Today’s Stock Market: Making Money by Copying Last Year’s Action

There’s no doubt that it’s been a choppy August and September for the stock market. But I want my readers to look at these facts:

The Dow Jones Industrial Average opened 2011 at 11,557 and opens this last trading day of September at 11,153, down 3.6% for 2011 so far.

At the beginning of 2010, the Dow Jones Industrial Average opened the year’s trading at 10,500. By September 30, 2010, the Dow Jones Industrials was trading at 10,000 after a rocky August and September—a decline of 4.8%.

In September of 2010, bearish sentiment amongst investors and stock advisors was at its lowest level of the year.

Today, bearish sentiment amongst investors and stock advisors is at its lowest level of 2011.

There’s a striking resemblance between 2010 and 2011 stock market action and I see this pattern continuing. Between September and December of 2010, the stock market rallied, ultimately leading to a 10% gain for stocks in 2010. On the backdrop of extreme bearishness, just like September of 2010, I believe stocks will rally from today’s level to end the year higher.

Yes, stocks could move 10% higher from where they are today to the end of 2011. Investors will have to gauge if the upside potential is worth the risk. Where do I see the greatest bargain? With gold bullion having corrected 15% from its recent price high, with the stocks of junior and senior gold mining down even more than 15%, I see the best bargains, the greatest upside potential, in the gold mining sector.

Michael’s Personal Notes:

Tomorrow, the longest-serving policymaker at the Federal Reserve, Kansas City Federal Reserve Bank President, Thomas Hoenig, retires.

In his last speech in office, Hoenig said that the Fed’s actions of trying to stimulate the economy by artificially keeping interest rates low will ultimately “buy problems.”

The Federal Reserve has kept short-term interest rates near zero for years now. The Fed has also bought more than $2.0 trillion in securities. Hoenig compared these actions to short-term bandages for the government’s failure to cut its debt to cut spending.

I’ve shared this opinion with my readers since the economic bust started: making the government bigger, having the government spend more at the cost of increasing the national debt, is not the answer. I’m happy an official such as Hoenig has the courage to speak his mind about what his contemporaries are doing…and why it isn’t working.

When President Obama leaves office, he will have increased our national debt by about $5.0 trillion—the greatest four-year increase in the national debt ever.

Where the Market Stands; Where it’s Headed:

A bear market rally in stocks started in March of 2009. This bear market rally that prevails today has the potential to take stock prices higher before the rally finally expires.

What He Said:

“Over the past few weeks, I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom that peaked in 2005, have yet to arrive.” Michael Lombardi in PROFIT CONFIDENTIAL, March 22, 2007. At the same time Michael wrote this, former Fed Chief Alan Greenspan was quoted as saying, “the worse is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”
Today’s Gold Stock Market:

Good News: The Commodity Price Cycle and S&P 500 Both on Track

I view the stock market’s recent trading action as impressive. The S&P 500 Index has clawed its way back up to the 1,200 level, which is technically significant. Just last year, the index (and others) broke down after a strong run and then recovered meaningfully. While the past can’t predict the future, there is a strong similarity in the share price action.

I think that the broader stock market is reasonably priced and that corporate earnings will be strong enough to be the catalyst for a solid upward move in stocks. How long a little rally might last is unpredictable in this kind of environment. Investment risk for equities is high and the sovereign debt issue hasn’t gone away. I’m certain this issue in Europe will once again be a focal point for investors in the not-too-distant future.

Also impressive is the spot price of oil, which is climbing its way back to the $90.00-a-barrel mark. Silver and copper are ticking higher again and this is a positive signal about confidence in the global economy. And we can’t ignore the spot price of gold, which is persistent in its strength. While there are still a lot of stocks that are down, the commodity price cycle seems to be alive and well.

Without any new shocks to the system, I expect share prices to trade slightly higher from current levels in anticipation of third-quarter earnings season. Like we’ve seen all year, there haven’t been many companies revising their previous guidance lower. The general view that I got out of the second-quarter earnings season is that most corporations are expecting solid earnings in the bottom half of the year. With share price valuations reasonable, this is why I expect a stock market rally based on good earnings news. And, while it’s too early yet, I think the expectation for solid earnings will help the S&P 500 Index climb back above its 200-day moving average.

Here at Lombardi Financial, we continue to talk a lot about our positive expectations for precious metals and gold stocks in particular. This sector remains one of the most attractive for equity market speculators. There have been several mid-tier acquisition announcements in the gold mining industry recently and this consolidation trend is just getting started. Takeovers and mergers are going to flourish in this industry over the coming quarters, because share prices are high and so are bank accounts. It’s a great time to be a speculator in this specific market sector, because the fundamentals are so strong. You have a strong underlying spot price for gold, with the market’s expectation for $2,000 an ounce this year. Gold mining companies are flush with cash from their previous record financial results. And now companies want to bulk up on production, because it’s cheaper to buy another established producer than to go exploring on new properties.

What are the best stocks in this market? For speculators, they are gold stocks. For long-term investors, they are higher-dividend-paying securities.

Good News:

Dividend Yields Going up—They’re the Equity Investor’s Best Friend

Perusing the stock market for opportunities, I’m discovering some very good values in the marketplace. Economic conditions aren’t the rosiest, as you know, but there are a lot of quality businesses out there that just went on sale. Also useful, dividend yields have gone up with the market’s recent correction. I believe in the attractiveness of dividends, even when dealing with smaller, higher-growth companies. There’s nothing like a stream of quarterly income to make you feel better about your stock market holdings. What’s old is new again and dividends are back in style.

While I continue to be a gold stock bull, I wouldn’t be surprised if the spot price and gold shares experienced a well-deserved correction from their recent run. We’ve had several shocks to investor confidence and the damage is now completely understood by the marketplace.

The spot price of oil, which seems highly correlated to the trading action in stocks, is now at a level that I view as highly stimulative. It does take quite a bit of time for the retail price of gasoline to follow lower oil prices, but this is what the economy needs—cheap gas and cheap rates for mortgages. That’s the best way to stimulate the American economy, period.

