, compared to $40.4 million. Total silver production was up 48% to 1.5 million ounces in the most recent quarter, with gold production up 159% to 19,914 ounces.

Like Argonaut, Endeavour Silver is trading near a multiyear low on the stock market. It’s followed the spot price of silver almost exactly, falling consistently in value since the beginning of 2012.

While both companies don’t seem to be doing so well on the charts, they are both good mining companies. They have growing production, are keeping cash costs below industry growth rates, and their stocks are very reasonably priced.

The problem is they will stay reasonably priced so long as the spot price of yellow precious metal either remains flat or goes down. That’s the way it works in the gold mining business. The entire industry comes down to one financial metric—the spot price.

In … Read More

Why Silver Prices Will Double from Here

By for Profit Confidential

U.S. economyAs gold bullion prices declined in the period from April to June of this year, so did silver prices. And just like gold bullion, the bullish case for the white metal’s prices continues to build.

Demand for the white precious metal is not just robust; it is rising. The chart below compares sales of silver coins at the U.S. Mint in the months of January to July of 2012 and 2013.

The demand for the precious metal is strong, having risen by 50% in the first seven months of this year compared to the same period a year ago.

Last week, Chris Carkner, the managing director of sales for bullion, refinery, and exchange-traded products at the Royal Canadian Mint, said, “Year-to-date, after the second quarter, we’ve had record (demand) volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them…” (Source: “INTERVIEW: Gold, Silver Product Demand Is ‘Very Strong:’ Royal Canadian Mint,” Kitco, August 14, 2013.)


Data Source: U.S. Mint web site, last accessed August 23, 2013

Looking at the technical picture, the chart below clearly shows the bottom in silver prices and the new upward-moving price trend.

Silver-Spot Price Chart

Chart courtesy of www.StockCharts.com

Yes, prices for the white precious metal are down for the year, but after breaking below $19.00 an ounce, they quickly recovered and found support, as shown in the chart above. Unlike gold, silver prices tested the same support level ($19.00 an ounce) on several occasions, and they always bounced above that level whenever it was tested.

Have silver prices hit a bottom? Price manipulation aside, fundamental demand and technical analysis … Read More

Have Gold Stocks Bottomed Out?

By for Profit Confidential

Gold Stocks BottomedOne basic rule of economics states that when the demand increases for an item and supply for that same item declines, its price usually increases. Let’s apply this to the gold market today.

Demand for gold bullion is exuberant. In spite of the decline in the price of the precious metal, we are seeing the continual buying of gold, not only by consumers, but also by central banks—the most conservative of investors.

According to the Word Gold Council (WGC), in the second quarter, the two biggest gold-consuming countries, India and China, continued to show robust demand. In China, the demand for the precious metal in the second quarter was 276 tonnes—up 87% from the second quarter of 2012. (Source: World Gold Council, August 15, 2013.)

In India, in spite of the country’s government being bent on curbing demand for gold bullion, demand for the precious metal remains strong. Demand for gold bullion bars and gold coin investments in India increased by 116% in the second quarter and jewelry demand increased by 51% compared to the second quarter of 2012. (Source: Ibid.)

Also in the second quarter, central banks added 71 tonnes of gold bullion to their reserves, resulting in ten consecutive quarters that central banks have been net buyers of gold bullion.

Meanwhile, the supply side of the gold bullion equation has decreased—setting the stage for higher prices for the precious metal. In the second quarter of this year, total supply of gold bullion was down six percent from the same period a year ago. With gold prices having come down, gold miners could be cutting back on production, pushing … Read More

Why the Prediction I Got Wrong Back Then Is So Vital Today

By for Profit Confidential

stock market crashBack in late 2011, I created a widely circulated video that included six predictions. I hit it on the head with five of those predictions. But the winners are not what are important to my readers today; it’s the prediction I didn’t get right that’s vital now

Back then, I said the U.S. dollar was “dead” and wouldn’t go anywhere. I pointed out that if it were not for the continued crisis in the eurozone, the greenback would fall flat on its face. The dollar hasn’t gone anywhere since. And if it were not for investors taking their money out of European banks and moving them into U.S. dollars, our dollar could have collapsed.

My second prediction back then was that the euro would decline in value. And it has. Prediction three was that both interest rates and inflation would rise. The yield on the 10-year U.S. Treasury has risen about 50% since then. As for inflation, if we calculate it the way the Consumer Price Index (CPI) was calculated when Jimmy Carter was president, it would be almost three times the rate the government tells us it is today.

I compared the rally in stocks that started in 2009 to the period following the 1929 stock market crash (1934 to 1937) and warned that stock prices would eventually follow the same fate they did after the “fake” stock market rally that followed the 1929 crash. I still have that opinion today.

What I got wrong in my “Critical Warning Number Six” was my prediction on gold bullion—and I believe that equates to a bigger opportunity for my readers … Read More

Is Now the Time to Ditch Gold or Buy More?

