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In the annual Barron's Roundtable (sub. req.) of top investment pros, Felix Zulauf, head of Switzerland's Zulauf Asset Management, argues that gold is still a compelling investment at this stage and proposes five gold stock picks. Excerpts:

Gold-mining shares are going to be a gold mine in coming years. Intensive globalization leads to low headline inflation. The governments of the old industrialized nations run large fiscal deficits, and the central banks accommodate them with cheap-money policies. On top of that, nobody wants a strong currency, so there is competitive devaluation, which strengthens the inflationary process. The bottom line is cheap money as far as one can see, and low real interest rates...

Barron's: What about environmental risk?

Zulauf: There is always a risk with mines. And there is a risk if you don't buy gold. Gold has been rising in linear fashion from the low of 2001, but gold stocks have gone sideways from late '03 to late '05. The mining shares now are where oil and oil shares were two years ago. They are just breaking out.

Barron's: The cost of mining gold is rising. Doesn't that hurt company margins?

Zulauf: You do not buy gold-mining shares on current earnings. You buy them for the stuff in the ground and what it will be worth in the future. Cost inflation in mining is running about 20%. That has been a problem in the last two years, particularly in South Africa, where the currency has gone up a lot. It led to the closing of some mines, which actually helped the price of gold rise...

Barron's: Felix, which gold stocks do you like?

Zulauf: You buy a basket. It should include Newmont Mining (NEM), the only gold stock in the S&P 500. I would add Gold Fields (GFI) of South Africa, a lower-cost producer. If you want to be a little more aggressive, you can include Harmony Gold Mining (HMY), a higher-cost producer. Then, go for two mid-cap stocks. One is Glamis Gold (GLG) in Canada. The other is Lihir (LIHRY) in Australia...

Interestingly, gold is cheap relative to other commodities. Over the last 25 years, the mean ratio of gold prices to oil prices has been about 18. It's now at nine or so.

Source: Felix Zulauf's Five Gold Mining Picks (NEM, GFI, HMY, GLG, LIHRY)