The sovereign debt crisis isn’t over and neither are the risks to the domestic economy. I see the broader market trading in a range until third-quarter earnings season, which should once again be robust. The combination of cheap money, strong cost controls, and a weaker dollar is no doubt padding the earnings picture for a lot of corporations. This year, we’re likely to see impressive earnings growth performance. The market is now starting to look beyond the third and fourth quarters and is unsure whether it should bet on the future. The lack of visibility is keeping the stock market in the doldrums.

It’s going to take a lot of positive news to get the stock market to advance in any meaningful manner this year. This is why dividend payments are so important. All the major stock market indices have broken their moving averages and this is technically significant. The Dow Jones Transportation Average has lost about 20% from its yearly high set in early July. This is a big hurdle to overcome—just to get back to the way things were.

We’re in a period of extended revaluation of assets and reevaluation of expectations. The age of austerity is here for the next several years.

Gold Stock Market

Simple Advice: If You Can’t Buy Actual Gold, Invest in Gold Stocks

Since early 2009, gold is up 45%, currently hovering around $1,300 an ounce. Caught in the brushfire, towns in which gold mining companies, large or small, have made their home are displaying the classical symptoms of a boom: rising home prices; unrelenting construction; insatiable demand for skilled workers; and just an overwhelming sense of optimism that things are finally changing for the better.

One such region nests in Ontario, Canada; the province’s northern gold belt, along which many long abandoned mines are going through a renaissance of epic proportions just because investors have finally come to their senses and realized that gold is the only true safe haven against global economic instabilities and the ever-weakening U.S. dollar.

According to Brock Greenwell, a statistical analyst with Ontario’s Ministry of Northern Development, Mines and Forestry, “I’ve been here a long time and 2010 is looking like a record year for gold exploration. It’s unprecedented.”

According to the latest mining statistics out of Ontario, there are 12 gold mines operating in the region, with four more ready to commence production in 2012. Considering that operating costs by mining companies for 2010 are likely to hit $620 million, compared to $389 million spent last year, it is more than likely that more new mines will come online in the near future. As Greenwell put it, “It’s an absolute boom. There are 40-plus companies here at any given time.”

So, who is there “at any given time?” Canada’s Red Lake gold belt, located about 500 kilometers northwest from Thunder Bay, is considered one of the world’s richest high-grade gold regions. For example, Goldcorp (NYSE/GG) has its blockbuster Red Lake mine there, which, along with adjacent complexes and exploration projects, employs close to 1,200 people. There is also Rubicon Minerals (AMEX/RBY), known for making significant capital investments in its Phoenix Gold Project — 60.0 million dollars at the last count — located in the Red Lake gold zone where the company owns about 65,000 acres of prime exploration property.

At the same time, small towns in and around the golden belt are barely keeping up with the demand, from housing to infrastructure to labor force. They are so unprepared for the boom that they don’t even have an adequate tax structure to fund everything that the Red Lake gold mining industry requires. Yet, regardless of the municipal growth woes, gold exploration and development is not abating. In addition to the already operating mines, new drilling technologies, capable of going deeper than ever before, are now unearthing new ore bodies on old and often abandoned gold properties.

Clearly, if there was a star on the dark sky after the crash of 2008, it was gold. In the short and medium terms, you would be hard-pressed to find an analyst who is not bullish on gold. But not many will commit to an opinion on gold in the long term.

Here is what I think. I don’t even have to wish for financial trouble to arise somewhere else in the world. The mess we have got ourselves into in the U.S. will take years to untangle. The financial and credit crisis has deep roots, the pulling of which could take a decade, if not longer. Adding fuel to the gold’s flaming fury is the fact that the U.S. must keep printing the money to keep its head above water. So, if anyone would ask me if I’m bullish on gold in the long term, I have two words: “You bet!”
Gold Stocks

Gold Remains the Story, as the Dollar Keeps on Sinking

In recent trading sessions, gold has kept up its steady upward pace, while silver rose to a 30-year high and palladium hit a nine-year high on Monday this week. The driving forces behind precious metals’ performances are simple to explain—the dollar is sinking and the demand for alternative investments (to money, mind you) is surging. As evidenced by the U.S. Dollar Index, which is a six-currency yardstick of the dollar’s strength in international markets, the Index has dipped further on a widely expected decision by the Federal Reserve to unleash “QE2,” another neat abbreviation for the second round of quantitative easing.

The main goal behind QE2 is maintaining interest rates that are low in order to incite organic growth. But how we are supposed to have organic growth at the expense of the world’s reserve currency remains a mystery. In recent trading sessions, gold responded to this conundrum by having both its futures and spot prices trading strongly above the old resistance level of $1,300 per ounce.

As the dollar weakness continues, so does the dip-buying. The latter is triggering surges in demand for precious metals, as investors, both large and small, continue to focus on protecting whatever wealth they have left after the crash of 2008 and the recession of 2009. So far this year, precious metals have posted significant gains due to most central banks around the world insisting on low costs of borrowing, so that consumer spending should receive the boost it has needed.

To illustrate, for the nine months of 2010, gold has gained 24%, while silver has advanced 48% and palladium even more, surging 60%, compared to their 2009 year-end levels. In addition, precious metals have outperformed global equities, treasuries and most base metals. As a by-product, exchange-traded funds where precious metals have been the underlying assets have also seen significant surges in investment.

Perhaps these statistics collected by Bloomberg will help in putting things into perspective. For 2009, the global aluminum industry had generated revenues of $50.2 billion, which represented a compounded annual growth rate (CAGR) of only 2.1% over the period from 2005 to 2009. In addition, the global base metals market’s aggregate revenues for 2009 were $172.5 billion, generating a CAGR of 5.1% for the same period from 2005 to 2009. Furthermore, the global material sector had total revenues of $6.87 trillion in 2009, which represents the same growth rate of 7.1% compounded over the same period. And, the global coal and consumable fuels market recorded total revenues of $367 billion in 2009, which represents a CAGR of 10.3% for the period from 2005 to 2009.

As for gold, the global gold market recorded total revenues of $73.5 billion during 2009, which represents a CAGR of 20.1% for the period from 2005 to 2009. And, although gold may be trailing behind silver and palladium so far in 2010, note that the global precious metals and minerals market, which excludes gold, has generated total revenues of $32.3 billion in 2009, representing a CAGR of a modest 4.4% over the period from 2005 to 2009.

