Bottom in for Junior and Senior Gold-producing Stocks?

The stock market is being very clear about how it feels about the current state of things—it isn’t very happy at all. The sovereign debt issue continues to be a thorn in the side of global investor confidence and, to be very frank, it could be the catalyst for a severe correction in stocks and currencies. Nobody can predict the future and it’s unclear as to how things will unfold in Europe; but investment risk for domestic investors remains very high at this time. Mitchell discusses some strategies to protect your investment portfolio.The big news this morning, at least for me, is the price of gold bullion hitting a new all-time high of $1,574 an ounce. After jumping almost $20.00 yesterday, the price of bullion is rising again this morning. The march to $1,600 an ounce is well underway and only a strike or two away.

While the media was quick to blame the escalating European crisis for gold’s sharp rise yesterday, my readers know better. From Tuesday’s Globe & Mail (Toronto), “Gold rallied to all-time highs as investors sought a safe haven on fears that European officials were failing to stop a debt crisis from spreading…” More of the same from Bloomberg this morning, “Gold climbs, nears record as Europe’s sovereign-debt crisis fuels demand.”

But, according to this humble writer, Michael Lombardi, rising gold prices have less to do with Europe’s problems and more to do with America’s problems.

Recently released minutes of the Federal Reserve’s last Open Market Meeting show some members not opposed to a third round of Fed easing, what we call “a new QE3.” Of course, such an event, if it were to happen, would be inflationary—just what gold loves.

Secondly, the Monthly Budget Review released by the Congressional Budget Office on Friday estimates that the U.S. Treasury Department will report a deficit of $973 billion for the first nine months of 2011—basically another trillion added to our debt in nine months.

Gold bullion is up six percent this month. The market, it’s smarter than all of its players combined. In fact, gold may be rising in price for reasons the Globe & Mail, Bloomberg and I are all missing.

But we do know this one fact: gold has been rising in price for a decade now. Inflation, a collapsing greenback, rising debt—these are all factors I believe will continue to propel the price of gold bullion.

Our opportunity to profit from the advance of gold bullion prices has been, and continues to be, in junior and senior gold-producing companies. I wrote two months ago that these stocks were close to a bottom for 2011. Yesterday, the Dow Jones Gold Mining Index jumped about two percent. My favorite gold stocks were up between two percent and four percent.

Junior and senior gold-producing companies—that’s where I believe the opportunities and profits continue to present themselves for investors this year.

Michael’s Personal Notes:

For the average Joe American, the economic “screws” continue to tighten…

Home-mortgage rates in the U.S. are at their highest level since May, in spite of demand for mortgages still being very weak. Aside from dealing with higher interest rates, unless the applicant has excellent credit and a sizeable down payment, in most cases it is very difficult to get a new mortgage.

Cisco Systems, Inc. (NASDAQ/CSCO) reported yesterday that it may cut as many as 10,000 jobs this year, about 14% of its staff, as it focuses on profits. My concern is that if the double-dip recession occurs, we’ll see more companies like Cisco going back to employee payroll cuts to maintain profits.

In the specific case of Cisco, its stock price has fallen from $26.00 last August to $15.60 yesterday. This stock market is demanding profits and, if companies can’t deliver them, stock prices are being punished.

Where the Market Stands; Where it’s Headed:

There is no doubt that the stock market has endured sharp one-day pull-backs over the past week. In fact, we’ve experienced five days since the beginning of June where the Dow Jones Industrial has fallen more than 100 points in a single day. Most recently, this past Monday, the Dow Jones tumbled 151 points. Investors are nervous.

But if we look at the big picture, this is what we will find: Many brand-name blue-chip stocks hit record highs last week. Amazon, Tiffany, Tupperware…and over 100 more companies saw their stock prices hit new record highs last week.

After turning bullish in late April, then bearish in June, stock advisors are neutral now on their bullish/bearish view for stocks. Monetary policy continues to be expansive. Hence, I continue my bias towards higher stock prices in the immediate term.

What He Said:

“I see a deal when it’s a deal. And right now there’s a good ‘for sale’ sign flashing on gold bullion and gold producer shares. In fact, after peaking at the $690.00-an-ounce level earlier this year, gold could be a bargain at its current price of around $650.00 per ounce. As a reader, you are undoubtedly aware of my negative stance on the general stock market and the U.S. economy. As the economic problems continue to brew in the U.S., as these problems develop into others, and as they are finally exposed, what other investment but gold will worldwide investors turn to?” Michael Lombardi in PROFIT CONFIDENTIAL, March 14, 2007. Gold bullion was trading at under $300.00 an ounce when Michael first started recommending gold-related investments. It has more than doubled again since the above was written.