On Thursday morning, the price of gold soared nearly 3 percent to over the $1,300/ounce level. This came in the face of analysts telling us that the price would head lower as the economy improves (even as we saw negative GDP growth in the first-quarter) and as inflation remains tepid (even as the CPI is trending higher.)
The fact is that the economy is fairly weak and the Federal Reserve’s attempt to re-inflate it through its quantitative easing program worked to a limited extent, but it is ultimately failing. While this money first started to find its way into stocks, I think this will end as corporate profit growth decelerates and investors realize that it doesn’t make any sense to own shares in companies that are trading a 20X, 25X, or even 30X earnings or higher. Much of this money will ultimately find its way into gold, especially as the price begins trending higher as short sellers realize their bet is a lost cause and as Asian buying of physical metal increases global demand.
With that being the case, it is quite possible that we have begun to see a new uptrend in the gold price, and a good way to play this is through mining stocks. But not all miners are created equal. As investors, we need to decide what sort of risks we are willing to endure in order to realize a particular reward.
The following two stocks have been weaker than most in the sector, although there are good explanations for this and I believe that this weakness has provided an excellent entry point for investors who are looking to profit from the next move higher in the gold price.