Whichever way you look at it, the statistics don’t lie. Investors see gold as a safe haven, as a viable alternative to money and as a way of dealing with global volatilities that have certainly changed the game for many since the crash of 2008. True, gold will have short-term ups and downs; but, in the long term, the threat of inflation and more volatility is almost palpable and likely to keep the secular bull market in gold going for the foreseeable future.
Gold Remains the Story

For All the Gold Bugs and Gold Investors Out There

Three important points on gold this morning:

This is not the time to trade gold.

As we move from the second phase to the third phase of the gold bull market, the metal is having $20.00 to $30.00 per ounce daily moves. These types of gyrations make trading the metal almost impossible. As I have been saying since 2002, take a position in the metal, buy more on big price dips, and just sit tight.

The non-believers are slowly jumping on the bandwagon.

Ask investors just a year or two ago about gold and they had no idea it was in a bull market. Today, we have more financial analysts getting on the gold bandwagon than at any time since the gold bull market started…and that’s getting me nervous about a price correction.

Last week, a report from RBC Capital Markets said that it expects gold to reach $3,800 U.S. per ounce in three years. I’d prefer to see this kind of exposure well into phase three of a bull market, not at the end of phase two.

(For new readers: In a bull market, phase one is when the very smart money gets into an investment because they see an investment undervalued [think gold 2002-2006]. Phase two is when other prudent investors get in [think gold 2007-?]. Phase three is when the rest of the investing public and the speculators get into a bull marker looking for quick profits. We have yet to enter phase three in this gold bull market.)

Follow the bellwether stock.

The granddaddy of gold stocks, Newmont Mining (NYSE/NEM), reported yesterday that it made 537 million dollars in the third quarter (up 38% from the same quarter last year) on sales of $2.6 billion. Newmont says that its overall cost to mine gold is about $500.00 an ounce. The higher gold prices go, the more money this baby makes.

The price of Newmont stock on the NYSE continues to move to record highs.

Michael’s Personal Notes:

Growing up in my parent’s house as a child, if there was one thing my mother taught us, it was that if you don’t understand something, don’t fake it.

And, in all honesty, I can’t figure out what is going on in Washington.

I heard President Obama’s White House news conference yesterday. As CNN Breaking News put it in a news release, “Midterm elections confirm Americans are deeply frustrated with pace of economic recovery, President Obama says, ‘No kidding.’”

So Obama is saying he wants to do more for small business. He’s finally getting it that small business in America make up most of the employment in this country and they are ones that need to be helped.

Here’s what I don’t get: it took the Democrats losing control of Congress to get the message that voters don’t like excess government spending and non-focus on small business?

A Bloomberg Global Poll back in September found that 77% of investors say Obama is too anti-business. If business fears the current Administration, how will they ever loosen their purse strings and spend the trillions in cash they’ve accumulated?

Where the Market Stands, Where It’s Headed:

The Dow Jones Industrial Average opens this morning up 7.6% for 2010.

The bellwether Dow Jones Industrials is only 42.88 points away from breaking to a new 52-week high. I mentioned this because of the technical importance behind it. If the Dow Jones breaks to a new 52-week high (as I predicted it would a few issues ago), the “head and shoulders” pattern that was established this past May will come into question.

While the majority of stock market advisors (especially the old-timers) have been negative on stocks for the majority of 2010, I have remained bullish. I’m sticking with what I believe: corporate profits are better than expected, monetary policy cannot possibly be more accommodative than at present, there are not many investment alternatives to stocks.

I’m looking for the bear market rally that started in March of 2009 to keep moving higher.

What He Said:

“Home sales down 8.4%, could be the bottom,” read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in PROFIT CONFIDENTIAL, January 31, 2007. While the popular media were predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.

For All the Gold Bugs and Gold Investors Out There

Large-caps, Gold & Biotech; Where All the Action Is

There are very few stocks that are actually doing great in this market. If the main stock market averages go up, it’s mostly because of large-cap, dividend-paying stocks that are more heavily weighted. There is an opportunity in this kind of market, however, for momentum trading, particularly if you have a stock that’s already gone up and is trading right around its high. Because so few stocks are what you’d consider to be outperforming, larger traders are rallying around these kinds of positions due to the fact that there are so few in the marketplace at this time.

For the most part though, trading action in equities can be considered quite muted in the absence of a defined trend. The story continues to be about large-caps and will likely remain this way for the rest of the year.

Stock picking in this kind of environment is tough for new positions, especially before a new earnings season begins. That’s why there’s no rush for investors to consider new positions as far as I’m concerned. Event-driven trading will soon be upon us and speculators should look for corporate visibility that beats previous estimates. It’s unclear how much appetite the broader market has for upward price moves in stocks, but I think it’s reasonable to conclude that a lot of investors have been sitting on the sidelines during the lull between earnings seasons.

The gold and biotechnology sectors are some of the best areas in this market for risk-capital speculators. I don’t see the spot price of gold following the trend in the oil market, and biotechnology always trades on its own news (discoveries, drug approvals, etc.) regardless of sentiment. But, as we all know, there’s no wind at our backs. It’s not that kind of market at this time and there’s no catalyst for investors to rally around. That’s why earnings season can’t come soon enough.

The stock market’s already betting that the technology sector will underperform in the second quarter. A lot of investors also aren’t expecting much from large financial institutions, which still have a lot of bad debt to deal with on their books. Again, the most important index to keep an eye on is the Dow Transports. This is the single best benchmark for the stock market’s overall health. If the railroads begin to fall apart, then so will the rest of the stock market and the economy.

