Investing In Gold, Part Two

Investing in Gold, Part Two: A “Once in a Generation” Opportunity

By Dr. Steve Sjuggerud, President, Investment U
Tuesday, February 11, 2003: Issue #212

“What we are seeing is a change in the landscape that happens once in a generation. These moves usually go on for a long time. Right now, no major country wants a strong currency because they need to increase exports to get their economies going. That is great for gold.” -Pamela Aden interview on Forbes.com

My, what a trip it’s been. Less than three months ago, I recommended Freeport’s gold preferred C shares to you in our first lesson on gold investing (IU e-Letter #189, “Gold: Should You Even Care?” ). If you’d followed my advice back then, you’d be up nearly 50% in those shares today, as gold has risen nearly $100 in the last year to $370 an ounce.

Our first lesson discussed the reasons why gold could rise. And if we are truly facing a “once in a generation” opportunity, now is the time to make sure you have at least 5% of your assets in precious metals. So let’s get to some specific ways you could play it – including what to buy and what to avoid – from some of the best in the business

The Aden Sisters: Gold Forecasts That Are Right On The Money

Mary Anne and Pamela Aden manage money and have been writing The Aden Forecast newsletter on money, metals (gold), and markets for over 20 years. I’ve known them for years now. We get together a couple of times a year (I believe the last time I saw them was in Costa Rica, where they’ve been based for nearly 30 years.) They are good people diligent, humble analysts who do their own homework and they’re not full of hype (as I often find in this business). So when you read Pamela talking about “once in a generation” moves, it’s time to pay attention.

While gold has been nobody’s focus in the last decade, the Aden sisters have always kept an eye on it. In the early 1980s, their published analysis suggested that gold could rise to $850 an ounce and then drop to the low $300s. They gained notoriety, as they were exactly right.

They’re still doing things right. In 2002, their newsletter’s recommended portfolio was up 23% for the year, according to the Hulbert Financial Digest (who analyzes these things). In the Forbes interview, Pam said, “If gold breaks [$415 an ounce], we’ll go into a stronger phase and $500 would be our target.”

Let’s see what they’re buying today with a few excerpts from the Forbes article

The Best Gold Shares To Buy And The Ones You Must Avoid

When asked about the best ways to invest in gold, Pam responded:

“There are two ways If you want to buy gold [directly], I recommend buying gold coins from reputable dealers such as Jefferson Coin in New Orleans or Camino Coin in Burlingame, California. But you have to take delivery and that isn’t always easy. So that’s where gold shares or a gold index becomes the next best thing.

“If you look at prior bull markets you’ll see that shares of gold mining companies outperform at first, then gold itself outperforms, and then gold shares begin to perform even more. That is the cycle; although in the past, gold has outperformed gold shares. In 1980, gold prices peaked in January, then gold shares peaked eight months later. If you just bought shares when gold peaked you would have done extremely well. So gold shares will be a good investment.”

Forbes then asked which stocks to buy, and which to avoid…

“Right now we are buying Newmont Mining (NEM). Newmont is a large, senior mine. As more people and corporations invest in gold, Newmont will be attractive because it is big and solid. Another is Anglogold (AU). This is a solid South African gold mine, and its shares have done very well lately. Another top pick is ASA, a closed-end investment company. It is a composite of South African gold shares, and it has appreciated nicely as well. Buy these stocks and hold them. Don’t trade them for a year.”

For ones to avoid…

“Don’t buy… Barrick Gold (ABX). [It has] less upside potential [and] sold production ahead at a price that seemed good, for fear it would go lower. When the market turned up, [they] were caught with a large hedge position, which now works against [them] since the prices locked in are lower than prices they could get today.”

You can always count on the Adens for thoughtful, thorough analysis. While anything can happen in the short term, the Adens think we’re looking at a “once in a generation” opportunity in gold. They may well be right.

Good investing,

Steve

Today’s IU Crib Sheet

If you have no exposure to gold or precious metals, it is absolutely essential that you change that immediately. The most conservative advisors usually recommend at least 5% of your portfolio in precious metals. 10%, or even more, is perfectly acceptable. Do it! And for more on WHY you should do it, be sure to revisit IU E-Letter #189, “Gold: Should You Even Care?”
For more on the Aden sisters, visit www.AdenForecast.com. Poke around a bit: There’s plenty of free information on their site including their track record and a very informative F.A.Q. page. You can also check out a back issue. I think you’ll find that $149 a year is a good value for what they do.
We are now less than one month away from our 5th Annual Investment U. I’ve mentioned this before, but I think Investment U is a truly unique learning opportunity and I urge you to reserve your space today. This year’s Investment U – as it’s our 5th Anniversary – will be a very special event. Beginning March 5 – in beautiful Delray Beach, Florida – you’ll spend four days learning first-hand from the Investment U faculty. You’ll walk away much better prepared to invest wisely and you’ll get a chance to enjoy some beautiful Florida weather as well. For more information, please call Michael Whetstine at 800.926.6575 or simply click here . And be sure to mention that you’re a reader of the Investment U E-Letter!

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