For over a month, the Federal Reserve has been reducing its asset purchases. Those reductions have led to the actual balance sheet of the Fed to decline for the last two weeks. While the size of the balance sheet is significant, for markets, the change in the size of the balance sheet can be even more significant as monetary velocity can quickly slow. As the Fed’s balance sheet has shrunk, the market’s direction has been more uncertain.
With rising COVID cases and policy measures that are in the offing to “curb” the outbreak, it places greater focus back on the economy and corporate earnings. This means that the Fed may need to reengage soon to help support the market and economy, which is exactly what gold is looking for and may be pricing in currently.
As you look across the market last week, it was the Cyclicals sector that outperformed in the S&P 500 followed by the Materials sector. The S&P 500 itself was right at the top as Apple Inc (NASDAQ: AAPL), Amazon.com, Inc (NASDAQ: AMZN) and Microsoft Corp (NASDAQ: MSFT) were outperformers.
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As you break down the materials sector and include more than the S&P 500 companies, it was the Non-Energy Minerals Industry that led the way, and specifically the Precious Metals industry that really shined with nearly a 5% weekly advance.
Check out our recent posts on gold and precious metals stocks.
The following list are three of this week’s top performers in the Precious Metals industry that broke out last week.
Gold Stock #1: Comstock Mining Inc (NYSEAMERICAN: LODE)
Comstock is more than just a mining company. They also own real estate, hotels, restaurants and rental properties. The company is attempting to selloff assets and cut costs in those areas. In Q1 the company announced a 21% drop in operating costs, an 89% decline in interest expense, and a loss of $0.05 versus $0.12 year-over-year.
Comstock is up dramatically since establishing its March low near $0.35. The price established a similar low at the end of November 2019. This week, the price broke out above the February high near $0.85 and closed above that level to end the week. While the price may a little extended in the near term, the potential upside is significant as you look back at its history. Restructuring and transitioning to profitability could have this stock trading north of $10.
Gold Stock #2: Alio Gold Inc (NYSEAMERICAN: ALO)
Like many other gold mining company that aren’t showing a profit, there are cost and productivity issues to work out and mines were hit by increased costs and lower production that what would have happened without COVID-19. In Q1 the company saw gold production decline year-over-year and their all-in sustaining costs increased from $1,267 to $1,472 with a average realized price of $1,582. However, with gold prices moving higher and production returning, it places this company on better footing.
ALO broke out in May to a year-to-date gain for 2020. As the price tested the July 2019 high, it began to consolidate, forming a flag pattern. That pattern broke out last week on June 22 with extraordinary volume. That breakout allowed the stock to close at a multi-year high and may be part of a long-term trend reversal in the price with potential to test $5 or higher.
Gold Stock #3: Gold Fields Limited (NYSE: GFI)
Gold Fields has more of a global presence with eight mines around the world in South Africa, Ghana, Australia, and Peru. The company is generating positive earnings and last fiscal year generated operating cash flow of $249 million. They are currently hedged to protect their balance sheet, but they are expecting to let the hedges roll off when they expire, which reflects a bullish outlook for commodity and gold prices.
After making a 52-week high in April, the price consolidated as it formed a resistance near $8.50. On June 19, the price began to surge and broke to a new high on June 22. Last week’s breakout was the highest price the stock had posted since early 2013. The major reversal in the long-term trend is an indication of the potential for the price to reach $12.