With the economy slowing down, anything is possible over the coming quarters. This means that we could experience another technical recession. One thing I don’t expect is runaway growth, because the fundamentals just don’t support it quite yet. The economy hasn’t corrected itself from the housing meltdown and, in my view, it can only really accelerate in a sustainable way once the excess inventory in the system is taken up and real estate prices move higher. This is why large-cap, dividend-paying stocks will be some of the best performers in the stock market. There isn’t enough economic growth for big capital gains just yet.
Large-caps, Gold & Biotech;

S&P 500 Index Poised to Hit 1,500—Best Upside for Traders Still Mining Stocks

My view on the state of the stock market is that the S&P 500 Index will hit 1,500 this year. That’s about a 15% gain from the current level and would represent a gain of about 20% for the entire year. The stock market’s due for a break, but my economic analysis shows that investor sentiment is strong enough to carry the market higher throughout the year. The earnings are there. The growth is there. And we shouldn’t forget that stock prices tend to lead the economy.

My stock market advice now is not to take too much action. While the market is not overvalued by any means, it is fairly valued and a good portion of the broader market is trading right at the 52-week high. So, if you like to buy low and sell high like I do, this makes that investment strategy more difficult. You have to have a lot of patience and a lot of self control to wait for only the most attractive opportunities to bet on.

One area of the stock market that continues to be the most attractive for speculators in micro-cap stocks is mining. I keep harping on the subject. There are great opportunities in junior mining stocks right now, even with the spot price of gold and silver trading at record highs. Like I’ve written before, the key drivers of mining shares are new discoveries and the underlying spot price of the precious metal. It’s a tough business to be a speculator in this industry, but, then again, it isn’t easy making money in other sectors either.

When you’re in a rising commodity price cycle, not surprisingly it pays to allocate more of your portfolio to this area. A lot of individual investors have traditionally focused on the technology sector to find growth, but this isn’t necessary in the current environment. With gold and silver prices trading where they are now, even the fastest growing micro-cap technology company can’t generate the same kind of earnings growth compared to a mining company with increasing production. The business model is just that good in the resource sector right now.

History suggests that commodity price cycles always end, so, in a sense, speculators have to milk the cow while it lasts. But, I find it difficult to imagine a big retreat in precious metal prices in the near and medium terms. Developed economies are still in recovery mode and, with the huge increase in global money supply, the argument against inflation is pretty thin.

Even oil and gas stocks are seeing a marked improvement in their trading action, and natural gas is still in the doldrums. With declining production on a global basis, I also find it difficult to imagine WTI oil any lower than $85.00 a barrel.

The action in the broader market is stronger than most people think. Investors want to be buyers of stocks because there is no other place to invest with the same kind of near-term upside. To me, 1,500 on the S&P 500 seems very reasonable.
Best Upside for Traders Still Mining Stocks

What the 10-Year Bull Market in Gold Is Really Telling Us

It may have been a global recession when it started, but it’s certainly not a global recovery, especially for the U.S.

While the Federal Reserve tinkers with the second phase of what it calls “quantitative easing” (basically, an indirect way to increase the supply of money in the system when all else has failed), the ramifications of which we will feel for months or years, other countries are raising interest rates to slow growth and fight inflation.

Australia, Canada and India have all increased their interest rates over the past several months. Why?

There are several reasons why interest rates have risen in these three countries. Firstly, the central banks are moving rates higher to get away from “emergency” low levels. Secondly, they want to cool economic growth. Thirdly, they are concerned about inflation, especially in India where consumer prices are rising at the second fastest rate amongst the G-20 countries.

But for America and Japan, it’s a very different story. They are not enjoying the economic rebound of countries like Australia, Canada and India. At the same time, the U.S. government has not imposed any austerity measures (like France and England did) to reduce government spending.

Hence, how can the U.S. dollar not be damned? How can gold not rise?

You have major developed countries raising interest rates. You have the U.S. in such a fragile state, where higher domestic interest rates are sure to cause the dreaded double-dip…where politicians have yet to announce any major cuts in spending to bring the $1.4-trillion annual deficit under control…where the central bank is trying every trick in the book to expand the money supply.

If you were a foreign investor, where would you put your money? In a country with rising interest rates and declining national debt or in a country where the economy is so pathetic that rates cannot rise and government cannot help but spend over $100 billion more a month than it takes in?

(In the longer term, the U.S. will have to unwillingly raise interest rates to make U.S. denominated bonds attractive; otherwise foreigners will no longer finance our debt.)

The 10-year bull market in gold is telling us that the U.S. will be dethroned as the reserve currency of the world.

At the same time, the bull market in gold is also telling us that the new reserve currency of the 21st century will not be fiat currency. No, not the Canadian dollar, not the Australian dollar or the Indian rupee (although they will continue to rise in price against the U.S. dollar)—none of these will cut it as a reserve currency (I do reserve judgment on the yuan).

But only old-fashioned gold, the yellow metal that was first accepted in coin format in 600 B.C., a currency that can only be mined with a man’s bare hands, a currency without any debt behind it, can be the real reserve currency of the world.

Michael’s Personal Notes:

Two news stories hit the wire last night that I want to comment on…

General Growth Properties Inc. has exited from the biggest real estate bankruptcy in U.S. history and split itself into two companies. General Growth, the second-large U.S. mall owner, filed for bankruptcy back in April 2009, when it was saddled with $27.0 billion in debt that it could not refinance.

In my opinion, there is more blood that will flow from the real estate bust. There will be more big-company casualties and home foreclosures have still to reach their peak. But, at some point, maybe one, two or even three years down the road, real estate stocks will become great buys. I’m obviously waiting anxiously for that time. The Dow Jones U.S. Home Construction Index is still down 80% from its 2006 peak.

While General Motors Co. has hit the road trying to round up investor interest in its IPO, all the major car companies are experiencing stronger than expected customer demand. This has propelled recent quarterly earnings. However, I believe the “easy money” from the auto stocks rebound has already been made. The Dow Jones U.S. Automobile Index is only 20% away from its 2006 high. A new softening in consumer demand, a “bump on the road” as they say, will whack the auto stocks back down. I’m staying away.

Where the Market Stands, Where it’s Headed:

The stock market has gone nowhere the past two days. I see some investors taking profits from the big 14% run-up stocks have taken since late August. But, frankly, I’m surprised that we are not seeing more profit-taking and lower stock prices, the lack of which I see as a big positive for the market.

