How to spread your bets on gold
Fund investors seeking exposure to gold should consider holding a mix of bullion -- via an ETF -- and mutual funds that invest in gold miners.
By TheStreet Staff on Mon, Oct 3, 2011 2:56 PM
By Stan Luxenberg, TheStreet
Gold has been whipsawing investors lately, and shareholders of precious metals funds have special reasons to feel disappointed.
So far this year, gold prices have climbed 14% to $1,662, while precious metals funds have dropped 15.7%, according to Morningstar.
The performance is unusual because most often the funds rise along with bullion prices. Fund portfolio managers offer several theories about what has caused the poor returns.
The funds invest in stocks of mining companies. Those have faced rising costs for fuel and steel. In addition, some companies have struggled to find new reserves.
But the biggest cause of the weak showing could simply be that investors expect gold prices to sink in the next couple of years. If that happens, miners' profits could drop sharply.
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During the past decade, gold prices have climbed about 18% annually. Leverage has boosted precious metals funds, which have returned 23.5% annually and ranked as the top-performing category tracked by Morningstar.
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To spread your bets, consider buying a mix of bullion and precious metals funds. To hold bullion, buy an ETF that owns gold, such as SPDR Gold Shares (GLD).
To own mining stocks, try a fund with a relatively steady long-term record. A top choice is Van Eck International Investors Gold (INIVX), which returned 17.1% annually during the past five years, outdoing 98% of peers.
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Bullish on the industry, Foster currently has 30% of assets in small companies, a big position for the fund.
"The stock valuations are low, and the companies are generating tremendous earnings because gold prices are high," he says.
A favorite small-cap holding is Guyana Goldfields (GUY:Toronto), which is developing a mine in Guyana. Foster, who is a geologist, says that the ore is high-quality, and the company is proceeding smoothly to build roads and other infrastructure that will enable production to begin soon. A large-cap company that he likes is Goldcorp (GG). The company is reporting earnings growth, with operations in Canada, Mexico and Chile.
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Full story: http://money.msn.com/top-stocks/post.aspx?post=ee0863a4-1eaa-487d-a2df-eb6dd653711d
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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