Gold starts the second week of trading in 2010 on a powerful upward rally. The yellow metal crossed $1,150 per ounce for the first time since early December, as the Fed doesn’t appear to be moving toward a rate hike any time soon.
Low interest rates mean investors want to hold anything but cash, and, with an inflationary threat looming over much of the world, gold will likely stay a hot commodity.
“The fact that the dollar has weakened has obviously helped to sustain its rally. We are going to be looking towards the $1,200 level again,” Darren Heathcote, of Investec Australia in Sydney told Reuters late last night.
High gold and silver prices mean even higher returns for gold and silver mining companies, and we’re likely to see some powerful movements in some miners this week. Indeed, they were active in Australian trading early Monday.
As the NYSE warms up Monday morning, look for the following stocks in particular to break out:
Harmony Gold Mining Co. (NYSE:HMY). Harmony is currently the third-largest gold producer in Africa, and their stock has gotten crushed in recent months. On Thursday of last week, that prompted UBS AG to upgrade the stock to “neutral” from “sell.”
IAMGOLD Corp. (NYSE:IAG). IAMGOLD was one of the few gold and silver mining stocks last week to show higher-than-volume on Friday. The stock was up nearly 6.5 percent in the wake of the news that the company’s current CEO, Joseph Conway, would step down on Jan. 15, 2010.
DRDGOLD Ltd. (NASDAQ:DROOY). DRDGOLD showed strength on Friday rising 1.85 percent, one a day when most gold and silver stocks didn’t move much more than 1 percent in either direction.
Nevsun Resources (AMEX:NSU).At least one writer predicts Nevsun Resources will soon be over $6 after breaking out of an inverted head-and-shoulders pattern in 2009. Time will tell, but if there is a sustained uptrend in gold prices, the smallest gold and silver mining stocks will likely perform the best.
“Gold has once again proven the perma bears wrong and continues to march to a different drummer,” metals writer at Agoracom.com, Peter Grandich, told Marketwatch. “For almost a decade now, strong physical buying enters on a meaningful pullback and this time is no different.”
Gold and silver have some magical properties that make them akin to roulette or blackjack. They get on hot and cold streaks that seem to contain some mystical portent. When the bulls are around, it’s hard to find a bear. Likewise, when the gold bears come out, they decimate the bulls. If your timing’s off, you stand to get burned. If it’s on, you stand to make a lot of money.
That brings us to the recent lows in precious metals prices. In the face of a rising dollar on speculation that the economy was doing better than analysts had imagined, gold and silver prices got crushed. That had people like Nouriel Roubini claiming people who invest in gold “delude themselves.”
Recently, though, Roubini’s had to watch gold and silver prices slowly inch back up. And, as they do, we’re likely to see more buyers step out of the woodwork. See, there really is some logic behind buying gold and silver. You’ve just got to dig for it, and find a way to separate the gold mines from the money pits.
If the government cranks up the money machine, and the bulls come out in force, almost every gold and silver stock on the exchange will benefit. Some, though, more than others. And here’s my case for Silver Wheaton Corp (NYSE:SLW):
1) They’re one of the biggest players in the silver market, and we’re likely to see silver prices keep climbing. Currently trading at a 65:1 ratio to gold, we could see silver at $30 per ounce or higher if gold hits $2,000. Better yet, though, we’ll see the gold-silver ratio shrink, and silver will go even higher. That would nearly double Silver Wheaton’s profits.
2) Silver Wheaton is projecting that they’ll produce about 40 million ounces of silver in 2010. That’s almost quadruple last year’s output of 11 million ounces. That’s money in the bank.
3) Last July, Reuters reported that Silver Wheaton was tossing about the idea of paying dividends in one to two years. “Let’s see where we go on (another acquisition) over the next 6 to 12 months before we start deciding on dividends,” CEO Peter Barnes said. “Frankly, I think there’s a good prospect that we may make a decision to start paying a dividend over the next year or two.”
