SPDR Gold Trust ETF (GLD)
By Michael Cintolo, Chief Analyst, Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 7/17/14 Sign up for Cabot Wealth Advisory—it's free!
It’s now looking more and more like gold prices have bottomed out. But my long-term forecast pertains not to gold itself, but to gold stocks.
SPDR Gold Trust Shares (GLD) basically tracks the price of gold bullion. (Add a zero to its price and you pretty much have the current gold price.) On the three-year chart, the price has generally headed from the top left of the chart to the bottom right—a downtrend—during this time. But notice the action since last June: GLD double bottomed at 115, then etched a higher low at 120 in early June.
That’s a year of bottoming action, and the recent upmove to nearly 130 makes it look like the trend could be turning up.
But I’m more intrigued with the action of gold stocks—specifically, the Market Vectors Gold Miners Fund (GDX)—which have underperformed the yellow metal for what seems like forever. The bear market in GDX was far more dramatic; GDX fell a whopping 70% from its peak in 2011 to its low, compared to “only” 38% for the GLD.
That decline has removed gold stocks from nearly everyone’s radar screen, and the still-huge volatility (GDX is still swinging 3% or more on most days) is keeping them away. But when I step back and look at the chart, I see a major, year-long bottom that could easily lead to many months of upside from here.
Looking at the very, very long-term, I am still leaning toward the opinion that the great gold bull market that peaked in 2011 is likely over—after a decade of rising prices followed by a decisive top, historical studies tell me the top is likely in.
But for the next few months or longer, I wouldn’t be surprised if gold does very well, and if gold stocks did even better, possibly with the GDX rising to the 35-to-45 range (again, over many months) should the advance gather steam. Conversely, if the GDX sinks back below 22, I would have to conclude the bottoming thesis is wrong.
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One of my favorite areas to invest in to protect my profits and reduce my portfolio risk is an ETF that invests in gold. SPDR Gold Shares ETF (GLD) has advanced 150% during the past five years compared to an advance of just 1% for the Standard & Poor's 500 Index. And during the ugly bear market from October 9, 2007, until March 9, 2009, GLD was up 23.9% compared to the -56.8% drubbing that the S&P 500 took.
Gold Shares provide investors with a convenient way to invest in gold. The shares trade on the NYSE and may be bought and sold like any other securities. I believe further political disruptions around the world will push gold prices higher in 2010 and 2011. Also, inflation will likely begin to rise within the next 12 months, which will also push gold prices higher. If the economy falters once again, investors will sell common stocks and invest in gold.
Gold bullion increased from a low of 800 to almost 1,200 per ounce during 2009, but has now declined to 1,107 per ounce. The resulting lower price of GLD shares presents an outstanding investment opportunity. The purchase of GLD will counteract the volatility of common stocks and will guard against a possible fall in bond prices.
Editor's Note: You can read more about conservative investing and get continuing coverage of SPDR Gold Shares ETF and PowerShares Deutsch Bank U.S. Dollar ETF in the Cabot Benjamin Graham Value Letter. Roy's Classic Benjamin Graham Value Model stocks have soared 86.4% during the past 12 months. And his ultra-conservative Wise Owl Model stocks have increased 58.4% during the past 12 months. Now that's impressive! Don't miss out on his next recommendations. Click here to get started.
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Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
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 here to discover the strongest stocks in the market today.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
|SPDR Gold Shares (GLD)
Category: Commodities Precious Metals
Fund Family: SPDR State Street Global Advisors
Net Assets: 33.42B
Fund Inception Date: Nov 18, 2004
Legal Type: Exchange Traded Fund
3/25/10 SPDR Gold Trust ETF (GLD): Lower Gold Prices Present Opportunity
9/17/09 SPDR Gold Trust ETF (GLD): An Option for Buying Gold