By for Profit Confidential

Time to Ditch Gold or Buy MoreAs many of you know, I’m not keen on the near-term prospects for gold at this juncture. The metal, while still viewed as a safe haven for some, is no longer on my buy list.

Yes, central banks are buying gold, but so what? The supply of the yellow ore continues to be ample, and demand really doesn’t appear to be doing anything.

In mid-April, I was bearish on gold when it traded at around $1,480–$1,500 an ounce. (Read “Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”) And here we are two months later and the spot price is down 6.5%, while the S&P 500 has gone up about 3.7% during the same time.

Now I’m not saying that I would never be a buyer; I just wouldn’t be buying at this time, due to tough resistance and selling on upside moves, based on my technical analysis.

Take a look at the chart below. The first thing you’ll notice is the presence of a firm bearish “death cross” since late February, when the 50-day moving average (as shown by the blue line) crossed below the 200-day moving average (as reflected by the red line). Since the initial move, the gap between the two moving averages has widened and gold prices are trending lower.

Gold Chart

Chart courtesy of www.StockCharts.com

The next developments you will notice on the chart above are the two successive descending triangles characterized by lower subsequent highs.

The first descending triangle materialized between early February and early April, prior to gold tanking on the chart, falling below $1,350. We are now in … Read More

Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be

By for Profit Confidential

Is Gold’s Near-Death Crisis Over-ExaggeratedCommodity prices have been heading lower on the charts.

In fact, it has been an awful few days for gold as prices plummeted, failing to hold $1,500 an ounce.

Prices dove right through support at $1,400 to $1,385.62 on Monday—the lowest level since 2011.

The shiny yellow ore is in a bear market. Down 27% from its magical peak of $1,920 in September 2011, it has been nothing but turmoil for investors in the yellow metal.

As I said in a recent commentary, I have lost confidence in the metal as a safe haven investment at this point. I’m not even sure I would enter on the current weakness.

The price chart says “sell.” Follow the trend, and you may be able to squeeze out some profits on an oversold bounce trade; but extending the trend forward, things don’t look good for gold.

Now we will need to see if the precious metal can hold $1,400.

As we move lower, there are now concerns of a meltdown in the gold sector, especially if prices continue to trend lower toward the $1,200 level.

Goldman Sachs, which recently turned bearish and advised shorting the metal, is fearful of gold prices dropping to the $1,200-an-ounce level—as this level also represents the cash cost to produce gold at this point. (Source; Cosgrave, J., “The Scary Number for Gold Investors: $1200,” CNBC, April 15, 2013.)

The $1,200-an-ounce cost of production is clearly an issue, especially for the smaller mining companies that are not as cost-effective or able to survive a cash crunch, compared to the mid- to large-tier producers, like Newmont Mining Corporation (NYSE/NEM). (Read … Read More

Should You Buy Gold Stocks Right Now?

By for Profit Confidential

Should You Buy Gold Stocks Right NowThere is a serious problem in the gold mining business these days, and it’s not because of the stagnant spot price. Costs are going up industry-wide, and it is making buying gold stocks much less attractive.

Gold prices have been in consolidation for about a year and a half, and I feel they should experience an upward breakout later this year. But cash costs per ounce are going up, and I would say that the majority of gold producers are reporting this in their quarterly earnings reports.

It begs the question: should you buy gold stocks right now? My answer is no. I’d rather see you just buy gold. Why take the investment risk of betting on the spot price of gold, a company’s ability to meet production targets, and the industry-wide trend of higher costs? Right now, it’s not worth it. You might as well just speculate on gold prices, not gold stocks. That’s enough investment risk.

Barrick Gold Corporation (NYSE/ABX) is one of several large-cap gold stocks that are having a tough time on the stock market these days. Gold stocks have corrected much more than the actual spot price of gold due to rising costs. Earnings estimates for Barrick have been revised downward for upcoming quarters; and while you might argue that $30.00 a share is a floor for the stock, why bother taking the risk? Barrick’s stock chart is featured below:

ABX Barrick Gold Corp stock market chart

Chart courtesy of www.StockCharts.com

While I do feel that investors should already have exposure to gold and that gold prices are getting set for a breakout, I don’t see that breakout happening in the very … Read More

New Record-Highs Everywhere with Stocks—Gold Almost Ready to Move

By for Profit Confidential

Gold Almost Ready to MoveThere are a lot of stocks that are doing well in this market. Because there is no uniformity to business conditions in both the U.S. economy and the rest of the world, I’m making a conscious effort to attribute less weight to the major stock market indices and more to individual companies and their specific business conditions. I hate to say it, but the main stock market indices can be quite misleading, and one company can skew the index (like Apple Inc. [NASDAQ/AAPL] when it was at its high).

The way I look at the stock market and the economy today is with very low expectations. If U.S. gross domestic product (GDP) can grow faster than the rate of inflation, then that’s a good accomplishment. I hope the Federal Reserve is right with its prediction of 2.5% in U.S. GDP growth in 2012 and 3.5% in 2013. Of course, these forecasts change all the time, so it doesn’t mean much.

