Best Stock Market Trades Belong to Gold in this Market

~ by Mitchell Clark, B.Comm.

Thank goodness for the spot price of gold. This is the one sector of the stock market (and global economy) that’s flourishing within all the turmoil. Not only are the fundamentals for gold very strong, but they are actually improving, as price inflation is going up in the world’s biggest economies.

For risk-capital traders, the best action remains with gold stocks. It’s a wonderful time to be in the gold equity speculation business and precious metals in general. What follows is a great example of the kind of positive trades that are out there (please note that this is an example only; not a stock recommendation).

Richmont Mines Inc. (AMEX/RIC) was trading below $8.00 a share just last week. While the rest of the stock market was in turmoil, the spot price of gold was going up. This junior mining company has been a gold producer since 1991. With extensive experience in gold exploration, development and mining, the company is deliberately building a North American reserve base. The stock is now trading around $10.00 a share.

Reporting in Canadian dollars, the company generated revenues in the second quarter of 2011 of 29.4 million dollars, representing growth of 42% from revenues of 20.6 million dollars generated in the second quarter of 2010. Where else do you see small- or micro-cap companies improving their  revenues by over 40% in this economy?

The company sold a total of 20,085 ounces of gold at an average price of $1,495 per ounce during the second quarter, compared to gold sales of 15,607 ounces and an average realized sales price of $1,222 per ounce last year. Total precious metals revenues increased 49% to 29.3 million dollars, up from 19.7 million dollars in the second quarter of 2010.

Net earnings for the second quarter of 2011 increased to 5.0 million dollars, or $0.16 per share, compared with net earnings of 0.3 million dollars, or $0.01 per share, in the second quarter of 2010.

For the first half of this year, the company’s total revenues grew to 55.8 million dollars, representing growth of 37% over the first half last year. Net earnings were 13.7 million dollars, or $0.44 per share, for the first half of 2011. This includes 3.0 million dollars from the gain on the sale of property. Net earnings for the comparable six-month period in 2010 were 2.2 million dollars, or $0.08 per share.

Richmont Mines finished its latest quarter with 48.3 million dollars in cash and company management reaffirmed its production guidance of 80,000 to 85,000 total ounces of gold for 2011.

In just one week, this position advanced two full points for a trading gain of approximately 25%. I follow the stock market every day, and let me tell you that a 25% gain in one week in this kind of market is a rarity.

Right now, the best stocks for speculators are gold stocks. It’s going to stay this way for quite a while.

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