Gold Sparkles During Financial Crisis - Barron's

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Rachael Granby

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As financial markets take some of their worst hits in decades, gold continues to shine. Up 3% from last year vs. losses for almost all other assets, Barron's sees an investment opportunity in this precious metal.

Though down markedly in the past week, to $785.10, gold has shown real strength during the financial crisis as investors search for safety. In March, during Bear Stern's collapse, gold hit $1,000/ounce, and some bulls expect gold to bounce back beyond $1,000 to as high as $2,500/ounce.

John Hathaway, of Tocqueville Asset Management, believes the recent financial turmoil has "set the stage for a dynamic advance" in gold's price. Several technical indicators are sending bullish signs on gold as well, including the key measure of the Dow Jones Industrial Average divided by the price of gold.

Investors interested in gold have several options, including buying mining stocks or mutual funds that hold mining stocks. While mining stocks should benefit from high gold prices and lower energy costs, their shares are under pressure as hedge funds sell off assets to raise cash. One alternative is to buy the metal itself. Investors can buy coins from various governments, buy shares in a gold-backed ETF (GLD), or buy gold directly from the website Goldmoney.com. Gold purchased from the website is stored in insured vaults and audited annually.

• James Turk, founder of Goldmoney.com, sees gold at $1,100-$1,200/ounce by the end of the year, explaining that "with markets melting down, uncertainty about the safety of assets and growing concern about counterparty risk, people look to assets with safe-haven status." He thinks gold could reach as high as $7,000/ounce.
• Charles Oliver, the Sprott Gold and Precious Minerals Fund, sets a lower target for gold but still expects it to nearly triple within four years to around $2,000/ounce. He's partial to Goldcorp (GG) with its low-cost mines, and Iamgold (IAG) which is trading at a discount to the sum of its parts. For higher-risk investors, Oliver suggests Kinross (KGC) which is trading at a discount to its net asset value.
• Steve Lehman, of the $1.8B Federated Market Opportunity Fund, says "gold stocks would still be fairly valued" even if gold prices halved, and Yamana (AUY), Barrick (ABX) and Newmont Mining (NEM) are among the fund's largest holdings.