Gold prices hit their death cross last week, technically a bearish indicator, but what does that really mean for investing in gold stocks?
According to Goldman Sachs Group Inc. (NYSE: GS) it means gold is headed down for the remainder of the year. In a Feb. 25 note to clients, Goldman lowered its three-month gold-price forecast to $1,615 an ounce from $1,825, its six-month forecast to $1,600 an ounce from $1,805 and its 12-month forecast to $1,550 an ounce from $1,800.
But, once again, Goldman is wrong.
“The fact is, despite this pullback, gold prices are consolidating at a relatively high level, which is rather bullish. As well, gold’s price is forming a technical pattern known as a “symmetrical triangle,’ which also provides a bullish setup,” said Money Morning Global Resources Specialist Peter Krauth when the sell-off began earlier this month.
“The last time we had this was in 2008 to 2009,” explained Krauth. “After that consolidation, gold began a multi-year climb that nearly doubled its price. I think we are in the first innings of another such cycle that could take the price much higher, and almost certainly to new all-time highs.”
As for investing in gold stocks, Krauth said now’s a good time to stock up on the yellow metal.
“I believe the best strategy, as gold remains in a secular bull, is to accumulate on dips,” said Krauth. “So this very recent weakness has created a great opportunity for true contrarian investors to do just that and add to their gold positions.”
Why Gold Prices Are Ready to Move
Krauth thinks gold prices could move up more than 30% in 2013 from current prices, and has a price target of $2,200 an ounce.
A main reason for this target is the explosion of stimulative monetary policies, which has led to rapid growth in fiat money and helped increase the demand for gold.
Not only are consumers and small investors looking at gold as a hedge against inflation and a way to store value, but central banks are also buying gold at a feverish pace.
In 2012 the world’s central banks added the most gold to their reserves since 1964. Net official gold purchases totaled 536 metric tons, a gain of 17.4% from the previous year according to a report from Thomson Reuters GFMS. Central banks are forecast by GFMS to purchase 280 metric tons in the first half of 2013 alone.
And the intensifying currency wars are debasing global currencies, yet another bullish sign for gold prices.
How to Invest in Gold Stocks
One way to profit from gold’s rise is by investing in physical gold. But another sometimes more lucrative way to profit from rising gold prices is to invest in gold stocks.
From gold miners to royalty companies and ETFs there are many different ways to invest in gold stocks.
“The first thing a potential investor would need to do is to decide what portion of their portfolio they would want to commit to the sector,” said Krauth. “Then they would need to decide the kind of risk tolerance they have within the sector.”
Krauth explains how to do that and which gold stocks are best for each risk level in the following video and explains the relationship between gold prices and gold stocks price movements.
He also shares what he thinks is one of the single best gold stocks to buy right now.
Krauth said this company is perfect in a secular gold bull market, which we’ve been in since around 2001, because as gold prices rise this company’s worth and payout increases. It also comes with lower risk than other gold stocks and is currently underpriced.
For more on investing in gold stocks in 2013, check out this analysis: 2013 Gold Price Forecast: Expect Gold to Deliver Another Record-Setting Year
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