Gold Stocks Penny
Gold Stocks Penny
The Case for Gold
Gold. Everyone’s talking about it, and a lot of people are investing in gold and gold stocks. Even gold penny stocks are doing well. But is gold really a golden opportunity?
I think it is, and here’s why.
You have countries like India and Sri Lanka and China buying gold from the IMF like it is going out of style – it is not really, but much better than holding the alternative – the US dollar. India actually started the buying rally and is being hailed as a visionary as the price of gold has risen spectacularly since its initial buy.
Which brings me to my second point: the Fed. The US Fed is printing greenbacks like they’re free – which they might soon be – leaving gold as the only viable investment option for the conservative investor.
And lets face it, by historic, inflation adjusted prices, the price of gold is nowhere near its 1980’s high. Adjusted for inflation, the price of gold would have to hit $2300 per ounce to match it.
Also several major companies like Barrick and Newmont are eliminating their hedge positions in gold – a huge economic endorsement for the price of gold since it essentially means that the price of their stock will now reflect the price of gold. (No more hedging, get it?). For example, in the very recent past, Barrick was known as having the largest book on gold hedging. It did this to protect its cashflow from unseen fluctuations (read decreases) in the price of gold. So with a hedge, if the price of gold were to decrease, Barrick would already have received a higher profit by pre-selling. With a price increase, it would have lost extra profit, but the hedge would have ensured its profitability.
Now with no hedge, Barrick essentially is betting that the price of gold will rise. Without a hedge, as the price of gold rises, Barrick will capture higher profits since its expenses to mine gold are essentially unchanged. However, if the price of gold drops, it risks cutting into its margins and in a severe case could see losses.
In my opinion, however, large cap stocks are already priced with reserves and revenues fairly stable and estimates readily available. Further, they are followed by so many investors and institutions, that any new demand for their stock is likely to only have a negligible effect on stock price. A small discovery would also have a small effect on stock price due to the number of shares outstanding. They therefore provide no further opportunity to make outsized profits.
So while the world is buying gold, the Fed is printing money and ironically worried about inflation at the same time, the price of gold keeps rising.
Gold production world-wide has decreased by nearly 8% since 2001, while the price of gold and gold producers has risen as much as 46% in 2009 alone.
The case for investing in gold stocks, naturally follows the same logic.
To find the current price of gold at any time, just visit www.kitco.com.
And to get our first penny stock pick for 2010, a gold pick no less, subscribe at www.pennystockjockey.com.
Gold, stocks , Martial law, & the Federal Reserve – VisionVictory Interview Part 2 -
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