I was beginning to get a little worried that this earnings season was going to be a dud. Just like the economy, there is growth out there, but it isn’t uniform. Investor sentiment is still somewhat sideways about the state of things. I still see the main stock market averages as getting close to topping out. It should happen within the next two quarters.
The commodity price cycle remains in full force and just about everything related to precious metals, oil and agriculture is going up in value. It’s a unique time in capital markets, as we don’t get a fully fledged upward commodity price cycle all that often. In my view, it’s a long-term trend that should be fully embraced.
Investing in gold is a priority if you want to have exposure to the current cycle. As you know, most precious metals have already experienced significant price increases over the last several years. The spot prices of gold and silver continue to hit new highs at this time. For investors in this sector, established junior producers with strong exploration potential offer some of the most compelling opportunities for risk-capital equity speculators. The entire precious metal industry is swimming in cash and there’s going to be a lot of buying and selling of whole companies this year and next.
Interestingly, a lot of commodities have seen their prices move commensurately with stocks over the last while. It’s like the globalized economy (and speculators) are speaking with one voice. I do think both stock prices and most commodities can experience further price appreciation over the very near term, with the likelihood of a correction happening soon. If this happens to both stocks and commodity spot prices, I’d definitely be a new buyer of gold shares.
I prefer the buy-low/try-to-sell-high investment strategy as a general rule. There are always momentum trades in the stock market. There are always special situation opportunities. But in the case of gold and silver, I’m a long-term bull, so I don’t have any problems with investors speculating in shares that have already experienced big price moves. The key to successful gold mining speculation as an equity investor is to buy a “package,” which is a known miner with well-regarded management that’s growing production and earnings, and boasts excellent prospects for further mineral discoveries that can come into production. The investing universe for these kinds of companies is actually quite small.
So far this year, I’ve seen some substantial capital gains among stocks of precious metal producers; not because of strong spot prices, but because of takeover bids. Mergers and acquisitions in this industry are ripe for acceleration and it’s a key component of the risk/return ratio with mining companies.
For now, it’s time to enjoy the good financial results in large-caps. I’m confident that the good news will continue, but not for every industry. I think we’ll get a correction soon and this means a great opportunity to add to precious metal positions.