The Place You Need to Have Capital in 2012

The market chaos continues to grip the stock markets. We have the European debt crisis and a concerted effort to fix it, albeit it will be extremely difficult and take years.

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The European Central Bank (ECB) cut the eurozone’s interest rate by 25 basis points to one percent—the second cut in five weeks. However, keep in mind that the ECB increased rates two times prior to the cuts. The cut will have little impact on the effort to revive the region and avoid another recession given the debt crisis. The ECB should have cut interest rates to below one percent as we did in the U.S. and as the U.K. did. The concern was that inflation in Europe is three percent, so the fear was that lower rates could drive up inflationary pressures.

President Mario Draghi, President of the ECB, admitted that the eurozone may be set for a mild recession. If so, a 25-basis-point rate cut is not exactly a remedy. In addition, there appears to be no plans for a fund for bond buying after speculation on Wednesday that the G20 was looking at a $600-billion International Monetary Fund lending program in the eurozone.

The problem remains the possible S&P credit cuts in the eurozone and the muted economic renewal. I still consider the market risk to be quite high.

Also keep a close watch on China. The country’s economy is stalling as exports for cheap Chinese goods decline due to lower demand from Europe and the U.S. Gross domestic product (GDP) could plummet to 6.8% in 2012 from 9.1% if Europe and the U.S. falter, according to the Asian Development Bank. This is a valid concern that is causing some stir amongst traders.

And don’t forget the crippling U.S. debt levels and U.S. deficits. The powerful U.S. economic engine continues to show breaks and is stalling at this most critical time.

With all of this uncertainty that I feel could worsen as we head into 2012, gold continues to be the place you need to have capital.

The December Gold is edging higher at above $1,740 and its 50-day moving average (MA) of $1,700. The golden cross on the chart remains, with the 50-day MA above the 200-day MA of $1,606.

Michael Purves, gold bull and chief market strategist at BGC Partners, believes that gold could trade at $2,000 an ounce by March 2012.

Lombardi Financial initially turned bullish in 2002-2003 and has remained so ever since. Although at times the bullion has had a rough ride, prices have turned around significantly after first breaking above $400.00 and we believe the spot price of gold will take a run at $2,000 by 2012 should the global economies and risk continue.

The simple truth is that gold is a trustworthy and realistic investment instrument that should be in every investor’s portfolio. Gold’s traditional role as a safe haven has made it the underdog in the world markets. It is an investment that people turn to only when stock or bond markets aren’t performing well, or when monetary policies are running amok. Yet, there is a sense that gold may be increasingly seen as a credible and realistic investment vehicle and not just as a safe haven instrument to park capital.

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In the current climate, gold represents the best bet, while silver continues to be a trading commodity based on the economic recovery and demand for electronics and industrial applications.

My advice to you is to buy a mixture of exploration-stage miners along with small to large producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large producers.

One of my top areas at this time is the junior miners, which you can read about in Mining for Riches: Great Metals Stocks to Check Out. See what companies I like.

If you want to know what I think is one of the top gold plays available, read Newmont: A Class Act in Gold.

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The Best Bet in Town—Resources—Getting Ready for the Big Squeeze

By Mitchell Clark, B.Comm.

The key in this bear market with stocks is to stick with resource stocks if you’re a speculator. I like large, blue-chip companies that pay high dividends for long-term investors. For risk-capital equity traders, the best action remains with gold stocks, and some of the best value now is in oil.

There isn’t much wind at your back in this market. Lately, the shorts have been winners. The trading action is choppy and trendless, reflecting investor sentiment that doesn’t have high expectations for the future. The current stock market malaise should be with us for a while longer, but the market is developing some decent values and the earnings outlook remains solid.

I’d be a buyer of new gold investments as the spot price corrects. There’s just too much strength in the fundamentals for gold for it to be ignored. In a world without growth, producing gold mines are some of the best businesses around. If you have a mining company with growing production and unhedged exposure to the spot price of gold, you have the makings of a very profitable enterprise…and the kicker is that business will just get better and better as the underlying spot price of the commodity rises.

We’ve been harping on gold for a number of years now and the trade has worked big-time. But, I also think it’s fair to conclude that the trade will keep on working with the growing likelihood of increased price inflation around the world. Global investors, even central banks, are looking for a store of value and there isn’t much in the way of anything that pays a decent return. Treasury yields are very low. The returns on cash are negative if you factor in the rate of inflation. The gold sector remains one of the best for speculators. The trading action in technology, biotech and most other stock market sectors just isn’t as good.

I mentioned oil because I like to consider investments when prices are down. Oil and natural gas are now trading at levels that I think are highly stimulative to the economy. Some exposure to this sector is warranted. And, as we see the commodity price cycle migrate into agricultural commodities, a couple of positions in this sector should also do well over the coming years.

As I say, I think equity speculators should have solid exposure to real resources going forward. Economic growth in most of the world’s mature economies is at a standstill. But emerging economies like China and India still have burgeoning appetites for raw materials. When mature economies start to accelerate, there is going to be a big squeeze on commodities and prices should skyrocket. Think of the state of the domestic economy now and consider the current prices for gold, copper, oil, corn, soybeans and sugar. Then consider the demand side of the commodity price equation when things get better. The supply side is quite stagnant. In my mind, the resource bet makes a lot of sense.