Summary
- Gold stocks have plunged in the aftermath of a vicious downtrend in gold prices.
- Most stocks have struggled to report any positive bottom lines in the last few years.
- Few gold stocks appear to have shaken the pressure exerted by declining gold prices to net positive incomes for the trailing 12-month period.
- Some of these stocks also enjoy impressive dividend yields while others have enough room to grow dividends as demonstrated by their low payout ratios and strong profit margins.
- The price of gold appears to be stabilizing, but it has proved to be relatively unpredictable over the last few months.
Randgold Resources (NASDAQ:GOLD) has gained more than 6% over the last five days with a majority of that gain coming this week due to the rise in gold price, which hit a new 3-month high on Tuesday.
Most gold stocks posted massive gains during the day with the likes of Newmont Mining (NYSE:NEM) adding more than 5% to their market value while Randgold was up nearly 5%.
However, the price of gold eased on Wednesday to give up some of the gains garnered in the previous trading session to trade at just below the $1,120 level.
On the other hand, the SPDR Gold Shares ETF (NYSEARCA:GLD) has gained nearly 2% since the start of the week. On Tuesday, the ETF also reached a new 3-month high of $107, a level it touched last, at the start of November last year.
Gold bears believe that the maiden rise in trading gold price over the last two days was nothing more than a sucker rally, but the bulls believe that with equities falling and the USD finally running out of steam, the price of gold could be turning a crucial corner following an extended period of decline.
Right now, investors are caught in the dilemma of choosing amongst investing in gold via trading platforms, buying gold bullion like governments are doing, or opting for gold stocks. With gold stocks, you can capitalize on more than just the increase/decrease in stock prices in the form of dividends, or share buybacks if the company has such a program.
The biggest news of the day is the soaring price of gold.
More impressive is that, while some of the gain was generated by a weaker U.S. dollar, most of the advance came via regular trading. That is to say that a lot of people wanted to buy gold.
They also wanted to buy silver (up 2.00%), platinum (up over 2.00%) and even laggardly palladium (up 1.25%). This is classic haven buying, certainly what with volatility still high, but it also might be pointing to a longer-term trend of actually investing in precious metals. One might even describe it as a flight to quality.
Bond face value prices were up today after a successful auction of 2-year paper, but – and this is germane to the allure of precious metals right now – those prices didn’t rocket into space. That tells us that bonds are working on a business-as-usual basis whereas gold, silver, et al, are moving up for deeper reasons.
The strong uptick in gold came on a day that would seem not to be favorable toward investing in precious metals.
The Dow is up at 3PM in New York by 1.75%. The S&P 500 is up 1.35%, while the NASDAQ brings up the rear, moving higher by 1.00%.
A lot of chatter surrounding the crude oil market is driving action in equities. Word has it that OPEC is about to reach an agreement on output and pricing. However, like any big and complicated deal, believe it when you see it. And even then…
West Texas Intermediate rose 3.2%. Brent was up by almost 4.00%. Both the U.S. and world benchmark crudes are operating firmly in the $31+ per barrel range.
Europe was able to take advantage of the optimism in oil (short lived as it may turn out to be). The DAX, FTSE and CAC all turned positive. The CAC led the way with a full 1.00% gain.
Asia was not so lucky. Markets there closed before oil began its rampage up.
The Nikkei and Hang Sen were both down significantly but not enough to call out the National Guard.
Shanghai was devastated, though. It fell 6.38% There is also worry in China that the Fed will issue a statement tomorrow that will be unfavorable to the Chinese economy.
Our feeling is that the Chinese economy will be hurt regardless of what the Fed might say regarding interest rates in the near to middle-term future. China is in a fragile state, economically.
Years of state-controlled economics may well be coming to a rocky end sooner than we think.
Stay tuned for what the Fed statement tomorrow afternoon will mean for other geographic regions and specific economic sectors – like manufacturing and housing – in the next four to six months.
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Wishing you, as always, good trading,