SPDR Gold Trust Fund (GLD)
By
Michael Cintolo , Vice President of Investments and Editor of
Cabot Market Letter and
Cabot Top Ten Report From Cabot Wealth Advisory, 9/17/09
Sign up for free Cabot Wealth Advisory e-newsletter Gold and gold stocks broke out in a very powerful way two weeks ago, and their action since then tells me the breakout will stick, and much higher prices are likely. While everyone focuses on the $1,000 per ounce gold level, I think the breakout has already occurred.
Just to give you an idea of how powerful the breakout has been, the smallest volume that the
Market Vectors Gold Miners Fund (GDX) traded in the first 10 trading days from its breakout was 68% above average. Volume on the breakout day was 221% above average, and the follow-through the next day was an amazing 298% greater than the norm. That's some real buying!
Interestingly, gold bullion had a similarly long base from May 2006 through August 2007. When the breakout came, it resulted in a 51% move into March 2009.
Given the long base and the big breakout, I think you can buy some gold. But how should you play it? There are three options.
One is to buy gold itself via the
SPDR Gold Trust Fund (GLD). It will move with the price of gold each day. Chances are GLD will be a slower mover, especially if the overall stock market remains in a bullish mode. But it will also be safer and easier to hold, with less pronounced pullbacks.
If you want to own a faster-moving position in gold bullion, consider the
PowerShares Double Gold Fund (DGP). Like many leveraged ETFs, it's not a great long-term (multi-year) investment, but if gold bullion is going to run, DGP will move twice as quickly on the upside.
The second option is to buy the aforementioned Market Vectors Gold Miners Fund (GDX), which owns a bunch of gold mining companies. If gold is going to rise, gold stocks should outperform the metal, and thus far, they have. However, be prepared for volatility.
Third, you can buy an individual stock, thinking that you can own the leader.
Agnico-Eagle Mines (AEM),
Goldcorp (GG),
Iamgold (IAG) and
Gold Fields (GFI) are four to consider. This path is riskier, as you'll be exposed to potential company-specific problems, but it also has benefits.
Whatever way you choose, I think getting some exposure to gold—hopefully on pullbacks—could produce some good-sized profits in the months ahead.
Editor's Note: Michael Cintolo is the editor of Cabot Top Ten Report, which discovers the 10 strongest stocks in the market each week. The Report routinely beats the market by finding strong leaders like these past picks: In 2005, Hansen Natural gained a whopping 570%. In 2006, NutriSystem was up an amazing 480% in 11 months. In 2007, DryShips was up 510% in 10 months. Even during 2008's bear market, Cabot Top Ten Report found winners in stocks like Cleveland-Cliffs, which doubled in four months, Continental Resources, which rose 160% from its recommendation to its peak, and Walter Industries, which rocketed from 42 in January to 112 in early July. Click the link below to discover the strongest stocks in the market today.
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