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

Posts Tagged ‘price of gold’

Stock Market Outlook Solid Based on Earnings and Valuation

By for Profit Confidential

Stock Market Outlook Solid Based The stock market certainly isn’t going up because of stronger expectations for corporate earnings. But I think all the conservative forecasts by corporations will lead to another quarter of mostly outperformance this upcoming earnings season. Companies have consistently been able to generate good earnings, even with lackluster revenue growth. Cost cutting is paying off in terms of solid earnings results, and this is the reason why balance sheets are so strong.

With companies in such a good financial condition, a new upward business cycle should produce a major acceleration in corporate earnings. The key, of course, is jump-starting a new business cycle, and it will be awfully difficult to do this if policymakers aren’t able to address all the issues regarding sovereign debt and the fiscal cliff. Country finances are going to be a major issue next year.

The best thing the stock market has going for it right now is its reasonable valuation. (See “Equities Market Doing Fine—Just Look at the Long-term Charts.”) That gives the stock market a lot of leeway, with all the uncertainty on the horizon. We know the stock market went up recently on the hope of new monetary stimulus from the Federal Reserve. Contributing to positive investor sentiment has been quiet on the eurozone’s sovereign debt crisis, somewhat improved U.S. economic news and a weaker U.S. dollar. Whether this lasts is all up to the Federal Reserve.

There really isn’t anything more the central bank can do to stimulate the U.S. economy. Further action from the Federal Reserve will only be to appease Wall Street investors. If the central bank disappoints the … Read More

Gold Stocks Breaking Out of Their Correction

By for Profit Confidential

Gold Stocks Breaking Out of Their CorrectionThe price of gold is going up, and it just crossed $1,660 an ounce. Silver crossed $30.00 an ounce. You might say that precious metals are back. You can plainly see the resurgence in gold stocks, which have really turned around from what was a considerable period of weakness. The majority of gold stocks have been trending lower all year, as the spot price has been consolidating.

Expectations for more monetary stimulus from the Federal Reserve are contributing to a weaker U.S. dollar, which is helping precious metals (and oil prices) move higher. If the Federal Reserve takes additional action at its next Federal Open Market Committee (FOMC) meeting in September, then the recent strength in gold prices should carry right into 2013. (See “Federal Reserve: Will It Act Soon to Jump Start the Economy?”) Regardless, I wouldn’t be without some exposure to gold over the near term; I think we have the makings of a new upward trend in gold prices.

Across the board, mining companies have had a tough year on the stock market. It’s as if institutional investors just abandoned the entire group. Even large-cap dividend-paying heavyweights in the gold sector have been under a lot of pressure. And the funny thing is that the spot price of gold really hasn’t corrected all that much from its record high. As is usually the case, gold investors join the bandwagon late and leave it very quickly.

Newmont Mining Corporation (NYSE/NEM) has been struggling all year. The stock was trading at $60.00 a share at the beginning of the year and hit a low of $42.95. In … Read More

Gold Update: Precious Metal Stuck in the Short Term

By for Profit Confidential

Gold Update: Precious Metal Stuck in the Short TermIf you’re looking to make money playing the long side in gold, you may want to wait a bit unless you are willing to trade the range. The yellow metal is no longer in a bear market, but it is also not ready to rally much higher in the short term.

On the supportive side, we have the eurozone mess, slowing in China, and high overall market risk.

Since cash gold traded at a record $1,920.18 on September 6, 2011, the precious metal has declined 16.7%. Even after the recent break back above $1,600 to $1,629.20 on July 27, I still sensed that prices were not sustainable and would be heading back below $1,600. This downside move occurred on Wednesday, following the break below $1,600.

I continue to feel $1,600 will not be sustainable.

The established range is between $1,525 and $1,600. A bearish death cross remains on the chart, with the 50-day moving average (MA) of $1,592.93 well below the 200-day MA of $1,654.01.

The threat now is the 11-year streak, as gold is down 7.1% since January 1. The one-year return to August 1 is -2.96%.

Clearly, much of the easy money in gold has been made for the time being.

Just take a look at the multi-year returns to July 1, 2012, in the following table.

multi-year returns

So while gold is currently stuck. I’m not ready to give up, but then I would also be more careful in adding positions, whether in physical gold or gold stocks. The reality is that the current technical picture has a slightly bearish bias and is void of any buying interest…. Read More

China to Become World’s Biggest Buyer of Gold in 2012

By for Profit Confidential

Gold bullion imports from Hong Kong into mainland China increased 600% in May 2012 when compared to May 2011! (Source: Bloomberg, July 9, 2012.)

