Today’s commentary is directed to: (1) my readers who have not invested in gold; and (2) my readers who have invested in gold—yes, all my readers.
First, to my gold bug followers…
The price of gold bullion continues to hit new highs. But the price of gold-mining stocks continues to lag the market. Why?
When we look at the major gold mining companies, which are coincidently the ones our analysts follow, we see that Barrick Gold Corporation (NYSE/ABX) is down 17% from its 52-week high. Goldcorp Inc. (NYSE/GG) is down 12% from its high. And Newmont Mining Corporation (NYSE/NEM) is down 13% from its 52-week high. Why?
My answer lies in the fact that investors and market do not believe the price of gold will sustain itself at these high levels. There is plenty of suspicion over record-high gold prices, as evidenced in news stories like, “In a Gold Lovefest, Shades of 1980” (New York Times, 07/24/11).
Now to my readers who have not dipped into the major gold-mining stocks yet…
It’s my belief that the stocks of major gold producers offer the best value in the market today. These stocks are down an average of 14% to 15% despite record gold bullion prices. We could have “catch-up” time for the major gold producer stocks at any time. And I believe that, by the time the bull market in gold is over, it will be the gold stocks leading the rally, not bullion.
My opinion is simple, even basic. After years of excess money printing, the greenback is declining against other major world currencies. In fact, the U.S. dollar has been spiraling down in value since late 2008, early 2009.
But it’s not just too much of a currency in the system that causes its value to decline. The country behind the greenback is awash in debt. Its economy is hurting, leaning more toward another recession than toward growth. And all that money printing could lead to unexpected inflation.
If you have the same fears I have, dear reader, the best stock market advice I can give is to take a serious look at the stocks of the major gold producers. They are where I see the best value in the market today.
Where the Market Stands; Where it’s Headed:
Sure, there’s a lot of volatility in the market. The media and analysts are making a mountain out of a mole hill with debt-ceiling nonsense. The stock market seems to lack direction. But my opinion hasn’t changed.
We are in a bear market rally that was born on March 9, 2009. That bear market rally, while “tired in the tooth,” as they say, still has more room to move on the upside. Yes, the risks outweigh the possible rewards, but stocks will have a final blow-off to higher prices before the bear market retires.
What He Said:
“When I look around today, I see falling stock prices…I see falling house prices…and prices for retail goods declining. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S.economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively as deflation starts to rear its ugly head.” Michael Lombardi in PROFIT CONFIDENTIAL, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.