Michael Lombardi, founder of investment research firm Lombardi Publishing Corporation and the popular financial web site Profit Confidential, has been bullish on gold prices for some time.
When big investment houses were saying gold prices were going to go much lower, he was telling investors that we could be in midst of one of the best buying opportunities. He told his readers to pay attention to gold mining stocks.
Lombardi’s convictions have played out well this year. Gold prices are up over 25% and gold mining stocks have soared. For instance, if you had bought Market Vectors Gold Miners ETF (NYSEARCA:GDX), an exchange-traded fund (ETF) tracking the performance of well-known gold mining companies, you would have seen an increase of over 120%.
Recently, I had a chance to talk to Michael Lombardi about his outlook on gold prices and what he’s paying attention to these days.
Below is an excerpt from my conversation with Lombardi. It has been lightly edited for clarity.
Moe Zulfiqar: Gold prices, in the first half of 2016, showed one of the best performances in many years. What’s your outlook: 1) for the rest of 2016; 2) for 2017 and beyond?
Michael Lombardi: For the rest of 2016, I would to be a little cautious. One of the biggest reasons for this skepticism are the gains. Gold prices have increased too fast in very little time. You have to remember, there’s still no trust in the gold market.
I actually foresee the speculative capital leaving the gold market, taking profits, and gold prices pulling back a little. Though I expect this phenomenon to be temporary and short-term.
In the long term, gold really has a bright future. If you follow the fundamentals, gold prices are setting up to surprise investors. It wouldn’t shock me whatsoever to see gold prices perform better in 2017 than they have so far year-to-date.
In fact, if there’s a pullback in gold prices in 2016, investors could get a great buying opportunity and reap rewards in 2017 and beyond.
I have said it before, and I will say it again: gold prices could hit $2,500 an ounce much sooner than anyone thinks.
Zulfiqar: As you are bullish on gold prices for the long term, what’s your take on mining stocks?
Lombardi: When looking at mining stocks, you have to keep in mind that they move very closely with gold prices. However, losses and gains are leveraged.
So, if there’s a pullback of five percent in gold prices this year, as I suspect there could be, you could see some gold mining companies decline by 20% or more. You have to be careful in what you are buying, to say the least. Again, if there’s a pullback in gold prices, it could give investors another opportunity to buy mining shares.
For the long run, as I expect gold prices to hit $2,500, gold mining stocks are going to be the biggest beneficiaries. From the current level at around $1,350, gold prices will have to increase 85% to reach $2,500. This will be more than enough to send some gold mining stocks’ value at least three to four times higher.