China is set to take the lead from India as the largest purchaser of gold bullion in 2012. The World Gold Council estimates that China will buy at least 870 tons of gold bullion in 2012.

Just to give an idea of how large these purchases of gold bullion are, in the first five months of 2012, China has imported over 300 tons of gold bullion from Hong Kong. Just isolating this number alone would put China as the 17th largest holder of gold bullion in the world!

As I’ve been writing in these pages, as the price of gold has fallen, China has provided money to its gold miners, which they in turn have used to buy other gold miners around the world. These Chinese gold mining companies then bring the gold bullion back in the country, but the statistics surrounding these imports are not published.

The only reason why we know of China’s insatiable demand for gold bullion is that it is Hong Kong that publishes the statistics quoted above.

As of a few years ago, China also banned the export of its gold bullion. The country had the capacity to pull roughly 390 tons of the yellow metal out of the ground, but has kept it all for itself.

Despite the country’s concerted effort to buy as much gold bullion as possible, the price of gold remains in a trading range. One of the factors holding the price of gold down is India…. Read More

Gold vs. the Bear Market; Will it End Happily Ever After?

By for Profit Confidential

 price of goldIn the classic nursery tale “Goldilocks and the Three Bears,” first put in written form by British author Robert Southey, Goldilocks ran when she came face to face with the bears. On the price charts, gold is also now facing a bear market; but will gold also run away and tank?

Looking at the chart of the June gold, the picture is extremely bearish following the recent break below $1,600 and the subsequent failure to hold at $1,550. In fact, it has been a big and steady decline since trading at a record contract high of $1,928.30 on September 6, 2011, and just below $1,800 in late February. With the decline, the June gold currently sits at 20.33% below its September price and officially in a bear market and trend reversal.

Gold failed to hold on to its base with support at $1,620 and has broken lower. Now the key is to watch if gold can hold at $1,500 to $1,525 on the extreme oversold technical condition.

The June gold is below its 200-day moving average (MA) of $1,701 and 50-day MA of $1,648. There is a bearish death cross on the chart, so there could be more weakness.

The threat now is the 11-year streak, as gold is down nearly two percent this year.

While gold is in a technical bear market, I’m not ready to give up, but then I would also be more careful in adding gold positions whether in physical gold or gold-based stocks. The reality is that the current technical picture is bearish and void of any buying interest.

The downside break at the … Read More

Why the Pathetic New Consumer Confidence Reading Is Good News!

By for Profit Confidential

The New York-based Conference Board’s household sentiment index has slumped to the lowest level since March of 2009… But hold on…don’t dismiss it as more bad news! It’s actually good news. Sure the U.S. unemployment rate has held at about nine percent for about 30 months now. Sure, 8.75 million jobs were lost in the recession that ended in June 2009. And, with only about two million jobs created since the recession ended, the unemployment picture is not looking good. How can consumer confidence not be taking a beating?

Precious Metals Mergers About to Take Off

By for Profit Confidential

Gold bugs are feeling the pain, as precious metals continue with their slower-economic-growth correction. As well, the prospect of action on the Europe debt crisis is tempering the marketplace’s appetite for gold futures. My view is that gold and silver continue to represent some of the most attractive assets going forward over the next several years. We’re in a market where new trends take a long time to develop and we’ll likely see the spot price of gold trade around $1,600 an ounce for quite a while yet.

Strong Corporate Earnings and the
Bear Market: How it Will Play Out

By for Profit Confidential

Remember this summer when the Dow Jones Industrial Average had a couple of 400-point loss days and we heard so many stock advisors and analysts tell us we were headed straight into a second recession…that corporate earnings would plummet? Stocks fell 20% from their May 2, 2011, high and all of a sudden headlines started to appear saying that we were in a bear market.

That Gold Chart’s No Fluke

By for Profit Confidential

The precious yellow metal continues to hold up well on the price chart, as traders shift capital from the higher-risk equities to the safe-haven sanctuary of gold.

The Best Stocks Right Now?
The Ones That Pay Dividends

By for Profit Confidential

I think it’s very reasonable to say that the stock market is fairly valued at this time. A lot of news, risks and revised expectations are now priced into the market and share prices reflect all the current information. There’s good value in many stocks at this time, but the question is: how long will they remain good values? Another month or perhaps another year? Nobody knows the answer.

