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
- 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?
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