Is It A Good Time To Invest In The Precious Metals’ Stocks?

With the investors in the stock market wondering whether there will be a third round of quantitative easing before the year is through, the sorry state of affairs as regards the U.S. economy is again brought into the limelight.

In the stock market, the scenario of the soaring stocks of gold and silver is indicative of a well-deserved turnaround in the sector of the precious metals. The near-term action for gold stocks looks good. The U.S. dollar is losing value and hence there is a burden on the Federal Reserve to increase the monetary supply. In order to ease the economic slowdown, the interest rates too have been slashed down and this is really an artificial situation created to deliver a false sense of security that the economy is again on the track to improvement. Still, people are not fooled into thinking that substantial economic growth will happen in the near future.

The performance of Intel Corporation (NASDAQ/INTC) has soon reflected in its declining value of shares in the stock market. The company has felt the tremors of the shaky economy and it has lowered its third-quarter revenue expectation to $12.9–$13.5 billion; down materially from the previous range of $13.8–$14.8 billion. Citing weakening financial growth in the U.S. and the crisis in the euro zone, it was also affected by lowered demands of its chips. Plus, it is facing stiff competition from companies that are in the business of smart phones and tablets.

The United States presently has almost nothing to support its economic growth. Europe is showing no signs of financial progress, while the Asian markets are staring at its downward trend. If the earnings in the third quarter can still beat their predicted values, it will be only due to the fact that the expectations have already been lowered. Hence many are looking at the year of 2013 with a mixture of premonition and trepidation and presently those investing in the stock market need to practice caution going forward; especially the long term investors, who may find it worthwhile to delay and not hasten to buy stocks.

With the rise in gold and silver prices, the mining sector has something to smile about. After all, the gold stocks had been badly affected when institutional investors shunned them following a well-deserved correction in gold prices. Only the very strong investors ought to speculate in the gold stocks as there is a high amount of volatility involved and hence greater potential for higher returns, provided the buying time in the correct stocks is right. The prediction of many investment banks of Wall Street is that spot gold may go higher than $1,800 an ounce before this year is through.

The prices of silver too seem to be performing on a higher note than that of gold. This is good news for the silver sector; since quite a long time, silver prices have lagged spot gold. When gold and silver prices thus climb higher and higher, the institutional investors will find it hard to refrain from shying away from these precious metals. And when that happens, these stocks will truly advance in the real sense of the word. Presently there are only a few such mining companies that are doing good business. The remaining have been deeply affected in their profits due to the rising costs Therefore owning both, gold and silver stocks of the better performing companies in one’s investment portfolio would be wise; although such stocks tend to be expensive and may be higher, multiple stocks within a group, like the mid-tier gold producing companies. These companies are faring much better on the stock market than their large cap counterparts that although are giving good dividends, have poor share prices and insignificant price to ratio earnings.

With China and India continuing to top the global list of gold buyers and China on a world mine-buying spree to augment its treasury, smaller mining companies that have considerable reserves of proven underground metals have good chances of doing well provided they collaborate with companies that can provide them with the necessary funds to excavate the ores for the mines. Some small-caps presently doing well are Keegan Resources Inc. (AMEX/KGN, TSX/KGN), Taseko Mines Limited (AMEX/TGB), Golden Star Resources Ltd. (AMEX/GSS), Nevsun Resources Ltd. (AMEX/NSU), Thompson Creek Metals Company Inc. (NYSE/TC), etc. Of course, the investor would do well to study the history and trend of the stock of a particular company before investing in it. A combination of investments in stocks of gold-mining companies that are in the exploration stage and some small to large producers would tend to bring in an amalgamation of likely aggressive gains from the exploration stocks as well as the balanced returns of large gold producers.

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