The Dow Jones Industrial Average opens this morning up 8.8% for 2010. The bear market rally that started in March 2009 is alive and well.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in PROFIT CONFIDENTIAL, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.
Bull Market in Gold Is Really Telling Us

The Key to Successful Speculation in Mining Stocks

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.
Gold stocks

Why the Biggest Profits in the Gold Bull Market Are Still Ahead

“It’s too late, the easy money has been made,” is the most common response I get from investors when I ask them why they do not have exposure to the gold bull market. Nothing could be further from the truth.

Yes, gold’s had a phenomenal run-up in price, rising from under $300.00 an ounce in 2002 to $1,480 today—a gain of 393%. I wrote these now famous words in PROFIT CONFIDENTIAL back on December 13, 2002: “I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold-related investments.”

And, while many investors feel that it is too late to get into the gold bull market, I continue buying in. Actually, I’ve been buying gold-related investments all the way along; most recently when gold was trading at $1,400 an ounce.

Here are two reasons why I keep buying and why I believe the biggest gains for gold investors lie ahead:

Firstly, the shares of quality gold-producing companies are lagging the rise in the price of the metal. Look at the shares of Barrick Gold Corporation (NYSE/ABX), one of the world’s largest gold-mining companies. Back in 2002, Barrick’s stock traded at $20.00. Today, it trades at $53.00, a gain of 175%, while gold bullion is up 393% in the same time period.

Same thing with Newmont Mining Corporation (NYSE/NEM), another major gold producer. Its stock traded at $25.00 in early 2002; today, it trades at $57.75, for a gain of only 130%—gold bullion, over the same time period, beat the gain three-fold.

The stock market works on supply and demand. The more demand for a certain stock or type of stock, the higher the price goes. The great majority of mutual funds in existence today are not investing in gold stocks. As time passes and gold prices continue to rise, investment professionals will start to view gold as a “must have” in their portfolio. Demand for quality gold stocks will rise. Gold stocks will start to fare better than gold bullion itself.

The second reason why the biggest gains for gold investors lie ahead has to do with the basic profitability of the major gold mining companies. Barrick, Newmont, and Goldcorp Inc. (NYSE/GG) have fixed costs at their existing mines, so their profits rise sharply as gold prices rise. Look at it this way: a gold mining company has a cost of production of $800.00 an ounce. At $1,480 an ounce for gold, the company is enjoying a gross profit of 85% on its cost of gold.

Now, if gold prices went to $2,500 an ounce (which I expect gold bullion to easily surpass), the gold mining company producing gold at $800.00 an ounce all of a sudden sees its profit margin jump to 213% and, bang…the stock price takes off.

The biggest profits in gold lie ahead, because we are still in that phase of the gold bull market where stocks are lagging the price advance of the underlying commodity. Bottom line: investment professionals still do not believe gold is worth having in their clients’ portfolios and the great majority of investors do not have exposure to gold. As we enter phase three of the gold bull market, gold stocks will start to lead, as opposed to lag, the advance in gold prices.

Michael’s Personal Notes:

It was bound to happen…

The big news this morning: New York-based Standard & Poor’s credit rating agency downgraded the U.S. AAA credit rating from “stable” to “negative.”

I’ve been writing about this coming event for months. The quickly rising national debt of the U.S., and lack of any meaningful effort to reduce our annual deficit would sooner or later cause the security of debt instruments to come under question.

How it usually works: first a country’s debt rating is cut (like the U.S. debt rating was cut today), then interest rates in that country rise to offset the new perceived risk in its debt securities (in this case, U.S. Treasuries).

First we had long-term interest rates rise, now short-term interest rates will come under pressure to rise. If the stock market goes down big-time today, which I expect it will, the reason will be the market’s increasing realization that higher interest rates in the U.S. are just around the corner.

Where the Market Stands; Where it’s Headed:

The bear market rally that followed the early 1930s stock market crash started in October 1934 and lasted until August 1937—35 months—and took the Dow Jones Industrial Average from a level of 90 to 185, a gain of 106%.

The current bear market rally in stocks started back in March of 2009 and is enjoying its 26th month of gains, having brought the Dow Jones Industrial Average up 93% so far. As I have been writing, the current bear market rally is not over yet. While upside potential is limited, there is another five percent to 14% left on the upside for this market.

The Dow Jones Industrial Average opens this week up 6.6% for 2011.

What He Said:

“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canada remain very low and they are not expected to rise anytime soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S. can buy stock on this exchange.” Michael Lombardi in PROFIT CONFIDENTIAL, February 8, 2007. The TSX was one of the top performing stock markets in 2007, up just under 20% for the year.
Gold Bull Market

Future Headline: “Gold up $100 Today as U.S. Dollar Crashes”

In my lifetime, I believe I will wake up once more to the news headline, “Gold up $100 Today as U.S. Dollar Crashes.”

The popular media is slowly starting to pick up the gold bull market story. Investors are getting interested in it, the smart money is buying in, but gold is still only in the second phase of its bull market. Once the third and most speculative stage sets in, we will see the big single-day prices rallies in the metal.

So far for October, the majority of the rise in the price of gold can be related to the decline in the price of the greenback compared to a basket of the world’s other most popular currencies. If you’ve looked at a chart of the U.S. dollar lately (against other currencies), it reads like a straight line down.

Yesterday, I read a variety of stories about how the Bank of Japan’s decision to drop interest rates to zero caused stocks and gold to rally. But the reality is that investors are running away from the U.S. dollar and into assets of all types. Investors are finally getting it: owning the stocks of companies that earn money, pay a dividend, and grow is better than owning U.S. denominated bonds. Similarly, gold is really the only alternative currency to the devaluing U.S. dollar.

Gold is up over $1,000 U.S. per ounce since I started recommending it as a buy back in 2002. I’m often asked, “Michael, why did you see gold as buy in 2002?” Back then, two of our analysts wrote a report on how Greenspan had a secret plan to reduce interest rates to bring the value of the U.S. dollar down to help our exporters.

My realization was that, as the U.S. dollar fell in value, the 70% of the countries around the world that used it as their reserve currency would get squeezed and would look to abandon the U.S. dollar as a reserve currency. Their only alternative: gold.