4) The acquisition of Silverstone Resources boosts provable reserves. Better yet, Silver Wheaton got a steal when they agreed to help Barrick Gold (NYSE:ABX) finance development of their Pascua Lama mine. In return for their $625 million loan, Silver Wheaton will be entitled to all of Barrick’s silver output from their three operating gold mines through 2011 as well as 25 percent of the silver mined at Pascua Lama for the next 25 years.
5) The bank, auto, housing and employment bailouts all cost money. Don’t kid yourself if you think otherwise. The government’s got to pay for it, whether that means raising taxes and slowing the recovery or printing money like Monopoly bills, they’ll find a way. Most likely it’ll be a combination of both, and a slower recovery likely means a weaker dollar (relative to economies that might improve faster). In any event, we all know what a weak dollar means.
OK. Trading stock in Crystallex International Corp. (AMEX:KRY) is a bit like playing the lottery. But the sometimes harrowing swings in price might make it fun for traders with a little extra cash. On Dec. 22, 2009, the stock closed at 20 cents per share. A day later, it closed at 40 cents.
That’s a gain of 100 percent. Most mutual funds can’t make 100 percent in 5 years – not to mention over the course of an evening! It’s part of the fun, and part of the belly-ache of trading in penny stocks.
While most penny stocks are trapped in low-volume trading vortexes where you’re lucky to see 5,000 shares change hands in a single day, Crystallex averages 2.8 million trades every day. That’s three times the trading volume of world class stocks like Royal Bank of Canada (NYSE:RY), which averages volume of 911,000.
Before you run out an invest in Crystallex, though, remember trading in penny stocks comes with grave risks. Crystallex, for one, lost $6 million last quarter. They’re fighting the Venezuelan government for the Las Cristinas property (which the government there had promised them), and it doesn’t look like they stand much of a chance. That means bankruptcy is a real possibility – one that could vaporize the stock overnight.
It’s a day-trading investor’s dream come true, and a value investor’s nightmare. Two ways of looking at the same glass of water. It just goes to show that the way you approach your investments is just as important as the vehicles you invest in. Do you research, and have realistic expectations, and you just might stand to make lots of money overnight. You also stand to loss it (an ability which I seem to have in spades).
It’s been a pretty crazy year for gold and silver. If you take last night’s after-hours gold spot price of $1,222 per ounce (record levels, by the way), the yellow metal’s up nearly 40 percent on the year. If you take silver’s after-hours spot price of $19.30+ per ounce, silver’s up nearly 75 percent on the year.
It’s a sure sign that inflation could be just around the bend. Sometimes, though, visual evidence speaks louder than words. Check out these charts I put together detailing gold and silver’s prices throughout 2009. If aren’t running Flash and Javascript in your browser, I’ve included a JPG below.
* How to Buy Bulk Gold Coins. One of the best ways to capitalize on rising gold prices is to invest in government-issued coins. They’re difficult to fake, offer an assurance of purity, and are easily resold. Buying gold coins in bulk typically costs less per ounce, providing an opportunity to break the coins into smaller lots and sell them for a profit. Read more.
* Top 10: Best Books on Gold Investing. These authors work hard to write about gold dispassionately and impartially – something that’s exceedingly rare in the precious minerals industry. Read more.
* Silver surges 44 percent on year Thanks to its scarcity, silver is particularly popular during periods of economic turmoil. It is, however, far more volatile than gold, and that makes it a popular asset for speculators. Read more.
* What the 1970s Can Teach us about Gold The 1970s proved to be the biggest gold boom in world history with the yellow metal rising from $35 in 1970 to $870 by the end of the decade – a gain of some 2,000 percent. The stock market, however, fared much worse, with the Dow Jones Industrial Average gaining just 3.7 percent for the entire decade. Read more.
* Top 10 Ways to Hedge Against Inflation. The last asset you want to hold during an inflationary period is cash. While you won’t lose any zeros in your savings account, your buying power will slowly get eroded. Here’s our list of the top 10 best hedges against inflation. Read more.
