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.
[...] The past few months have seen gold prices shoot through the roof, bringing gold ETFs along for the ride. The go-to gold fund, SPDR Gold Trust (GLD) started the year off around $138, and is now trading at about $173.50, marking a 25.7% increase. With gold briefly eclipsing the $1,900 per ounce mark in early September, the precious metal hitting $2,000/oz. seems like a matter of when, not if. But while gold continues to trend back and forth as equities ping pong around a number of issues, many investors and analysts have developed strong opinions as the whether or not the asset class is bubbled, or only just begun its meteoric rise [see also Three Ways To Play $2,000 Gold]. [...]
[...] Gold fever has struck the markets as unstable equities have led to the metal appreciating at a rapid pace. In fact, the price per ounce has shot up roughly 50% in the trailing year as a number of factors have converged to drive the price skyward. As the metal has rapidly approached the $2,000 per ounce level, investors have begun to speculate whether or not it is overvalued. There are compelling arguments for either side, but the truth is, gold is a difficult asset to value; it produces no cash flow, pays out no dividends, and has no underlying financials to sort through to determine what its true value is. One analyst goes as far to say that trying to value the metal is like “trying to solve a Rubik’s cube while you are blindfolded” [see also Three Ways To Play $2,000 Gold]. [...]
[...] As the metal has rapidly approached the $2,000 per ounce level, investors have begun to speculate whether or not it is overvalued. There are compelling arguments for either side, but the truth is, gold is a difficult asset to value; it produces no cash flow, pays out no dividends, and has no underlying financials to sort through to determine what its true value is. One analyst goes as far to say that trying to value the metal is like “trying to solve a Rubik’s cube while you are blindfolded” (see also: Three Ways To Play $2,000 Gold). [...]
[...] Futures were the original method for obtaining exposure to commodities. These contracts can be difficult to understand and require a rather complex futures account, so they are not meant for the average investor. For those who fully understand the nuances of these contracts, futures can be one of the most powerful trading tools for an investor, as they offer exposure that, in some cases, can be found nowhere else in the market. The following futures are offered on the COMEX via the CME Group [see also Three Ways To Play $2,000 Gold]: [...]
In 1980 the Dow/Gold Ratio was 1:1 (ie 800 Dow vs $800/oz Gold) Forum: Gold Forum
(vronsky)Oct 08, 09:36 http://tinyurl.com/4yz5cn8The above 31-year chart clearly shows the Dow/Gold Ratio peaked in 1999 (11800 Dow vs $246/oz Gold). But since 1999 the Dow/Gold Ratio has reletlessly fallen and looks to retest the 1980 benchmark low of 1:1 Dow/Gold Ratio.But this begs the question:What will the equilibrium price of gold and the Dow, when the ratio is again 1:1?5000:$5000….or10,000:$10,000…or15,000:$15,000 ????My considered guess it will be 15,000 Dow vs $15,000/oz Gold — for the following reasons.- Debt Crisis burdens the world…horizon to horizon. Therefore, expect currency debasement and intentionally fosterted inflation to relieve this burgeonous and unsustainable weight.- This will inflate the value oF ALL INVESTENTS. Therefore, the first two equilibrium prices (5000:$5000 and 10,000:$10,000) are NOT feasible for obvious reasons.This only leaves the third Dow/Gold price ratio of 15,000:$15,000 as the only possible alternative. Firstly, widespread currency devlauations will fuel the value of stocks and gold upward. However, more money proportionally will pour into gold as an historically safer haven than stocks.Secondly, 1,3 Trillion Chinese have awaken to the real savings investment of gold. Furthermore, The Peoples Bank of China must diversify its $3.3 TRILLION in Foreign Reserves (most of which is denominated in US Dollars). Consequently, gold demand will sky-rocket.Thirdly, in the early 1970s there were 5 gold investors for every 1,000 investors. But by Jan1980 gold investorsexploded to 50 per 1,000. Today, some experts estimate there again is only 5 gold investors for every 1,000. Indubitably, this will rapidly expand as the gold price rises.TIME FRAME for the Dow/Gold Ratio to again reach 1:1 ?(ie 15000 Dow vs $15,000/oz gold)?Based upon recent volatility, and complemented by political expediency, it is estimated the Dow/Gold Ratio may again reach 1:1 (ie 15000 Dow vs $15,000/oz gold) within the next 12-15 months. DYODD and NIA
[...] Let’s look at the facts. Gold is finite mineral that is considered a rare find, giving it such a high price per ounce. It does not pay dividends and it has no underlying benchmark, it simply sits in lumps in vaults all over the world. The past few years has not seen a massive change in the amount of gold in existence; if there were to somehow be a massive loss of gold around the world, it would certainly make sense to see its price skyrocket. Instead, the metal is just as rare today as it was 20 years ago, you could even argue that with all of the mining giants around the world that gold has become more abundant [see also Three Ways To Play $2,000 Gold]. [...]
[...] The majority of commodity investments are meant for traders, but there are a select few products that are designed specifically for buy and hold investors and their long-term portfolios. The author utilizes the last section of his article to cite the hellacious contango that a number of futures-based ETFs can exhibit. Again, an investor buying and holding (without keeping a close watch) a futures-based product simply does not fully understand what he/she is holding, and is making a fatal error. Though these ETPs come as an equity ticker, they need to be thought of as a futures product and as such should be traded accordingly [see also Three Ways To Play $2,000 Gold]. [...]
[...] The majority of commodity investments are meant for traders, but there are a select few products that are designed specifically for buy and hold investors and their long-term portfolios. The author utilizes the last section of his article to cite the hellacious contango that a number of futures-based ETFs can exhibit. Again, an investor buying and holding (without keeping a close watch) a futures-based product simply does not fully understand what he/she is holding, and is making a fatal error. Though these ETPs come as an equity ticker, they need to be thought of as a futures product and as such should be traded accordingly [see also Three Ways To Play $2,000 Gold]. [...]
[...] is known for some of the most profitable trades in history, he is only human, and gold set out to prove him wrong. Soros made his comments and dumped the majority of his gold holdings when the precious metal was [...]
[...] equities have become increasingly popular in the past few years as the precious metal has watched its price soar. Some even prefer their gold exposure through a firm with earnings, dividends, and more as opposed [...]