By pushing interest rates so low in the summer of 2004, Greenspan not only succeeded in starting the devaluation of the U.S. dollar, but he also unwittingly set the stage for the greatest real estate bubble in American history — a bubble that eventually burst, causing the worst recession since the Great Recession.

To fight the recession, the U.S. government increased debt to record levels, putting more strain on the U.S. dollar. Gold has many “thirsts” that fuel its rise. One being a falling U.S. dollar. The second being increasing U.S. national debt, because a currency backed by a lot of debt is a currency in trouble. Both thirsts are being fed to gold right now.

Michael’s Personal Notes:

The Dow Jones rallies big-time yesterday, gets close to breaking past 11,000 again, and the media is all over it (but no big deal for readers of PROFIT CONFIDENTIAL, because I’ve been telling you all year that the bear market rally that started in March 2009 was still intact), but, in reality, the rallying stock prices are just an illusion.

Why?

If we look at a chart of the Dow Jones Industrial Average, yesterday, with the index rallying just short of 11,000, the Dow Jones was trading at about the same level at which it traded in the year 2000. Ten years later; stocks are the same price level. And economists say that Japan had a lost decade!

It’s been a busy decade for the U.S. in that we had a dot-com crash in 2000, a real estate boom that peaked in 2005, a hard real estate bust that started in 2007, and a credit crisis that developed in 2008, but, for stocks in general, it really has been a lost decade. The poor fellow that bought a straight index fund or plain-Jane equity mutual fund in 2000 is no better off today with that investment than he was 10 years ago. In fact, he is worse off, because of fund management fees.

Is it any wonder that the great majority of retail investors have missed the bear market rally that started last spring? They just don’t trust stocks anymore.

Where the Market Stands:

You may remember my lead story in PROFIT CONFIDENTIAL at the beginning of October: “Best September for Stocks Since 1939! Now the Encore.” Well, it’s been quite an encore so far in October. The rally in stocks I have been predicting and expecting went into full steam yesterday, with the Dow Jones up almost 200 points.

The Dow Jones Industrial Average opens this morning up five percent for 2010. I’ve been writing for weeks that investors have few places to put their money; specifically that investors would move out of bonds paying paltry returns and move back into stocks. That is exactly what is happening with the flow of investor funds.

I see the bear market rally that started in March 2009 as intact.

What He Said:

“Despite all my ‘yelling’ and ‘screaming’ about gold, I believe only a few of my readers and a small fraction of the general public has taken a position in gold. Why? Because gold’s not trendy…buying condominiums for investment is! If you are an investor, you need to seriously look at investing in gold stocks, because gold bullion prices will likely continue to rise.” Michael Lombardi in PROFIT CONFIDENTIAL, September, 21, 2005. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended by Michael’s advisories gained in excess of 100%.
Gold Stock

Gold Bullion’s Price Action: Time to Separate the Men from the Boys

In the depth of a bear market in gold prices, back in 2001, a bull market in gold was born. Gold bullion traded for about $300.00 an ounce in late 2011, early 2002, and yours truly became a staunch advocate of gold at that time.

Since the beginning of the bull market in gold, we’ve seen an often repeated pattern: gold bullion prices advance sharply, profit taking comes in, the “weak hands” (as I call them) dump their gold as the price for bullion falls, prices bottom out, and the bull market continues. This pattern has been repeated for 11 years now.

After reaching an all-time record high of $1,921 an ounce on September 6, 2011, gold bullion prices have fallen back to $1,630 an ounce this morning. Could gold prices fall further? Sure they could. A 20% correction in the price of gold bullion could bring the metal down to $1,536 an ounce.

But is it the end of the bull market in gold bullion? Of course not! But remember, gold is up $333.00 an ounce over the past 12 months—26%—so it has plenty of room to give back some dollars and still be in a bull market.

We’ve been down this route many times before. The human memory is very short-term in nature. In early 2003, the price of gold bullion fell 16%; in the summer of 2006, the price of gold fell 21%; from the spring to the fall of 2008, gold prices fell 28%; in the spring of 2009, gold prices fell 15%—and each time the price of gold bullion recovered and moved higher by the year’s end. In fact, for 11 years running, the price of gold bullion has closed each year higher in price than it started the year.

Separating the men from the boys—that’s what corrections in bull markets are all about: seizing the moment as an opportunity, as opposed to panicking and selling one’s holdings. This time is no different.

Michael’s Personal Notes:

An icon has moved closer to becoming a casualty of the Internet.

In its heyday, Eastman Kodak Co. (NYSE/EK), often referred to as just Kodak, was a company to be reckoned with. Founded by George Eastman in 1892, the company’s name became synonymous with the word “film.”

But, as the years passed, and technology advanced, Kodak’s business suffered. People take pictures with their mobile phones today. Or they take pictures with cameras and download the images onto their personal computers or Facebook page as opposed to printing the pictures.

This year, Kodak is headed for its sixth annual loss in seven years. In 2010, the company lost $678 million. Most disturbing for me, last week the 131-year-old company drew down $160 million from its revolving bank credit line—not a good sign.

Where the Market Stands; Where it’s Headed:

The stock market is severely oversold and due for a bounce. For the four days ended September 22, 2011, the Dow Jones Industrial Average experienced its biggest four-day drop since 2008. About $1.1 trillion in value was wiped from stocks last week.

I believe that a bear market rally in stocks that started in March 2009 continues to preside.

What He Said:

“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canad are mainly very low and they are not expected to rise anytime soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S. can buy stock on this exchange.” Michael Lombardi in PROFIT CONFIDENTIAL, February 8, 2007. The TSX was one of the top-performing stock markets in 2007, up just under 20% for the year.


Gold Bullion’s Price Action

How to Survive During This Economic Chaos

The stock market sold off last Thursday. Even gold could not avoid the collapse, as the October gold futures plummeted to $1,700. We have the debt crisis in Europe, with Greece facing a default situation unless its austerity program is accepted by lenders. Moody’s downgraded eight Greek banks after several Italian banks were also downgraded.

Watch the S&P 500 as it nears a critical support level of 1,125 and the four-week low at 1,114. A break could send the index down to below 1,100.

