September and October are traditionally weak months in the stock market, but it is the “September Effect” that fears professional and technical traders the most. Yesterday (September 3, 2009) gold prices jumped up 17% per ounce in gold trading, closing near the key psychological resistance point of $996/oz. No surprises here, perhaps as the last 16 out of 20 Septembers have seen gold outperform equities based on London fixing prices.
Will the Gold Price Go Past $1000/oz.?
Are we in for a precious metals rally? If you listen to gold bugs, the answer is almost always yes. But are there any good reasons to think that this September might be different? Is now a good time to buy gold?
Commodities analysts suggest a number of factors might be driving this gold rally: China is purchasing more gold for its currency reserves and is encouraging the purchase of gold as an investment vehicle to the Chinese public. Lately, also, the Central Fund of Canada is purchasing $400 million worth of gold every six months. In fact, most of the G7 central banks are now net buyers of gold rather than net sellers. All of this combines very nicely to create seasonal upward pressure on gold – gold bugs or no.
“this rally will feed on itself…
if we get a few dollars higher from here,
the world comes in to buy this stuff”
– Frank McGhee, Integrated Brokerage Services
According to James West, editor of the Midas Letter, yesterday’s large one-day rally in gold prices could even have been caused by a single central bank or ETF, given that the overall market for physical gold trading is still relatively small (compared to other stock markets). West thinks we could “quite likely” see gold at $2000/oz. within two years.
It’s not much of a speculation to call gold above $1000 an ounce. Remember, the last time this happened was just barely over a year ago: the all-time record high for gold prices was $1,032 (USD)/oz. reached in March 2008.
If You Want To Buy Gold Coins (Bullion)
If you are thinking of buying gold for investment purposes or physical gold as insurance or a currency hedge (such as fears about the devaluation of the US dollar), you have a number of choices, each with their pros and cons. Those concerned about security, inflation, and wealth protection will definitely be most interested in buying gold coins or gold bullion. The Canadian Maple Leaf is probably the most popular gold coin, noted for having one of the highest ratios of purity. The equivalent U.S. gold coin is the American Eagle.
A relatively more recent way to purchase gold bullion, however, is through online brokerages which also store the gold for you. Probably the most reputable “digital gold” (they buy/sell online, but hold real physical gold audited monthly) buyer here is GoldMoney.
Top Gold Stocks
Other options for gold investments, of course, are the tried and true behemoth gold stocks, many of which are Canadian gold producers and diversified precious metals stocks. Here you want to consider gold mining companies such as:
- BHP Billiton
- Barrick Gold
- Goldcorp
- Kinross
- Agnico-Eagle
- Newmont Mining
- Yamana Gold
As an extra bonus, some gold stocks pay dividends.
Junior Gold Mining Stock Picks
Wits Gold (TSX: WGR) – James West thinks Wits Gold (pronounced “Vits”) is undervalued at current prices, likely because their South African location is traditionally perceived as a difficult place to do business. They have an estimated 150 million ounces of gold and lots of opportunity to spin off into new companies. Wits also has 50 million ounces of uranium, which geologists expect could rise to 200 million.
You should also take a look at the following junior gold and mining stocks:
- Lihir Gold
- IAMGOLD Corporation
- Eldorado Gold
- Franco-Nevada Corporation
- Red Back Mining
What Are the Best Gold ETFs?
A gold ETF is another good choice for investing in gold, and recently more and more gold ETFs are holding the physical metal itself. Tthe CFTC has been tightening the standards on gold ETFs, making it harder for them to be based upon trading gold futures as opposed to holding physical gold bullion. This has also increased the recent upward pressure on gold.
There are a plethora of choices for gold ETFs, and they are all slightly different. Some of the more common offerings include:
- iShares COMEX Gold Trust ETF (IAU)
- ProShares Ultra Gold ETF (UGL)
- ProShares UltraShort Gold ETF (GLL)
- streetTRACKS Gold Shares ETF (GLD)
- PowerShares DB Gold Double Long ETN (DGP)
- PowerShares DB Gold Double Short ETN (DZZ)
- PowerShares DB Gold Fund (DGL)
- PowerShares DB Gold Short ETN (DGZ)
- Horizons BetaPro COMEX Gold Bullion Bear Plus ETF (HBD) * CAD
- Horizons BetaPro COMEX Gold Bullion Bull Plus ETF (HBU) * CAD
- Claymore Gold Bullion Trust (CGL) * CAD
- ETFS Gold ETF (BULL) * UK
- ETFS Gold Sterling ETF (BULP) * UK
- ETFS Leveraged Gold ETF (LBUL) * UK
- ETFS Physical Gold ETF (PHAU) * UK
Be careful when doing research on gold ETFs – as you probably know, many of them are leveraged vehicles and are not intended to be held long-term. In fact, many of the leveraged ETF products are intended for professional traders and should not be held more than a day or two. Be sure to read the prospectus and guidelines and do your own homework! This is just a quick list to get you started in your gold ETF research.
