Right now, precious metal stocks aren’t performing that well, even though many gold mining companies are reporting record production and earnings. Furthermore, corporate visibility at many gold mining companies is rosy, yet, as a group, precious metal stocks are mostly down since the beginning of the year. The reason, of course, is that spot prices for gold and silver have pulled back in price, but in my view, the pullback is part of a well-deserved correction/consolidation. I’m certain there is investor fatigue in precious metal stocks at this time and, if the trend continues, valuations will become extremely attractive. I know of many gold stocks that are undervalued considering their growth prospects.
As a group, precious metal stocks are just as volatile as their underlying commodities. This is no revelation. But, as a sector, institutional investors tend to take on limited exposure to precious metal stocks once a major price trend is already established. I view institutional investors as being the ultimate herd investors when it comes to precious metal stocks. So, as individual investors, we have to roll with this reality.
There really is only one big tool left in the Federal Reserve’s kit and that’s money supply growth. If you believe that the major increases in global money supplies will be inflationary, then real assets like resources and real estate should be a focus. I believe that exposure to gold and silver is an absolute must for any balanced investment portfolio. I also believe that precious metal stocks remain one of the most attractive stock market sectors for equity speculators. (See One of the Best Sectors for Risk-capital Speculators.)
Now is the time to be waiting and watching precious metal stocks for new entry points. I’d stick to gold and silver as a general rule. As I say, there are a lot of really good gold mining companies out there that are reporting excellent financial and production growth, whose share prices are currently languishing. I don’t think we’re at the bottom yet, but if gold and silver spot prices continue to trend lower this year, I’m confident the stock market will produce very attractive new entry points.
Right now during this earnings season, large-cap companies are the focus. I’m not overly enthusiastic about going long a major index, because I do feel that the stock market is in the process of topping out, this year or next. Trading precious metal stocks is not an investment strategy for the faint of heart, but for speculators, gold and silver mining companies are awash in cash and it’s never been a better time to be in this industry. As precious metal stocks languish, valuations are becoming much more attractive. As a group, I think precious metal stocks will continue to drift lower over the coming months. We’re not there yet, but a great new entry point will soon present itself.