This page is temporarily not available. Please check later as it should be available shortly. If you have any questions, please email customer support at firstname.lastname@example.org or call 800-767-3771 ext. 9339.
Gold falling more than $100 on Wednesday brought the precious metals naysayers out of the wood work. To quote a few of the many headlines hitting the wire;
"Gold Rally Undone"
"Gold Loses Shine After Historic Run"
"Gartman Says Gold Bubble Bursting"
But before we get totally carried away on a stream of fear and emotion, let's take a step back and introduce some reason to the conversation.
A 667% Return in 10 Years
On July 4, front-month gold futures (COMEX) closed at $1,498. We saw some pretty sharp movement over the next 6 weeks, with a high-water close of $1,918 on August 23. That equates to a 28% gain while stocks were taking a swan dive on a slew of weak economic data.
While that's great news for the gold bugs, what's even more impressive is the bull run gold has been on over the last ten years, producing a net return of 667% after bottoming out around $255 in 2001.
And what does this week's "historic pullback" to $1775 equate to?
A 7% decline.
A 7% Pullback is not a Reversal
So let me get this straight.
A 7% pullback from an all-time high in the face of a 667% return over the last ten years means the rally is over?
I'm laughing so hard right now I'm having a hard time typing.
There's a few take away's here that everyone should pay close attention to.
People Hate Gold Because They Missed the Rally
The first is that people just love to hate the gold trade. And the simple reason for that is because they have missed the whole thing and it pains them to see prices screaming higher year after year while they sit on the sidelines and complain about the absurdity of bubblenomics.
Keep in mind, these are largely the same investors that have no problem piling into overvalued glamour stocks like Open Table, Salesforce.com and LinkedIn. Ya, those are great companies, but you certainly don't see daily headlines chastising totally unsustainable, nose-bleed valuations in equities.
When the gold bears finally concede and jump in, then we have a top, because the pool of potential investors will finally be exhausted.
Gold is a Dollar Hedge
The second take away, and the most important, is the root cause of the rally, which is sustained weakness in the Dollar.
The US is so deeply in debt that the only way it will ever climb out of the financial abyss is to throw the printing press into hyper drive, or as the fancy ivy-league economists like to say, "monetize."
Gold is a Dollar trade, and unless the US can quickly find an alien society willing to fund its deficit, we'll be forced to print 'til we're green in the face.
So for those who still believe in the gold trade, and go ahead and put me at the top of that list, here is a list of gold stocks and ETF's to take advantage of the "historic" 7% pullback.
Top Gold Stocks and ETF's
New Gold, Inc. ( NGD - Snapshot Report ) has seen big gains in 2011, currently up 26% as gold continues to trade in elevated territory. This Zacks #2 Rank stock has also seen strong estimate revisions, with the next-year estimate up 9% in the last month to 59 cents, a bullish 29% growth projection. With a market cap of $5.74 billion, NGD is a solid mid cap in a space crowded with small and large caps.
Randgold Resources Ltd ( GOLD - Snapshot Report ) has also seen big gains in 2011, currently up 28% after recently spiking into a new 52-week high. Estimates are up for this Zacks #2 Rank stock as well, with the current year up 20% in the last two months while the next-year estimate has added 8.5%, a bullish 30% growth projection.
Junior gold miners are known to be volatile, so if you want diversified exposure to the group, you should definitely check out Market Vectors Junior Gold Miners ( GDXJ - ETF report ) , a basket of 73 junior gold miners. Shares are currently down 14% on the year, so anyone looking to capitalize on the divergence pattern between physical gold and gold miners take note.
And finally, we have Deutsche Bank AG Double Gold ( DGP - ETF report ) , which provides shareholders with twice the daily movement in spot gold prices. With a 49% return in 2011, DGP has strongly outperformed the market and its peers.
The Take Away
In spite of what you read in the headlines and hear from the "experts," gold is still very clearly in rally mode. So instead of panicking and selling into weakness, use the recent dip as a chance to finally get into one of the strongest trends of the last ten years.
**Author owns shares of DGP and GDXJ**
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Momentum Trader Service.
Please login to Zacks.com or register to post a comment.