I’ve had several people ask me lately about gold and gold stocks. It is an interesting topic, for sure. Since my book Choose Stocks Wisely is about stocks, today’s post will speak of the gold commodity (which is an investment itself aside from gold stocks) only as it relates to gold common stocks. Gold closed Friday at $1,324/oz. Many gold stocks are presently trading well below their stock prices sported not all that far back when gold prices per ounce were well below the $1300s.

Pondering the current overall economy and market in light of today’s gold stock prices, it seems that gold stocks may well be out of favor at a time when the broad markets, especially technology, are going gangbusters. This seems reasonable in my view since gold is considered a safe haven and people are feeling pretty confident. Next, it seems gold stocks are out of favor at a time when gold is showing some relative stability and mild strength. This seems somewhat peculiar to me as better gold prices mean higher revenues for gold mining companies. Finally, it seems gold stocks are out of favor at a time when the buzzword of concern in our current economic expansion is “inflation.” This also seems odd since gold is considered a hedge against inflation.

It’s true that recent inflation measures are not showing any major spikes in actual inflation but yet the Fed is looking to raise interest rates three or four times over the year, according to what you hear and read today. This implies anticipation of inflation ahead.

So, I looked at some gold stocks and several indeed looked pretty inexpensive relative to financial positions, without regard to outlook. And if the outlook does bear out any move up in inflation, that implies a potential for growth in earnings of the mining sector. Earnings drive attention to companies and thereby drive their share prices.

As somewhat an aside, yet potentially related, the rise in crypto mania (very recently pulled back in face of regulatory talk) has not at all been paralleled by any similar favor toward gold or gold stocks. If bitcoin, for example, is to act as some kind of digital alternative to currency, is this attraction all about convenience or privacy of transaction; or is it reflective of a more general sense of insecurity toward our present form of fiat money (paper money) itself? If it’s the latter, it seems odd that gold and silver prices haven’t participated in the action.

I share this today only as a potential topic of interest based on some questions I’ve received of late in my local circle of family and friends. With most everything flying high in the stock market, I can understand why some would be thinking at this time about gold stocks.

My final thoughts are that gold stocks have a general reputation of a boring investment; and across history, that reputation is borne out. As I’ve written before about commodity stocks, the performance of the stock is dependent on the performance of the commodity it’s associated with; and predicting with any degree of accuracy what’s next for most commodities is virtually impossible. You know the commodity will go through up cycles and down cycles but you never know when shifts occur and for how long. With commodities, I’ve observed there can be crazy booms and busts. Just look at oil over recent years.

Wrapping up, I suppose if I gave any consideration to gold stocks, I’d sure want to limit it to a time when they seemed out of favor in light of factors that create a market for gold. And the balance sheet strength would remain the hard standard for passing investment muster. Personally, due to past lessons, I’m not inclined to heavily invest in commodity stocks because outlook drives a company’s future operating performance and the outlook for commodities can be very erratic and hard to judge in my view.

I’d welcome you offering your thoughts.

See you next time, friends.