If Wednesday was an example of stock proxies overcoming negative news, Thursday was shaping up as a session in which shares were unable to benefit from some positive developments. Despite better-than-expected retail sales data and some positive corporate guidance, major stock proxies couldn't sustain a midmorning rally and were lately trading south of breakeven.As of 2:18 p.m. EST, the Dow Jones Industrial Average was down 0.7% to 8528.53 after having traded as high as 8615.13 and as low as 8510.84. The S&P 500 was down 0.6% to 899.42 but off its earlier low of 897 while the Nasdaq Composite was lower by 0.3% to 1392.22 vs. its low of 1388.5. On the economic front, the government reported retail sales rose 0.4% in November and 0.5% excluding autos, both results were well in excess of consensus estimates of 0.3% overall and 0.2%, excluding autos. Separately, the Bank of Tokyo-Mitsubishi reported U.S. same-store sales rose 2% last week. On the micro front, Costco ( COST) reported fiscal first-quarter results in line with expectations but lowered its sales and earnings guidance for the remainder of the year. A much higher-than-expected jobless claims report -- initially rose 83,000 to 441,000 vs. estimates of 393,000 -- was an offsetting factor to the retail sales data, but considering the latter was presumably such a concern among traders on Wednesday, the market's tepid reaction was disappointing. Simultaneously, equity bulls were unable to parlay upbeat news from firms such as Ciena ( CIEN), Amgen ( AMGN) and Halliburton ( HAL) into anything more than gains for those names. In the midst of economic news flow generally weighted toward the positive, stocks were reportedly sluggish due to geopolitical concerns. Specifically, The Washington Post reported Iraq may have given chemical weapons materials to al Qaeda and various news outlets have reported North Korea is planning to restart a nuclear power plant that may be used for making weapons-grade uranium.
Such developments were helping give a boost to gold and related shares. The price of the yellow metal was lately up $6.60 while the Philadelphia Stock Exchange Gold & Silver Index was higher by 6.6%. After rallying steadily in 2001 and the first portion of 2002, gold and mining stocks stumbled through the summer, then spiked higher in September. When that move faltered and the price of gold reversed back to around $310 per ounce in mid-October, many observers declared the nascent bull market in gold to be over. Among others, veteran technician Martin Pring has
commented previously that a close above $328 per ounce would signal both a new bull move for gold and would confirm the likelihood of an upturn in inflation going forward.
From a macro perspective, Holmes argued that a weaker dollar will also benefit exporters such as consumer product giants Procter & Gamble ( PG) (which issued some upbeat news over the past day) and Coca-Cola ( NYSE), as well as big-cap tech names such as Intel ( INTC) and Microsoft ( MSFT). "You could get tech stocks going with gold," he said, noting that the third year of presidential election cycles is very often bullish for both stocks and the economy. Finally, Holmes mentioned a more direct, fundamental support for gold, specifically, that the metal's lackluster performance in the 1990s and higher environmental hurdles have resulted in a "shrinkage of mine supply," especially from the largest producers. "We anticipated this structural industry issue --
many producers need $370-ounce gold to expand." Because of this supply issue, Holmes is most bullish on mid-cap and unhedged gold producers such as Wheaton River Minerals ( WHT), which his fund is long. Earlier this week, RealMoney.com contributor John Roque mentioned a number of small- and mid-cap gold producers with bullish technical patterns, including Randgold Resources ( GOLD) and Harmony Gold ( HMY); both were up more than 10% of late.