Last year at this time, gold was everyone’s favorite commodity, as the precious metal had spiked to its historical high of approximately $1,900/oz. But after crashing back to earth, this asset has struggled thus far on the year amid economic uncertainty and weighing pressures from the euro zone. Gold prices have fallen more than 10% since February, as investors seem to have little confidence in the metal’s ability to properly act as a safe haven holding. But with this major decline in prices comes a strong buying opportunity for gold, as its value has not been this low for several months [see also Is Gold Still A Safe Haven?].
With gold sitting well below $1,600/oz. investors have the opportunity to buy in on a possible low for the precious metal. The speculation for this low comes from the wide expectation that the Fed will be forced to step in with a third round of quantitative easing to help keep markets on the right track. Though Ben Bernanke has been quite reluctant to make any solid commentary on another asset purchasing program, it seems almost inevitable with all of the turmoil around the world, that our economy will need another stimulus to stay afloat in these tough economic times. That being said, if there is no QE 3 on the way, gold could continue to slide as investors are uncomfortable holding the metal during such time of global unrest [see also Why Warren Buffett Hates Gold].
Ways To Play
For investors who have a strong opinion on where gold is headed, or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct method comes from the June GC Gold futures contract offered on the COMEX. The February contract is currently the most heavily-traded future and will offer the best liquidity. But not everyone is savvy to futures markets as they can be quite complex and difficult to understand. GLD, another option, is an ETF that measures physical bullion that has become wildly popular among the investing world. For those who like the ETF structure, the iShares Gold Trust (IAU) also offers physical gold exposure at 15 basis points less than GLD. Finally, an indirect play on the yellow metal can be made with a number of gold mining firms like Barrick Gold (ABX) or Kinross Gold (KGC) [see also Does GLD Really Hold Gold, Or is it a Scam?].
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Disclosure: No positions at time of writing.