Bottom-fishers are probably gobbling up gold stocks now that the precious metal is down. But does buying on the cheap present lucrative options for such investors? Several experts weigh in on the topic.
According to CNBC columnist John Waggoner, gold is way cheaper than before and the same is true for the stocks of mining companies engaged in producing it (take Canadian firm Barrick Gold Corp., for example).
From its peak in 2011 of $1770.95, the precious metal has since plummeted to $1157.65 per ounce, data from Austin Rare Coins Inc. showed. As a result, major mines that amped up production during the bull run had either closed down or had cut down costs as most of them were burdened by around $30 billion of debt, according to Mineweb.com.
“It’s worth looking at both—although if you plan to invest in either, you should be aware that there’s plenty of room on the way down as well as up for gold,” Waggoner said in his column.
Waggoner added that while gold is known as a great asset for hedging against inflation, data say otherwise. “From 1980 through the end of October, consumer prices have gained 209%, while gold has risen 129 percent,” he said.
Waggoner explained that during the period between 1980 and July 1999, gold prices had swelled by 50 percent to $255 per ounce as inflation ballooned to 117 percent. Gold further rose to nearly $1,895 per ounce from 1999 to 2011, he noted.
If you’re bullish about investing in gold, however, one way to “safely play it” is by investing in gold commodities fund like the SPDR Gold Trust (SPDR) or in an equity gold fund like the iShares MSCI Gold Miners ETF, according to Waggoner.
Kyle Caldwell, a personal finance reporter at The Daily Telegraph, meanwhile advise investors who don’t want to invest in the above funds to buy physical gold bullions instead through trading platforms such as The Real Asset Company (therealasset.co.uk) or BullionVault (bulllionvault.com). “Bullion can be bought or sold in small units and stored in secure vaults on owners’ behalf,” he said in a column.
Of course, buying gold is not the only way to play in metal investing. If you’re keen on finding other alternatives in the market, then you might want to take a look at investing in base metals.
Base metals have recovered October losses recently, and are expected to soar in prices through 2015 as a developing shortage looms in the industry.
Although the complex has had mixed results last kerb close, a number of industry experts remain bullish on base metals.
Indonesia, the world’s largest exporter of nickel, has recently banned the export of raw nickel, according to several reports. Nickel reached its record high last week on Wednesday a month after Indonesia reiterated the ban, noted The Financial Times.
Adam Low, a research analyst at Canada-based equity research and consulting firm Raymond James, is among experts who are betting on base metals.
“Base metals prices have been quite steady over the last year despite headlines that have generated fear and volatility,” Low noted in an interview with The Gold Report.
“This steady price environment should provide investors with greater comfort about metals prices, which should, in turn, lead to greater confidence in investing in the equities,” he said.
This could work favorably for mining stocks, as well as those already engaged in exploration such as Amur Minerals Corporation (AIM: AMC), Sirius Resources (ASX: SIR), and First Nickel (TSX: FNI).
Low is bullish on zinc and copper, but is neutral on nickel. He believes that zinc would rally soon as supplies drop due to the recent closure of major zinc mines.
At its current prices, gold has a long way to go to reach stability. Earlier this year, Goldman Sachs and J.P. Morgan downgraded their forecasts by 15 percent and 10 percent this year to around $1,260, Mining.com reported.
Morgan Stanley, on the other hand, has a higher forecast—$1,313—although that is still $500 lower than gold’s peak two years ago.
Forecasts are not at all gloomy for gold despite bearish news that it would certainly bottom out this year. Gary Wagner, an analyst at TheGoldForecast, told Kitco News this year that the yellow metal could rebound eventually as bullion prices soar and India lifts its import ban on the metal, Mining.com said.
“Chinese demand for physical gold imports will probably grow strongly this year, and India’s import restrictions on the metal cannot go on forever. But these facts were just as obvious in 2013 and the market still went downhill on gold,” he was quoted as saying by Mining.com.
The Australian revealed gold prices have jumped last week as the dollar softened and tensions in Eastern Europe and the Middle East intensified. Come Monday, however, prices were down again due to a stronger U.S. dollar as well as conflicting monetary policies from the Federal Reserve and banks in Europe and Asia, Investing.com said.
The bottom line is, if you think you got what it takes to invest in gold and you’re pretty liquid, investing in the yellow metal could generate you passive income if the prices shoot up.
Just bear in mind that historical prices of gold showed that it investors got a lot to lose if prices plunge.