God

“ The Gold Investor’s Handbook “ by Jack A. Bass, B.A. LL.B. ( available from Amazon)

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1oz 1984 Krugerrand Transferred from en.wikipedia
1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)

Why Invest in Gold and Gold Stocks – and Why Now ?

Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. In the past year, the climb in the price of gold above $1600 per ounce is due to many factors, one being that the dollar is steadily losing value.

  • The dollar is weak and getting weaker due to national economic policies  like quantitative easing , which don’t appear to have an end.
  • Gold price appreciation makes up for lost interest, especially in a bull market.
  • The last ten years are a major bull move similar to the 70’s when gold moved from $38 to over $800.
  • Central banks in several countries have been increasing their gold holdings as part of their foreign reserves, instead of selling.
  • All gold funds are in a long term uptrend with bullion get  ready for an new gold bull market surge in 2013.
  • The trend of commodity prices  ( such as food stuffs ) to increase is relative to gold price increases.
  • Worldwide gold production is not matching consumption. The price will go up further with demand.
  • Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
  • U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold.

Investment Alternatives :

  • Gold bullion. – Refiners produce gold bars from one gram to 400 ozs.
  • Gold coins. – The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium.
  • Numismatic coins. – Older coins which fit the description of collectibles have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal.
  • Gold Mining stocks. – Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It’s price movement is almost always more than the movement of gold itself. Market Vectors Gold Miners ETF (GDX) is one way to invest in stocks.
  • Jewelry. – Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.
  • Exchange Traded Funds (ETF)– Perhaps the safest method of buying and owning gold by buying shares in a fund based solely on the existing market price of gold. No leverage or storage problems. GLD, GDX, and SLV.
  • Gold Mutual funds. – A relatively safe method of buying and owning gold stocks allows the owner to diversify among many stocks and allows the investing decisions to be made by a professional. Investment methods vary among funds and provide many different styles of portfolio management for an investor to choose from. Prices move faster and further in both directions than the price of gold.
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GOLD Decline Brings Focus To Golden Dividends

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THESIS;

Right now the mining companies are trading more akin to the cyclical heavy industry mining,. The senior companies are trading akin to about five times cash flow at the moment – I don’t see a significant level of downside to the current multiples in the mining industry and  AMP thinks that the gold mining investments in general are  inexpensive today relative to  the past

With gold prices set to finish higher for the 11th consecutive year, producers are swimming in extra cash, wrote Dan Denning for CommodityOnline. While producers are partly paying out more dividends because of their higher cash positions, they are also dishing money out to shareholders because of greater competition, namely low-cost precious metals ETFs.

Market Vectors Gold Miners (GDX) is moving closer to its 52-week low of $50.42 a share, and lost nearly 2% on Tuesday. Market Vectors Junior Gold Miners (GDXJ), which tracks small-cap stocks, also lost ground.

Meanwhile, gold prices dipped below $1,600 an ounce.

According to David Christensen, CEO of ASA Gold and Precious Metals Limited, dividend growth has tapered off “quite substantially” as the industry focused on growth and “started to chase the juniors and the mid-tier companies to a greater extent,” reported Geoff Candy for Mineweb.

However, we are beginning to see gold producers offer dividend yields again. GDX, which tracks larger gold miners, offers a 0.7% yield while GDXJ, which leans toward small- and mid-cap miners, yields an impressive 5%.

Gold Price At The Critical Correction Point

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Gold has recently been in a correction (or consolidation) after a very steep rally. On a fundamental basis I am recommending gold producers as a hedge – here is a contrary technical view from Greenfields:

It appears as if Gold is at a critical juncture at present. Gold, at $1594.60/oz, is currently right below both the 200dma  as well as the rising trendline ( recently broken to the downside) since early 2009.

From an overall Technical Analysis standpoint, on both daily and weekly viewpoints, Gold appears vulnerable to a (significant) decline.

Currently

I am very closely monitoring Gold as I believe a steep, abnormal correction could serve to (further) indicate deflationary pressures – which of course would have outsized impacts on financial markets, the economy, and economic policy (particularly QE3 or some other large intervention.)

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