Precious Metals Sector Deal-making Padding Investor Wallets

By for Profit Confidential

There have been a lot of mergers and acquisitions in the mining industry lately and the consolidation is only going to increase with gold over $1,800 an ounce and silver over $40.00. The buying and selling of entire companies adds to the attractiveness of the mining sector, with the bonus of a potential takeover of one of your holdings at a premium price.

Trading Action Repeating Itself—What
the Stock Market’s Setting Itself up for

By for Profit Confidential

While the price of gold and price of silver continue to be very strong, a lot of gold stocks and silver stocks have been pulling back in price. It’s a reflection of the current state of things, with investor sentiment seemingly stuck in a rut. We’re in a market with so much uncertainty that any call is valid and all outcomes are plausible. The stock market could completely fall apart, stay the same, or advance. A market malaise has set in and it’s almost entirely due to the sovereign debt situation.

Stock Market: The Forecast No One Is Talking About But Me

By for Profit Confidential

Michaelhas an opinion on the stock market, where it’s headed, which you're not reading or hearing anywhere else. This morning, he presents that forecast for the benefit of our new readers and to ensure that all our readers know where he stands on the stock market’s direction.  I have an opinion on the stock market, where it’s headed, which I’m not reading or hearing anywhere else. I’d like to present that forecast this morning for the benefit of my new readers and to ensure that all my readers know where I stand on the stock market’s direction.

Very quickly, a little history of where we have been…

One of the greatest bull markets in history, with a run in excess of 20 years, came to an end when the Dow Jones Industrial Average peaked out at 14,164 in October of 2007.

From there, a vicious bear market took hold, knocking stocks down by 54% by March of 2009, when the Dow Jones hit 6,440. This is what I classify as Phase I of the bear market: the initial takedown.

Since March of 2009, we have been in a bear market rally, which has taken the Dow Jones up 93% as of this morning. We are presently in the 29th month of the bear market rally. These rallies can easily last three years. This is what I classify as Phase II of the bear market: the “luring.”

Phase II of a bear market is the period in which investors are lured back into the stock market under the pretense that all is well again.

Where we are now and where we are headed…

We are waiting for Phase III of the bear market to start…but it could still be some months off.

Phase III of the bear market will take stocks back down again, with stocks possibly testing their previous lows; in this case, 6,440 on the Dow … Read More

Flush with Cash—Gold Shares Are the New Internet Stocks

By for Profit Confidential

So, the price of gold is going up, and so are gold stocks. There really isn’t much money to be made in this market except for speculating in gold shares. It’s the industry with the best near- and medium-term fundamentals as far asMitchell is concerned.So, the price of gold is going up, and so are gold stocks. There really isn’t much money to be made in this market except for speculating in gold shares. It’s the industry with the best near- and medium-term fundamentals as far as I’m concerned.

The big move in gold has already taken place and equity investors should already have some exposure to this important commodity. The thing about the global economy is that we’re in a long period of slow growth with inflationary pressures. It’s the best of both worlds for gold. Add in sovereign debt worries (politicians would rather print money and create inflation than cut programs) and the emerging strength of BRIC economies, and it’s quite arguable that the spot price of gold could hit $2,000 an ounce.

There are actually very few investment-grade, large-cap gold companies. Only a few pay a dividend and, of those, yields aren’t really more than one percent. Most of the gold miners out there would compare to medium- or small-cap companies and, because of the volatility inherent in commodities, should be considered speculative equity securities. Regardless, I wouldn’t have an equity portfolio that didn’t have some exposure to gold, especially giving current economic fundamentals.

Like most things now, investors can consider a gold mutual fund or exchange-traded fund (ETF). There’s even publicly traded companies the sole purchase of which is to own and secure large numbers of gold bars. For the most part, all stocks related to gold trade commensurately with the spot price of the commodity—and there lies the greatest investment risk for a gold investor.

There was a bandwagon … Read More

A Growth Industry with a
Great Fundamental Backdrop

By for Profit Confidential

Precious metal commodities corrected with some fervor—especially silver. The price of gold moved somewhat lower in the recent correction, but it is still solidly above the $1,500-per-ounce level. I think that $2,000 for an ounce of gold is a real possibility over the next 12 to 18 months and it will likely correspond to some sort of currency instability related to sovereign debt. Without question, the sovereign debt issue is the gravest investment risk to your portfolio and is even more perilous than a double-dip recession.

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