This Stock Lets Investors
Ride the Bull Market in Gold
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By: Timothy Lutts
Editor
Cabot Wealth Advisory
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Published:
September 19, 2007
I have no love for gold as an
investment. I've long believed that
the best investments are ones that
benefit from the efforts of men and
women to transform low-value items
into high-value items
Traditionally, an automaker turns
steel, rubber, and glass into a
beautiful automobile, a chipmaker
turns silicon into a speedy
computing device, or a software
company creates a program that
allows us to achieve in seconds a
result that would previously have
taken hours.
Gold is different. While much of it
is used in industry (semiconductors
or jewelry), a lot of it just sits
in vaults, its value determined not
by utility but by exterior economic
circumstances.
Those, of course, include interest
rates, currency exchange rates,
trade deficits, fear and greed, and
the prospects of war, famine, and
pestilence. Fundamentally, I have no
clue about how to predict the future
value of gold prices.
Still, there's always value in
examining charts, and if you examine
a long-term chart of the price of
gold, you'll see that the price of
gold (and silver, too) peaked in
1980. (Remember when interest rates
were sky-high?) And then gold went
into a long decline that lasted...
21 years! The bottom finally came in
April 2001.
Since then, the price of gold has
nearly tripled, going from approximately $250 an
ounce to $730 an ounce. It first hit
$700 in March of this year, and then
entered into a normal consolidation
phase that lasted six months. But in
the past few weeks, it has broken out
to new highs. Technically, this is a great
positive sign; it suggests that more
upside is ahead.
So how can you benefit from this
trend? I think the best course is to
invest in the companies that are
mining the gold. Here's one of my
favorites:
Agnico-Eagle Mines (NYSE: AEM,
$49.98) operates Canada's
largest gold mine, the LaRonde. In
18 years of production, known
reserves at the mine have grown or
been maintained every year. AEM's
other two properties, Lapa and
Goldex, are expected to begin
producing in 2008. Beyond that,
there are many other properties in
Canada that are being explored and
developed. The Meadowbank project in
the Nunavut Territory in northern
Canada, for example, is advancing
towards initial gold production in
2010. In Finland, construction of
the Kittila gold mine commenced in
the summer of 2006, and initial
production is expected in the third
quarter of 2008. And in Mexico,
there are advanced exploration
projects.
But why is the stock strong now?
Mainly because turmoil in the
housing/mortgage/credit markets has
weakened the dollar and in turn,
made gold more attractive. How long
this trend will last, no one knows,
but we never argue with trends. Also
attractive is the growing number of
mutual funds (145) on board. In the
latest quarter, earnings were down
because of an acquisition, but the
long-term is bright; in fact,
analysts' estimates have recently
been raised for both 2007 and 2008.
You see, with this stock, you not
only benefit from the increase in
value of the gold the company holds,
you also benefit from the company’s
growth. Plus, the company has grown
revenues every year for the past
decade, and I see no reason why it
can't continue that trend.
Timothy W. Lutts
Editor
Cabot Wealth Advisory
About Timothy Lutts
[includes/bios/lutts.htm]
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