Are gold stocks disappointing?
- An anonymous conversation
- Why stocks are lagging gold
- 32 companies to buy today
You might have noticed something strange going on in the markets recently – especially with how stocks relate to commodities like gold. And you’re not alone. It’s easy to see that gold and stocks shouldn’t make gains in tandem. It’s hard to imagine people being bullish on the economy at the same time they’re bullish on gold. That’s because gold is usually seen as a safe harbor, protecting against calamity in the markets and world currency.
So what’s going on?
Yesterday I was talking with a well-respected gold analyst with many years of experience in the field – who spoke to me under condition of anonymity. He’s been as successful as anyone I know when it comes to finding profitable gold stocks.
He complained yesterday that gold stocks weren’t performing as well as he’d like.
And he’s right – so far this year gold has returned about 16%, while larger gold companies like Royal Gold (Nasdaq: RGLD) have been somewhat disappointing. RGLD has only returned about 6% this year.
Check out this chart showing gold prices (dotted line) vs. RGLD (solid line).
We know that gold stocks tend to lag gold price fluctuations, and we can see how RGLD always seems to tentatively follow gold prices upward, and then quickly retreat when there's even a hint of trace-back in gold.
It's the same situation that's happening with stocks in the broad market: gold stock prices are climbing a wall of worry. Investors are trading in and out of gold stocks and taking profits at the earliest chance - preserving the bulk of their investment in case there's another fall around the corner.
But that’s not how gold stocks typically react to higher gold prices. As I’ve talked about in a past issue of the Resource Prospector, the whole idea of investing in gold stocks is to benefit from the ability of gold miners to multiply gains made in gold’s price.
What this means, is that there’s a whole lot of upside for gold stocks right now – this potential is discussed in some length in this recent article written by another long-time gold analyst Mr. Prieur du Plessis. He shows how gold miners in general have started moving higher. He says, “the Gold Miners Bullish Percent Index shows more than 60% of the 32 stocks in the Gold Miners Index are now in point and figure uptrends.”
Mr. Plessis refers to a somewhat esoteric index that you can’t find in a lot of market search engines. I use www.stockcharts.com for a lot of my research, and you can see this index there by typing in the symbol $BPGDM.
This movement could indicate a decoupling of gold stocks from the broad market, which has been displaying highly bearish tendencies over the past week – a much needed breather from its breakneck march upwards since the February lows.
Simply put, this news, and strange market activity, means good things for gold stocks. You can look at the 32 stocks in the Gold Miners Bullish Percent Index, and buy the ones that strike your fancy and probably do pretty well over the next few months.
But I recommend getting a little help with your selection process by taking a risk-free 30-day trial subscription to Global Commodity Investing. We currently have three profitable gold companies in the portfolio that I believe are the best of breed right now. You can see all of our research on gold and other commodities by clicking here.
Gold companies like RGLD, and miners in that index are more profitable when gold prices are higher, so there’s no reason they shouldn’t trade higher as gold prices continue to rise. As always, look for any pullback to add to your positions.
Good investing,
Kevin McElroy
Editor
Resource Prospector
p.s. My boss is begging me to tell everyone about an opportunity to buy Warren Buffett style stocks ahead of the Berkshire Hathaway shareholder meeting this weekend. If you’re interested in reading about three Buffett-style investments, click here to find out how you can get a free report before Buffett tips his hand on May 1st.