So, while the S&P 500 index is trading around its five-year high, plenty of stocks are doing much better than the index. (See “Earnings Picture Starts off Bright with Oracle.”) 3M Company (NYSE/MMM) just hit an all-time record high on the stock market. This stock has had a few down years, but it has basically been going straight upward since 1982. Consider Johnson & Johnson (NYSE/JNJ). This position just hit an all-time high on the stock market. It was kind of slow over the last 12 years, only doubling not including dividends. The stock is up seven-fold since 1994, not including dividends.

Then there’s my favorite, Colgate-Palmolive Co. … Read More

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

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 … Read More

The Biggest Stock Market Winner Going Forward

By for Profit Confidential

stock marketMore hard reality is coming to the stock market and those commodities that will benefit from the headwinds coming our way. The spot price of gold has been going up on a weaker U.S. dollar, which has been going down because of worries regarding the global economy. Gold looks good here, and $2,000 an ounce by early 2013 is a real possibility.

A lot of gold stocks recently hit a wall, not just because of stalling of the spot price of gold, but because of their valuations. The perfect example of this is industry benchmark Yamana Gold Inc. (NYSE/AUY), which has followed spot gold in its turnaround since August. Since then, this well-managed gold producer is up five full points and currently boasts a price-to-earnings (P/E) ratio of approximately 40. Wall Street analysts recently increased their earnings expectations for the company in 2013, but what this stock needs now is a rising spot price in order to break out. Yamana Gold’s stock chart is featured below:

Yamana Gold Inc. Chart

 Chart courtesy of www.StockCharts.com

This is the big thing with gold stocks; no matter how good the story is or how much an earnings report beats the Street, gold stocks don’t really go up unless the spot price of gold is doing so. It’s a reality of precious metal investing; it’s a reality of most commodity-related securities.

Balanced equity portfolios should already have some exposure to gold, either through individual gold stocks, a fund, or an exchange-traded fund (ETF). No matter what happens to the U.S. economy going forward, the fundamentals for gold support a rising spot price environment. Sovereign debt, a weaker … Read More

Dow Theory Flashes Sell Signal

By for Profit Confidential

The Dow Jones Industrial Average has risen more than 11%. And if I had to choose one reason to explain the rise in the world’s most followed stock market index, it is this: extreme (and unprecedented) money printing by the Federal Reserve and the hope that other foreign central banks will also print money. These are what have pushed stocks higher.

If you are familiar with technical analysis, then you probably have heard of Dow Theory.

Dow Theory is sending a warning to stock market investors and warning of a possible trend reversal.

Dow Theory simply states that the stock market is in an uptrend when one of two major Dow Jones components (the Dow Jones Industrial Average and Dow Jones Transportation Index) breaks above a previous high at the same time or close to the same time. This is also true in a downtrend.

The Dow Jones Industrial Average, consisting of 30 major companies, is currently seeing a robust move to the upside for stock prices. On the other hand, the Dow Jones Transportation Index, consisting of 20 major transportation companies, has been struggling, actually decreasing in value.

The following is the chart of the Dow Jones Industrial Average and the Dow Jones Transportation Index over the last 200 days.

Chart courtesy of www.StockCharts.com

The Dow Jones Transportation Index and the Dow Jones Industrial Average were following each other very closely, a big positive under the Dow Theory. But near the beginning of July 2012, the averages started to go in opposite directions.

Since mid-September, these two main Dow Jones indices have been diverging. The Dow Jones Industrial … Read More

Mining Stocks Getting Exactly What They Need

By for Profit Confidential

Mining Stocks Getting Exactly What They NeedGold and silver prices are rising, and this is exactly what mining stocks need. After a well-deserved correction in gold prices, gold stocks were hit pretty hard as institutional investors abandoned the sector. Just like the spot price, speculating in gold stocks isn’t for the weak-stomached; volatility is standard in precious metals. But with volatility comes the opportunity for greater returns—if you buy the right companies at the right time.

Silver prices are currently moving nicely high—much stronger than gold. Silver prices have lagged spot gold for quite a while now, and some of the best values that recently developed on the stock market are silver stocks. Everyone says silver prices have more room for advancement, but I’d still own both.

Gold and silver prices are going up in anticipation of a third round of quantitative easing (QE3), or some form of monetary policy, by the Federal Reserve. Most Wall Street investment banks are now predicting that spot gold will be well over $1,800 an ounce by the end of the year. With all the turmoil we’re going to have to deal with next year, owning some gold and silver will likely be a good bet. What’s required for gold and silver stocks to really advance is the return of institutional investors to the sector, which will happen if gold and silver prices keep ticking higher.

I want to repeat my view that there are actually very few attractive gold and silver mining companies on the stock market at this time. Costs have been rising substantially at many precious metals companies, and profitability at a lot of companies has been … Read More

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