The market has seen a huge surge in gold prices in the last week. Gold is now approaching $600 and is currently trading at $585. I believe we may see another round or two of profit taking before we eventually break $600.
I am keeping an eye on Yamana Gold, Inc. (AUY) and Bema Gold Corporation (BGO). I was in BGO earlier this year at $2.80 and I sold out at $4.03. BGO is now trading at $4.56. After watching both stocks, I believe AUY has risen more aggressively than BGO and is more prone to price swings when the price of gold drops.
AUY is definitely heavily influenced by speculation on future earnings and a continued rise in the price of gold. If I were to choose a gold mining stock, I would choose to invest in AUY over BGO during the rush to $600 and above.
AUY went public in early 2004 and there is more opportunity for a young stock like this to appreciate with an impending mania and overly eager investors who attempt to look for the next bargain gold stock.
Since I am bullish on gold and do see the metal breaking $600 in 2006, I will likely take a position in AUY if gold drops under $550. I would expect AUY to trade at low $8’s or just under $8 if gold drops under $550.
Among the gold stocks on my watchlist, I also believe Goldcorp Inc. (GG) may be a good short term investment. I expect GG to drop to the $25-$26 range if gold drops under $550.