Investing in Gold

Investing In Gold: How Gold Stocks Could Double – Without a Move in Gold

By Dr. Steve Sjuggerud, President, Investment U
Friday, January 30, 2004: Issue #308

Yesterday I hosted a conference on investing in gold.

Mind you, it was NOT about burying gold in your backyard and waiting for some apocalypse, as many gold bugs have done for a quarter-century now. No, this conference was about sizing up gold as you would any other profitable investment -including where it fits in your portfolio and what the various investment options are. And on that scale, it was a huge success.

I invited the most experienced gold investors on the planet to speak. So, what did they say is the right way to invest in gold now?

Well, it was exciting to hear them explain that there are actually several “right ways.” The important thing for us as investors: If you know what they are, you’re on your way to capitalizing on a gold run-up that could reach historic proportions in the days and months ahead. Let me explain…

First the Gold Stocks, then the Coins

Funds run by U.S. Global’s Frank Holmes, one of the conference speakers, have crushed the competition in the past year. His Natural Resource and Precious Minerals funds have dominated their categories.

While many out there think gold stocks are overvalued, Frank showed that on a price-to-cash flow basis, they’re still cheap. Going back to 1990, whenever gold rose above $400 an ounce, gold stocks traded up to 30 to 40 times cash flow. Now gold is above $400, but gold stocks are still in the teens on a cash flow basis. To get back to where they’ve been in the past, they could double from here!

Frank listed many drivers for the price of gold. One interesting chart was that mine supply is expected to contract in coming years and the contraction will be the largest since the early 1970s. Limited supply and increased demand is a recipe for higher prices.

In the interest of keeping this letter short, I suggest you look over Frank’s presentation. He’s made it available on his web site. The “life cycle of a mining stock” towards the end was particularly compelling. See it at: http://www.usfunds.com/gold/viewhtml.asp

A Hot Tip from a Hot Fund Manager

When pressed for a hot tip, Frank named a few common names, and one uncommon one Northern Orion. If I remember correctly, it is cash flow positive and extremely cheap. It produces copper and gold in Argentina. The symbol is NNO and it trades on Canada’s Toronto Stock Exchange (http://www.tsx.com/). With Frank’s track record, it’s probably worth a look.

How to Pocket Some “Serious Coin” in the Next Six Months

The coin guys I invited are legends in the business, too, and you should do business with them if you’re going to get into gold coins.

Burt Blumert started his company, Camino Coin, in 1959. Michael Checkan of Asset Strategies got in the business a few years later. And David Hall and Van Simmons (www.davidhall.com) revolutionized the industry in 1986, with the creation of PCGS, the grading system for coins. These guys are the best. And I trust them.

Michael Checkan focuses on ways to buy gold directly with very little premium. (He also introduced us to “gold you can fold” – see his web site for details: www.assetstrategies.com.)

Burt Blumert is a legend in the business, and has opened thousands of accounts from readers of my newsletter, True Wealth. I have not yet received a single complaint about Burt. Burt prefers 100-year-old raw gold coins, as they have a relatively low premium over melt value, and they’re not making any more of them (burtblu@hotmail.com).

Van Simmons specializes in rare coins in excellent condition. Extremely nice stuff. Van showed how the really high-end stuff is what soars next in a coin bull market. First people get interested in coins, then they start gravitating to quality.

That’s where we are now. We’re already starting to see the higher-graded coins (MS65+) move more than the nice grades (MS63). For example, the MS65 coin I recommended to my readers has risen from $975, when I recommended it last July, to roughly $1,500 now That’s a quick 53.8% jump in about six months, but still well below its $4,000-plus peak in the late 1980s. I’d recommend doing business with Van in this area. (info@davidhall.com)

Coin legend David Hall then spoke on behalf of PCGS. The crowd loved him. David actually brought us “behind the scenes” to see the coin grading and sealing process. Dealers aren’t allowed but we were. To learn more about gold coins, visit David’s sites at www.pcgs.com and www.davidhall.com.

Good investing,

Steve

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