Small-caps are getting hammered, with the Russell 2000 down over 26% from its high and now technically in a bear market.

Watch over the next few days to see if oversold buying emerges.

There is nowhere to hide. Even gold and metal plays are being dumped despite gold being a safe-haven play. Investors are clearly dumping everything.

This could be an opportunity to buy on weakness; but, without a firm base, there could be additional downside moves.

Watching your asset value decline is not great, but you can minimize the effect.

I continue to recommend using put options or buying short-based exchange-traded funds (ETFs) to offset the weakness. It’s easy and cost-effective as a defensive hedge.

Don’t be put off by options. They are a great risk-management tool that is more than often overlooked by the retail investor or trader, but used often by the pro traders and institutions. The SPY index option that tracks the S&P 500 is a top trader on the CBOE.

You can buy puts for stocks and sectors.

Take a look at your holdings and break them down according to the sector, whether they’re technology, industrial, small-cap, large-cap, etc.

The second step is to take a look at the various indices that closely reflect your holdings.

If you are heavily weighted in technology, you can buy put options on the PowerShares ETFs (NASDAQ/QQQ), a heavily traded ETF in technology.

Or let’s say you have benefited from the run-up in gold and silver to record historical highs, a strategy may be to buy put options on the Philadelphia Gold & Silver Sector (NASDAQ/XAU), which tracks 16 major gold stocks and silver stocks.

To play the near-term downside weakness in small-caps, you could buy the ETF ProShares UltraShort Russell 2000 (NYSE/TWM).

Alternatively, if you hold a large position in several stocks, you can buy put options on these individual stocks and help protect against a major downside move.

Be careful and remember that maintaining your capital will allow you to trade longer-term.

With the upside limited at this point, you may also want to write some covered call options to generate premium income and reduce the average cost base of your positions. But be careful, as an oversold rebound could take out your position at the call strike price. Make sure you are comfortable with the upper strike price of your covered call. Make sure it’s above the key resistance of the stock.

The key now is prudence and protecting your assets.


gold stocks and silver stocks

Stock Prices and Corporate Profits: The Divergence Explained

The good old times must be back.

So far this month, 31 major companies have filed with the U.S. Securities and Exchange Commission to go public, the highest number since the summer of 2007.

Corporate earnings? They’re booming again, too. Just look at some of these first-quarter earnings reports:

Ford Motor Company (NYSE/F), the second largest U.S. car maker, made $2.55 billion. Johnson & Johnson (NYSE/JNJ) made $3.48 billion. The Goldman Sachs Group, Inc. (NYSE/GS), fifth largest U.S. bank, posted a $2.74-billion profit. Wells Fargo & Company (NYSE/WFC) posted a $3.76-billion profit. JPMorgan Chase & Co. (NYSE/JPM) made a $5.56-billion profit.

Five companies; $18.0 billion in first-quarter profit.

Why did I choose these five? Because all of them reported earnings substantially higher than in the same period of 2010! Corporate profits are back big-time and this is adding fuel to the bear market rally in stocks that investors have been so enjoying for 26 months now.

But when we look closer at the five companies I list above, all five, except for Ford Motor Co., have their stocks selling substantially below their five-year highs.

The stock market is a leading indicator, not a lagging indicator. By pricing the stocks on my list above, except for Ford, well below their five-year price high, the stock market is telling us that it does not believe that the better-than-expected earnings reports will continue.

As for Ford, the company’s stock is trading close to its highest level in 10 years. As we all remember, this is the only major car company that did not get a bailout from Washington during the credit crisis.

Michael’s Personal Notes:

Gold investors are noticing that, while gold bullion is rallying to new record highs ($1,509 per ounce as I write this morning), the gold stocks are lagging the rally in gold bullion. Why is this?

In my 10-year involvement in this gold bull market, I’ve often noticed that either gold stocks or gold bullion lead the bull, but rarely both. We are in one of those periods where gold bullion is breaking to new price highs and the gold stocks are failing to follow…it’s almost like the gold stocks do not believe that gold prices are moving so high!

I believe that gold stocks are forming a strong base from which to make their next advance. There’s no escaping it…higher gold bullion prices lead to higher profits for gold mining companies. Just this morning, Barrick Gold Corporation (NYSE/ABX), the world’s largest gold-producing company, reported that it made a $1.0-billion profit in the first quarter of 2011, up 22% from the same period of 2010.

There are many good buys in the junior and senior gold stock sector right now.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average has climbed 1,038 points so far this year, up 8.9% for 2011. The S&P 500 opens this morning at its highest level since June of 2008.

I’ve been calling it a bear market rally since March of 2009 and all I can say is that this bear has failed to disappoint. As I have been saying for over two years…technically, you do not trade against the trend, which has been upward. And, fundamentally, you do not “fight the Fed.” We are living in the most accommodative monetary policy period in history. Short-term interest rates are near zero. The Federal Reserve is taking actions we’ve never seen before.

Add to all this a strong corporate earnings quarter and, bang, the rally marches on. But there are cracks in the lining, my dear reader. Long-term interest rates are rising, the U.S. dollar is under immense pressure to devalue, inflation is becoming a problem, and memories of the worst recession since the Great Depression are fading fast.

Enjoy the profits from this bear market rally while they last, because they will not last much longer. Upside profit potential in stocks (five percent to 10% higher) does not outweigh the risks.

What He Said:

“Overbuilt, over-speculated, over-financed and overdone. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, April 3, 2007. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.


Gold Stock Updates, Tips & Guidance

Gold & Silver Setting up for an Attractive New Entry Point

An opportunity is now being created in precious metals if the current correction continues. Most precious metals have been falling in price, as financial markets continue to reassess the expectations for economic growth. With lower expectations for global economic growth, the demand outlook for raw materials and spot prices are also going down.

The price of gold has, in my mind, been worthy of a correction for quite some time now. In fact, I think it would be a very healthy development for the long-term trend. It wouldn’t surprise me if the spot price of gold were to retreat and consolidate around the $1,600 level. It’s trading around $1,700 now and $1,600 should provide a good base.