Are There Any Gold Mining Penny Stocks?
A penny stock is, by definition, any stock that trades for under a dollar – hence, it trades in cents (pennies). And yes, you can buy gold penny stocks. There’s quite a few of them in Canada, actually. Check out some of these junior gold producers that all trade under one dollar:
- Timmins Gold (TMM)
- Castle Gold Corp. (CSG)
- Crew Gold Corp. (CRU)
- SkyGold Ventures (SKV)
- Bralorne Gold Mines Ltd (BPM)
Because of Canada’s rich metals landscape, there are many more junior gold exploration company hopefuls – which is why they trade so cheaply. Most of them are listed on the Toronto Stock Exchange “Ventures” exchange – TSXV – because they don’t yet have sufficient market cap or earnings to be listed on the TSX. You’ll want to do your research before investing speculative money into these – but you probably know that already, if you’re a penny stock fan.
Is It A Good Time To Buy Silver, and if so, What Silver ETFs Can I Buy?
Also known as “poor man’s gold,” silver is another option for precious metals investing, one that should be and can be easily used alongside investments in gold. The benefit of silver is that not only does it have intrinsic value as a precious metals commodity, but it has a number of industrial uses (many more than gold), so it can effectively trade in two markets.
Silver doesn’t move lockstep with gold, which can be a good thing. According to Frank McGhee, the buying in the silver market lately has been very strong and is likely to continue with the improvement in the economy. As a result, it’s worth considering adding this metal to your portfolio, too, without any fear of getting too fancy. Just take a look at some of these ETFs:
- iShares Silver Trust (SLV)
- ProShares Ultra Silver (AGQ)
- ETFS Silver Trust (SIVR)
- PowerShares DB Silver Fund (DBS)
- ProShares UltraShort Silver (ZSL)
- E-Tracs UBS Bberg Silver ETN (USV)
- Claymore Silver Bullion Trust (SVR)* CAD
No discussion of gold would be complete without a consideration of silver, but the real story of the day is the shiny yellow metal that divides investors so easily on the topic of its worth. What side of the fence do you fall on? Are you a gold-bug, or do you think it’s useless to hold?
Time will tell as we enter another exciting chapter in the global story of the end-of-economics-as-we-know-it.
If you liked this post, why not grab my RSS feed for free updates and get these delivered right to your reader or by email? Also, please come talk with me on Twitter.
Related Posts - Peter Schiff Down On Obama Stimulus
- Peter Schiff's Favorite Canadian Oil Stock Recommendation
- New Way to Buy Gold Online in Canada - Scotiabank Opens Gold and Silver eStore
- Top 10 Largest Global Gold Mining Stocks
- Junior Gold Miners ETF, the Bubble in Gold and What You Should Worry About Over the Weekend
Related Articles From Other Websites
{ 16 comments… read them below or add one }
I don’t think there’s every a *bad* time to buy gold. Turning Federal Reserve Notes into a hard, time-proven asset is a positive, no matter how you slice it. That said, there are probably *better* times to buy gold, unless you think a complete dollar collapse is imminent.
Long term will gold be a better place to be than dollars? No question. But I bet we’ll see gold lower before it goes much higher. If you can wait, you probably should give it a month or two. If you have the itch, a small purchase should hold you over.
:) I like the way you put that: “Turning Federal Reserve Notes into a hard, time-proven asset is a positive.” I think people were surprised at the big two-day leap – up at least 15%, which would be like the Dow going up 1400 points in a day.
Gold is up, but with no dividends, over time it’s a loser.
Anyone who bought Gold in the last mania in the early 80’s is still waiting to catch up to where they’ll break even to inflation.
@Joe, yeah, and I like my dividends…. a good alternative is to buy gold stocks that pay dividends, like Barrick. It’s not exactly the same, I know, but there will be some correlation when bullion does well.
If you are thinking long term, and if you believe like I do that the Fed and Helicopter Ben will be unwilling/unable to rein in and control the inflation that will eventually result from their monetary policy, then gold at $1000 an ounce is a great buy!
But I also think until we see some sustained signs of inflation over a period of several months, the price of gold will not stray too far from $1000 in either direction. The lack of clarity in the market place vis-a-vis inflation should keep it trading in a fairly narrow range until then.
That’s my $0.02 (after taxes)
Len
Len Penzo dot Com
Gold is definitely getting a lot of attention at the moment. Experts have been speculating that the coming months would yield a spike in precious metals. The two-day rise of gold by 15% is an example. However, I suppose the key is to buy when the cost is low and there’s little hype. Attention is rapidly going to gold, so I say those who got in earlier may reap the best benefits.
@Len – $1000 seems like a lot for a little ounce – but if they’re right and it goes up to $2000 in two weeks, you do the math! Today’s action doesn’t look like any panic buying has set in, yet, though. We came off the $996 high.
