Three Ways To Play $2,000 Gold

Stocks were slaughtered fresh out of Labor Day weekend, as renewed fears of the euro-zone’s debt crisis dragged equities across the board. While the U.S. enjoyed a holiday-extended weekend, Europe was not so lucky; a massive sell-off on Monday propelled the Stoxx 600 Europe index to losses of 4.1% as many fear that the worsening debt issues in numerous European countries will put an anchor on the global economy. U.S. investors digested Monday’s international performance and quickly sold out upon Tuesday’s opening bell. Along with worries over the future of the euro-zone, the U.S. jobs report last week did little to boost confidence in our sluggish recovery efforts [see also Top Seven Strangest Commodity Futures].

Amid all of the turmoil on Wall Street, there is one asset class feeding on the downfall of equities; gold. As recent weeks have brought stiff market volatility, gold has broken through a number of historic barriers, including the newly crushed $1,900 per ounce mark. While gold has always been considered a safe haven in times of turmoil, lately, the precious metal has seen heavy inflows (and outflows as well) as stocks sway back and forth, shaking investor confidence. As it seems that we will surely have hard days ahead of us, at least in the short-term, gold prices hitting $2,000 per ounce seems to be a matter of when, not if [see also The Guide To The Biggest Companies In Every Major Commodity Sector].

While many have their opinions as to whether or not the metal is overvalued or overbought, gold will continue to remain a popular turning point for as long as markets falter. Below, we outline three ways to make a play on gold as it approaches the historic 2k mark:

Barrick Gold Corporation (ABX)

Barrick is the largest gold mining company in the world, with a market cap topping $53 billion. The company has an astounding level of proven gold reserves somewhere near the 140 million ounces mark. If gold were to hold a steady $1,700 per ounce price (a conservative estimate), that reserve would be worth $238 billion, at gold’s current price of about $1,873, the reserve values at about $262 billion. Most mining stocks exhibit high betas and tend to move much more than gold itself, but Barrick is something of a rarity in that it has a current beta of just 0.61. This may turn some investors off who are looking for the pseudo-leverage that miners put on gold, but others may be intrigued to find a more stable gold miner [see also Company Spotlight: Barrick Gold Corporation (ABX)].

SPDR Gold Trust (GLD)

Physical exposure to gold has become extremely popular thanks to the rise of the ETF industry. This fund represents physical gold, with one share reflecting roughly 1/10th ounce of the yellow commodity. Holding physical bullion alleviates a number of risks that are tied to exposure through miners or futures, leading many investors to adopt this vehicle for their gold exposure. Investors can buy this fund and hold it over the long term, but its average volume of over 21 million also makes it a prime candidate for active trading. The ETF charges an expense ratio of 0.40% so for those looking to minimize costs there is another physical gold product from iShares, IAU, which represents 1/100th ounce of gold and charges just 0.25%.

GC Gold December 2011

A number of investors prefer futures contracts when it comes to commodity exposure. For those who can handle the risks and complexities of futures trading, the December 2011 contract for gold will be a good one to watch. The future is currently sitting at $1,874.60 and is one of the most traded contracts out of the dozens offered. Demand for gold typically increases in the fourth quarter, as a number of emerging markets ramp up their use of the precious metal, especially India which is historically one of the biggest consumers of gold. As such, the December contract may be subject to more volatility than others, and can make for an interesting play [see also Commodity Investing: Physical vs. Futures].

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Disclosure: No positions at time of writing.