Gold Prices— Bull Market Looking Stretched

You know, gold prices have been strong for a lot of years now (over 10), and we are now in the third major price consolidation for this commodity in recent history. I think investors need to be very careful with gold and silver this year. When I look at both charts, I can’t help but feel that we’re about to experience a major breakout, either upward or downward, from the recent trend. Whatever transpires, I think we’re going to see this new price trend happen this year, and it will make or break gold stocks for sure.
I think the marketplace is a little tired of gold, and it’s pretty evident that a lot of institutional investors have considerably reduced their exposure to the commodity. If policymakers can come together to provide more action and certainty for capital markets, I think we’re going to see relative calm for the U.S. dollar this year, and this means that gold prices (which tend to move inversely to the U.S. dollar) are less likely to advance.
While I generally favor some exposure to gold as a portfolio strategy, I wouldn’t be a big buyer of gold stocks right now. If I were to take on new positions on the stock market, I would want to buy value.
One mid-cap gold miner that I like right now is Osisko Mining Corporation (TSX/OSK), even with consolidation in gold prices. In addition to trading on the Toronto Stock Exchange (TSX), the stock also trades in Germany and on the over-the-counter (OTC) market. This gold miner is growing its production in Canada, and the company’s goal is to hit production of one million ounces of gold per year by 2016. Osisko’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

On Wall Street, there was a lot of hype for gold prices going into 2013, but most dealers recently cut back on their expectations. Gold prices below $1,700 an ounce, to me, definitely signal a futures market that is in consolidation, with no real price trend beginning.
In the large-cap space, a lot of gold stocks were hit hard in 2012, and share prices decreased more than gold prices retreated. This illustrates the withdrawal of institutional investors from the gold sector, as well as the pressure that rising costs are placing on earnings.
As I say, I wouldn’t be in any rush to buy gold stocks at this time. Fourth-quarter earnings among many of the largest producers may be disappointing, and expectations for the first quarter of 2013 have come down considerably.
Gold is a commodity that I think most investors should have some exposure to, but the bull market has been going for a long time. Even though inflationary pressure is going to be a very real threat in the coming years, a major correction in gold prices wouldn’t surprise me at all this year.

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