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Gold is perhaps the most attractive investment that retirees can make given the current state of the economy. From the Fed targeting low interest rates until at least 2014 and a lack of action over reigning in entitlement spending, gold provides an ideal hedge with strong secular trends pointing towards appreciation. Two attractive plays worth considering are Agnico-Eagle Mines (NYSE:AEM) and NovaGold (NYSEMKT:NG).

From a multiples perspective, Agnico is attractive. It trades at a respective 54.6x and 12.5x past and forward earnings with a dividend yield of 1.8%. To put this into perspective, consider that Agnico is valued at only 85% of its historical 5-year average PE multiple of 64.5x. With only a 12.5x multiple required for appreciation, assuming EPS hits the target, the company would aggregate.

At the fourth quarter earnings call, Agnico's CEO, Sean Boyd, noted production progress excluding the impact from Goldex:

We're actually seeing year-on-year improvement in production in 2012 at 4 of our 5 mines, and the biggest mine we now have the mine plan that is much lower risk. So I think that reinforces the solid nature of the guidance. We still have production growth. When you take out Goldex, we still have production growth in 2013 and '14. And those are all from the existing mines. And the biggest driver of that growth is La Ronde and we built in a slower transition in the underground on those production numbers. We still have expansion and growth opportunities in the company at Kittila, and we're working on an expansion plan there. La India, which was acquired late last year and the transaction with Grayd.

The company lost a considerable amount of its value following the announced closure of Goldex, but at this point the closure has masked the strong fundamentals. Other operations have dramatically turned around following development disruptions and are now performing quite well, such as Pinos Altos. Meadowbank has been a source of uncertainty with greater-than-anticipated expenses, but the LaRonde mine more than offsets this by generating a strong stream of free cash flow. Furthermore, Meliadine, which is more than double the size and gade of Meadowbank, already has 7M ounces. And despite the net position, the firm has a great growth story going forward with solid support form a $900M credit line.

Consensus estimates for Agnico's ESP forecast that it will grow by 18.1% to $2.09 in FY2011 and then by 36.8% and 29.7% in the following two years. Modeling a 3-year CAGR of 28% and then discounting backwards by a WACC of 9% yields a fair value figure of $46.16, implying 26.2% upside.

NovaGold is, admittedly, more risky, but still has solid room for upside given improvements in its financial position. Losses are expected to continue at until 2013. The firm recently raised no less than $367M in equity and now has plenty of cash to finance operations, at least over the next half decade. It further leased its oxygen plant, gas pipeline, and other assets. As greater clarification over the restructuring efforts emerge, investors will benefit from greater investor entry.

Source: Why It's Time To Buy Agnico, NovaGold

Additional disclosure: We seek IR business with all of the firms in our coverage, but research covered in this note is independent. The distributor of this research report is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence. Always discuss investments with a licensed professional before making any financial decision. Statements made within this report may include “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.