@MinorityFortune – it’s definitely not ideal to be buying when everyone else is! I think it was Jim Cramer who said that you’ll know we’re in a bear market when it hits the front page of the NYT and the VIX is higher than 40….. well, same with gold. When everyone’s talking about it, it may be too late to buy.
Gold stocks, or gold ETF’s can be a good choice to get in on the positive side of gold. However, they do miss out on one of the biggest positive aspects of gold – actually owning the gold, holding it in your hand.
With the ETF / stock, you get a piece of a paper ( these days, just some electrons on a screen ) that say you own XYZ. That’s all well and good.. but physical gold in the hand can be useful in the event of a currency collapse / widespread Internet shutdown / whatever other crazy scenario you can think of. Unlikely? You bet. But it’s still something to consider.
Gold isn’t magical… but there are a lot of great reasons to own at least *some* gold.
At this point, gold is too expensive for me. I won’t buy when gold value is so high. Its seem like gold being seen like a good investment in recession. The value of Sprott mutual fund – Gold and precious metals had increased after loosing value a couple of months ago. It was time to buy gold at that time, but not now, unless you more than just a small investor. Like your post.
Thanks Sunny. One interesting thing to note is that my TD Precious Metals fund has barely moved up at all, despite the surge in bullion. That’s one of the unfortunate consequences of investing in gold equities, I guess. Don’t always move together with the bullion prices. I won’t be buying bullion at these levels, but will wait for a pullback and will consider GLD, probably. I will be purchasing some individual equities over time, though, too.
@SimpleLlama – I agree, the feeling of the physical gold would be nice:) I used to own bullion through GoldMoney, but even there, it was real, just not in my hands:) I’d like to work towards having 5% of my portfolio in gold at all times.
“I’d like to work towards having 5% of my portfolio in gold at all times.”
Does this imply that if you had a total portfolio of say $100,000, the $5000 would be in gold? And with the run up, if it’s now worth $15,000, you’d sell $10K worth? This strategy will at least keep you from buying high, selling low.
@Joe – I wish my portfolio were at 100k already. If I had had 5k in gold that ran up to 15k recently, I’d probably sell 8k or so – leave the extra bit in in case the run goes up further. It would be rare to get that much of a solid rise in gold so soon, so I’d want to take advantage of it. It would depend on the overall conditions. If it seemed like the cause was more of a real threat of world economic collapse, maybe I would hang onto all that gold and even buy more. Right now, I think several things are coming together to push gold up.
This is getting interesting! So you think that the price of gold can increase even more? For me, it’s a bit of the opposite, because now that the economy is getting better, price of gold will decrease. Or am I right? lol I just can’t wait to see what will happen. Just to see, because to invest, I don’t have any money to invest in gold right now… Fantastic post! I Twitt it on Twitter under myfirst50000 I think Saturday.
People need to ask themselves when the U.S. is currently 50 trillion dollars in debt and that Obama just announced that he’s giving all authority to the Federal Reserve Bank of the United States to get them out of the mess (which is run by a private cartel of scoundrels who aren’t even elected) what is going to happen? The FED caused this mess in the first place with their derivatives, overleveraging and paying off greedy CEO’s. 65% of the world economy is still dependent on Wall Street. When Wall Street collapses, the U.S. dollar collapses with it. When that happens, the rest of the world won’t be far behind. If we move to a new currency, what happens in the interim? People will flee to buy gold (just like China and Russia already have).
@Chris – I would want to check on that 65% statistic, it doesn’t sound realistic. And need to define “Wall Street” – I disagree that the rest of the world economy would collapse too. Countries like China and Brazil (Canada to a lesser extent) are wising up and diversifying their trade. The US is no longer Japan’s main export destination, it’s China. And China is investing and buying direct from places in Africa and Brazil. Soon China will be its own source of aluminum, steel, oil and I heard it became the world’s largest producer of gold, this year, too (need to verify that one).
Yes, it’s 65% of the world economy that is dictated by the U.S. China and Brazil are still considered “third world” or “developing” countries and the truth is, they have already been hijacked by the Rockefeller’s and Rothschild’s because their corrupt governments soldout their natural resources to mega corporations in the U.S. to borrow money at huge interest that the South American governments have thrown onto the backs of their donkey slave citizens as taxes while the average citizen make $10,000.00/year.
I define “Wall Street” as those publicly traded companies that have CEO’s who take over companies and overleverage themselves and then get bailed out with phantom money that they have their friends at the U.S. Federal Reserve print off for their ponzi schemes (while paying themselves millions per year off the top).
You’re right about China, soon they won’t be doing business outside as much, which means that there will be even less that they will be needing from North America. Couple that with the fact that the average worker in China gets treated like a Donkey Slave (15,000.00/year wages), as well, and you will have the massive economic decline of Western Civilization as we know it.
Conclusion? Where can people invest? Gold/Silver for now, emerging markets in five to ten years (if society still exists).