Gold Sparkles During Financial Crisis - Barron's

As financial markets take some of their worst hits in decades, gold continues to shine. Up 3% from last year vs. losses for almost all other assets, Barron's sees an investment opportunity in this precious metal.

Though down markedly in the past week, to $785.10, gold has shown real strength during the financial crisis as investors search for safety. In March, during Bear Stern's collapse, gold hit $1,000/ounce, and some bulls expect gold to bounce back beyond $1,000 to as high as $2,500/ounce.

John Hathaway, of Tocqueville Asset Management, believes the recent financial turmoil has "set the stage for a dynamic advance" in gold's price. Several technical indicators are sending bullish signs on gold as well, including the key measure of the Dow Jones Industrial Average divided by the price of gold.

Investors interested in gold have several options, including buying mining stocks or mutual funds that hold mining stocks. While mining stocks should benefit from high gold prices and lower energy costs, their shares are under pressure as hedge funds sell off assets to raise cash. One alternative is to buy the metal itself. Investors can buy coins from various governments, buy shares in a gold-backed ETF (GLD), or buy gold directly from the website Goldmoney.com. Gold purchased from the website is stored in insured vaults and audited annually.

• James Turk, founder of Goldmoney.com, sees gold at $1,100-$1,200/ounce by the end of the year, explaining that "with markets melting down, uncertainty about the safety of assets and growing concern about counterparty risk, people look to assets with safe-haven status." He thinks gold could reach as high as $7,000/ounce.
• Charles Oliver, the Sprott Gold and Precious Minerals Fund, sets a lower target for gold but still expects it to nearly triple within four years to around $2,000/ounce. He's partial to Goldcorp (GG) with its low-cost mines, and Iamgold (IAG) which is trading at a discount to the sum of its parts. For higher-risk investors, Oliver suggests Kinross (KGC) which is trading at a discount to its net asset value.
• Steve Lehman, of the $1.8B Federated Market Opportunity Fund, says "gold stocks would still be fairly valued" even if gold prices halved, and Yamana (AUY), Barrick (ABX) and Newmont Mining (NEM) are among the fund's largest holdings.

Comments

[The Rookie:]

I felt the same abot gold producing stocks. Would you have done better if you'd bought the bulliion?

2008 Oct 19 09:45 AM

[CLH:]

Gold is near the top of an eight year bull. Gold has a long way to fall as the dollar gains

2008 Oct 19 09:21 PM

[NOWHEREMAN:]

The rapid decline in all stocks and commodities leaves a bad taste in everyone's portfolio. But Physical Gold has not participated to the same extent.

If the Forced selling continues, then Gold might be the next victim. But if it does drop, I would be looking at gold stocks for a reaction. They might have already anticipated it.

2008 Oct 20 01:43 AM

[User 283200:]

gold stocks have NEVER traded based on their "value" and likely never will. They trade on emotion and perception (sentiment), which, even with the recent price weakness is still far too high to generate a sustained advance from near current levels. I personally expect a trade BELOW $700 per ounce before the next upturn, if for no other reason because the forced liquidation that has driven ALL commodities prices lower has likely not yet run its course for this 'liquidation phase'. One thing I look at favorably is the gold stock to spot ration, which is getting incredibly cheap. This simply shows the cost of a gold stock share relative to the cost for an ounce of gold. I recommend naked PUT SELLING on your favorite gold issues, so you can generate cash flow while committing at depressed levels.

2008 Oct 21 01:16 PM

[dsrtwriter:]

Yes, gold has traded on emotion and perception....for over a thousand years.

The U.S.dollar is, what, just over 200 years old? Sure, those of us holding some gold would have been smart in hindsight to sell gold before the dollar rose.The problem is that it appeared to make no sense,when the Treasury was creating dollars de novo to swap for worthless mortgage securities.

Oh, I forgot, they are supposed to sell those securities when they "rise in value".

The lesson: gold is down this inning, but the story is not over. I am not a gold bug, but it is comforting to have ten percent in gold for the long term.

2008 Oct 28 01:28 PM