Gold Stocks For Long Term Investors

[ad_1]

In this article I will update my forecasts for the major gold stocks. I have a strong preference for gold producers rather than exploration stocks. Thus, when I buy gold stocks I usually focus on large producing gold companies like Newmont (NEM), Barrick (ABX) and Goldcorp (GG). These companies produce millions of ounces per year and have market caps over $ 20 billion. When I want a gold stock with more growth potential and more risk I will at companies that are on the verge of expanding production. These companies might include Yamana (AUY) or IamGold (IAG).

The reason why I don't invest in gold exploration stocks is that it is far too much of a gamble. There are so many things that can go wrong with respect to the property, permits, political situation and poor management that I choose to focus on gold producers exclusively. Most exploration companies actually have no intention of entering into production as their whole business strategy is to be acquired by a large major like Newmont or Barrick.

In the summer of 2011, I moved a lot of my gold ETF positions into the underperforming gold mining shares. After the first week of August, the gold miners began to dramatically outperform the price of gold

For example, Yamana Gold (AUY) has broken out to multiyear highs. The company reported tremendous results in early August with adjusted earnings per share up to 25 cents per share, more than double the year-earlier results. Cash flow from operations jumped to a record 44 cents per share, up 70% year-over-year. Consider that these numbers were with an average realized gold price in the quarter of $ 1,509 an ounce. As of September 1, 2011, gold is now $ 330 higher, at just below $ 1,850 an ounce. Yamana and all my other gold miners will report tremendous third quarter results. I suspect that the results and earnings per share growth will be unprecedented and should finally attract some mainstream media attention.

Now contrast the gold miner's third quarter earnings prospects with companies in other sectors of the market such as the Dow Jones Industrial sector. It is almost laughable to see companies like Walmart and Cisco struggle in a deteriorating economy.

That's why I'm positioned as I am, with large positions in the gold miners and almost nothing in industrials. Soon, earnings momentum investors will be forced to pile into the long-neglected miners. If the global economy continues to slide, the miners will be one of the only games in town. Institutional investors are starting to take notice, per the anecdotal evidence that I've recently accumulated. Brokerage houses have started to upgrade the miners. Everything's coming together for a potentially explosive second half.

I continue to hold two gold ETF's including the Sprott Physical Gold Trust ETF (PHYS) and Market Vectors Gold Miners ETF Trust (GDX). The Sprott gold ETF owns and stores gold at vaults in Canada. The GDX is a basket of large gold producers which means that I have more of AEM, NEM, GG and AUY.

My gold bullion positions have not changed as of October 2008. I am already at a full position in regards to physical gold.

[ad_2]

Source by Mike Clemson