Is There Still Gold in Them Thar’ Hills?

I’ve avoided mentioning gold since it had such a terrific run-up in the past year, but lately it’s been languishing. If you don’t happen to own any gold positions, is now a good time to jump in? Perhaps, considering that black gold, otherwise known as crude oil, is jumping over barrels everyday reaching new highs. There are economic differences between yellow gold and black gold. You want to own the yellow variety as a hedge against inflation, and so far, inflation hasn’t been much of a concern to economists. But if the analysts are correct in predicting that oil could rise to $150/barrel if not $200/barrel, that could have a considerable impact on inflation. And according to yesterday’s minutes from the last FOMC meeting, the Fed signaled that there will be no more rate cuts. If oil prices keep rising, you can bet that inflation is going to rear its ugly head.

If you do agree with Wall Street that oil is heading higher, what gold stocks look attractive right now? Well, this morning I pursued the charts in the gold sector and sad to say that most of them look tired. Many are well off their recent highs with some losing between 50-70% of their peak value. The good news is that the GLD (the gold ETF) looks like it’s putting in a double bottom and if it can break through its $94 resistance level, then it’s likely clear sailing until the next resistance level at $100.

There are a few bright spots among the gold mining slag. One plus about the stocks I’ll be mentioning is that they are cheap price-wise with most of them trading under $10/share. That’s a lot cheaper than the GLD which is currently at aroung $91/share. Here are my picks of the rock pile:

Top Picks
MRB, Metallica Resources: Not only did this stock not suffer along with the rest of the gold group, it’s been on a juggernaut since breaking out of its base in late 2005. Since then it’s risen over 300% and is currently trading at its all-time high of $8.25. The company not only is a gold producer, but is involved in silver and copper production as well, and with the world demand for copper exploding, this stock should do well even if gold demand starts to fade.

EGO, Eldorado Gold: This stock chart parallels that of MRB. It, too, broke out late in 2005 and has since racked up over a 200% gain. It gapped up today breaking short-term resistance to set a new high at $8.14. This company does not mine anything other than gold and its chart closely reflects the movement of the XAU, the gold and silver index.

Other Good Picks
AZC, Augusta Resources: This stock has doubled in price since its November 2006 inception. It broke out of its 2 1/2 month trading range just a few days ago and it, too, is making a new high around $4.70. Not only does the company produce gold, but copper, silver, and molybdenum as well.

GBN, Great Basin Gold: Similar story for this stock. It’s almost doubled in value since late 2005 and is testing its recent high of $3.75. It produces copper as well as gold.

GRS, Gammon Gold: This gold and silver producer lost half of its value from its October peak of $12. Since the February low, it’s managed to recoup most of its loss and is nearing minor resistance at $10.50. If it can break that then chances are good it will at least rise to its previous $12 high.

AAUK, Anglo American: This stock has risen 150% since the fall of 2005 and is nearing its all-time high of $38.75. This company has a smaller exposure to gold than the ones given above and could make an attractive adjunct to other gold stocks by providing a bit of diversification within the industry. The company has diverse mining interests, including platinum, silver, copper, molybdenum, vanadium, coal, diamonds, and iron ore plus other metals used in the production of steel. If you’re looking for a diversified mining play in one package, consider this puppy. It’s also the only one of this bunch that pays a dividend. (Current divident yield is about 2.5%.)

Of the above mentioned stocks, only EGO, GRS, and AAUK are optionable and would be good candidates for a covered call strategy. To answer the title question, “Is there gold in them thar’ hills?” I would say yes, but you gotta pick the right hill. Happy prospecting!

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