Is Wall Street Ignoring Gold's Luster? (AEM, CDE, FCX, GFI, GG, GLG, GOLD, GSS, HL, HMY, IAG, KGC, MDG, NEM)

Here's a summary of a recent article in Business Week, writes Nick Perry, who writes for Schaeffer's Investment Research, followed by a "contrarian takeaway":

Publication: Business Week Online
Publication title: "Gold's Deceptive Glitter"
Publication date: 9/21/2005

Brief Summary:

"The precious metal has been trading at a 17-year high lately and received an extra jolt from Katrina. But S&P analysts expect it to fade." This article takes a skeptical look at the gold sector and suggests that the recent rise has left little room for further advances. Also is it noted that they "think gold is a bad investment because it's very seldom that gold outperforms any other investment." It is argued that gold and crude oil tend to move together, however, "few market observers see either of these commodities' high prices as sustainable." The firm quoted "sees a yearend oil price of $62 a barrel, falling to $52 by the end of 2006." The article ends by saying "Though gold and shares of gold producers may have luster among speculative traders, individual investors may be better off sitting out this time around."

Contrarian Takeaway:

Since the beginning of the month, the Amex Gold BUGS Index (HUI) has gained nearly 14 percent, while the S&P 500 Index is flat. However, based on the article above, it seems that this strength is not invoking overwhelming optimism. To get a better idea of how the Street is positioned for a rally in gold stocks, consider the table of analyst ratings from Zacks below:

As contrarians, we are always interested in situations where strength is not immediately greeted with overwhelming enthusiasm. And, looking at the data above, it appears apathy from Street runs deep. Only one stock here shows more than 50 percent of the ratings as "buys" (just barely so) and a number of the stocks show little to no coverage. Overall, less than 30 percent of the total ratings are "buys," so it looks like there is potential for upgrades should the Street begin to feel the pressure to jump aboard.

Nick Perry ([e-mail])

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