Daily Gains Letter

Why You Might Want to Hoard Gold

By for Daily Gains Letter | Dec 27, 2012

















DL_George_5We have the fiscal cliff and national debt to contend with, along with jobs, manufacturing growth, and economic renewal. Moreover, there’s a recession in the eurozone that is negatively impacting the global economy, including China, Japan, and the U.S.

My view is that stock values could falter in 2013, so you need a safe haven to park your capital, which many of you know is in gold.

There has been plenty of talk in these pages regarding gold and whether the precious metal is headed for $2,000 an ounce. In my view, the current global risk will support and drive gold prices higher.

For you, the question is whether to buy the physical bullion or gold mining stocks. For the average investor, I favor gold stocks over the higher risk of other options.

The mining sector continues to be an excellent place to make money. An investment strategy would be to buy a mixture of exploration-stage gold mining stocks, along with small to large gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large producers.

For exchange-traded fund (ETF) investors, the SPDR Gold Shares (NYSEArca/GLD) trust ETF is worth a look, and it is currently trading in a sideways channel above its 50- and 200-day moving averages (MAs).

If you are looking at specific stocks, a top stock is Newmont Mining Corporation (NYSE/NEM), which in my view, is one of the best stocks in gold, given its good price appreciation potential and dividend. Yet, with earnings shortfalls in three of the last four quarters, Newmont is just above its 52-week low of $42.95, and given the selling, I feel the stock has good above-average upside potential going forward.

Without a doubt, for investors looking to hedge their portfolios with gold exposure, Newmont deserves to be at the top of the list. This company stands out among other players for two reasons: 1) size; and 2) low production costs.

Over the years, Newmont has grown rapidly through mergers and acquisitions, as well as the development of its existing reserves. This strategy resulted in the company’s diversified risks; namely, unlike junior producers, Newmont doesn’t depend on one or two of its mines for its future, and it’s certainly not exposed to politically unstable regions. The risk is spread out, as the company continues to maintain an aggressive worldwide exploration program and is actively participating in, and taking advantage of, the ongoing industry consolidations.

The company’s diversified portfolio of low-cost mines allows it to remain profitable, even during prolonged weakness in the gold bullion market. In the past 10 years, Newmont has posted net losses three times; yet, each year, it has generated positive operating cash flows.

Newmont is an ideal candidate for investors looking for a company with excellent fundamentals, a proven track record, and an experienced and knowledgeable management team.

My advice to you is to buy a mixture of exploration-stage gold miners, along with small to large gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.

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