Perhaps an even better commodity to concentrate on would be silver. This precious metal is more useful in terms of its industrial uses and many argue that it hasn’t kept up with the spot price of gold and could therefore be a better trade. The spot price of silver just broke the $37.00-per-ounce level and there’s no reason why it won’t retreat further to the $30.00-per-ounce level if the current trend in capital markets continues.

This is a very difficult stock market and individual investors are loath to participate. While expectations for the future continue to be reduced, the fundamentals for gold and silver remain mostly intact and are therefore worthy of new positions when spot prices find a new base.

It’s a wait-and-see stock market and a wait-and-see spot price market for precious metals. I think the focus for speculative investors should be on gold and silver and that risk-capital investors will have an attractive new entry point very soon.

As for the rest of the stock market, share prices remain very vulnerable before third-quarter earnings season begins. Over the last little while, equity investors have had to endure tremendous shocks to the system: sovereign debt problems in Europe; the downgrade of U.S. sovereign debt; natural disasters in Japan; no improvement in housing prices; and no improvement in employment…the list goes on. I think it’s fair to say that the equity market has held up quite well all things considered.

What we know is that mature economies are now in a period of very little to zero growth over the next 12 months. We also know that developing economies are slowing down and the probability of another recession is going up. The trading action in financial and commodity markets reflects falling expectations for economic growth and an expansion in the time horizon for recovery. Predicting outcomes in this environment is a crapshoot—nobody knows how or when the economy will get better.

With belt-tightening going on at the individual consumer level and at the government level in virtually all mature economies, we should be in a slow growth environment for quite a long time.
Gold Stock Updates, Tips & Guidance

A Growth Industry with a Great Fundamental Backdrop

Precious metal commodities corrected with some fervor—especially silver. The price of gold moved somewhat lower in the recent correction, but it is still solidly above the $1,500-per-ounce level. I think that $2,000 for an ounce of gold is a real possibility over the next 12 to 18 months and it will likely correspond to some sort of currency instability related to sovereign debt. Without question, the sovereign debt issue is the gravest investment risk to your portfolio and is even more perilous than a double-dip recession.

Gold stocks actually corrected more than the spot price and I would be a new buyer of gold shares at this time. This presumes of course that equity investors don’t already have some exposure to this important market sector. The resilience of the spot price of gold in recent months is, in my mind, a strong signal for the future. The U.S. dollar doesn’t really have to go down relative to other currencies for gold to keep ticking higher. The rate of inflation doesn’t have to be pronounced either. All that’s required is just a little bit of everything—sovereign debt worries, a slightly weaker dollar, and two-percent to three-percent inflation—and the spot price of gold can easily break into new record territory.

Investing in gold is a must these days and it’s been a fantastic trade for a number of years already. The spot price of silver did get ahead of itself, as speculators bid that commodity more than any other in the hope of global economic recovery. I wouldn’t be surprised at all to see silver move over the $40.00-per-ounce level in the near future, especially if second-quarter earnings come in solid.

As I say, the gold trade has made for good investing for several years now and my best prediction is for this upward price trend to continue. Right now, there are large, medium and small producers of gold that are trading for reasonable prices on the stock market. A lot of these companies have little to no debt and are sitting on large cash hoards, waiting to put that money into new exploration. I hate to say it, but this decade is going to be a golden age for precious metal miners. It’s a great time to be in this industry, with spot prices high and bank accounts full.

Speculating in gold mining stocks is a difficult business. What I think makes for an attractive investment within this industry is finding a handful of companies that each offer a “package” of good business opportunities. This means that a gold mining company should already be producing and selling ounces of gold with detailed expectations for increased production over the coming quarters. The company should have other properties that it’s exploring, even in conjunction with other, perhaps larger mining companies. There needs to be a track record of financial growth, along with lots of cash in the bank for further exploration activities. Finally, a decent track record on the stock market always helps—this means that institutional investors know about the business and are willing to invest in/trade the stock.

I believe in the commodity price cycle and a fundamental backdrop to support higher gold prices. Accordingly, gold stocks should continue to be some of the best equity holdings over the next few years.
Gold Stock Updates, Tips & Guidance

Gold Burning up the Chart: My Gold Advice

What a few months it has been for gold. With war worries in Libya to debt concerns in Europe and the United States, along with rising demand out of China and India, it appears to be the perfect storm for driving gold prices higher. In fact, the break at $1,500 was much sooner than I had expected and, based on the chart, prices could go even higher, albeit the buying may be somewhat ahead of itself and hence vulnerable to some profit-taking.
The June gold broke to a record high of $1,535.10 on April 28 and is looking to go higher. The chart showed a bullish inverse head and shoulders formation in March. Prior to this, there was a bullish V formation in January and early February. The June gold made a strong breakout at the $1,440 resistance that was in place since November 2010 in early April.
Along with the upward push, the trading volume in the June gold been surging during the breakout and this is bullish. The contract is above its 50-day moving average (MA) of $1,441. The bias remains bullish. The moving average convergence-divergence (MACD) has been flashing a buy signal since early April; but be careful, as we could be in store for a reversal.
Investing in gold is a safe haven play when the market risk rises.
Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness.
The situation in Libya could worsen and there are also tensions in Iran and other Middle East countries. This means added global risk. Oil is trading at over $112.00 per barrel on the threat of more disruption in oil from Libya and other oil-producing countries.
In my view, the key determinant of how gold will fare will depend on the direction of stocks along with the geopolitical tensions.
If the Middle East situation worsens, it would drive up oil prices, which would impact economic growth at a time when the economies continue to be at risk.
Also, don’t forget about the mounting debt and deficit in the United States. The country has over $14.0 trillion in debt and is paying billions in interest daily. Many states are struggling to make ends meet and are looking at severe cuts in the state budgets.
Silver has also followed gold higher, with the May silver futures contract above $48.00 an ounce. It appears set to take a run at $50.00. The near-term picture with silver is also extremely bullish on strengthening Relative Strength, but at the same time overbought. Silver is a play on the economic recovery, as it’s found in electronics.
I also like copper as a play on the recovering global economies, especially in industrial applications and housing.

My advice on playing the commodities is to buy gold stocks, silver stocks, and oil stocks on weakness.