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Energy stocks, which were beaten down somewhat longer and further, are now following a similar path, lifting off the launch pad and also heading for a challenge of their highs. Examples abound. Just looking through the portfolios of our investment publications Larrys Real Wealth Report, my own Safe Money Report, and our options services that focus on gold or energy I find recommendation after recommendation that has suddenly perked up and moved sharply higher.
Case in point: The streetTRACKS Gold Trust (GLD), the exchange-traded fund on the New York Stock Exchange that tracks gold bullion, has become a staple for Safe Money and Real Wealth. Reason: Its a great replacement or enhancement for the more cumbersome bullion bars or coins. Unlike gold mining shares, it directly reflects gold prices. And like virtually any NYSE stock, you can buy and sell it readily. Its designed to trade at 1/10th the price of gold bullion. So while bullion is now within close striking distance of $500 per ounce, GLD is closing in on $50 per share. How soon will gold cross the psychologically critical $500 barrier? On the December futures in Chicago yesterday afternoon, gold bullion closed at $492.90, just $7.10 short. So unless theres a temporary pause or correction right here, which is always possible, it could happen within days or even hours. When it does, expect a new rush of buying from investors, driving gold and other metals sharply higher. While gold has blasted through its October highs, gold mining shares are just now starting to catch up. Royal Gold (RGLD), for example, which we have in the Safe Money portfolio, took a relatively big hit in early October, but has recovered most of that loss in just the last few days. For investors who want protection against inflation plus a chance for more leverage than gold bullion alone can provide, this is a good place to start. Reason: It owns a wide range of gold mining companies and, due to the diversification it provides, can often act as a good substitute for a gold mutual fund. With bullion already well above its recent highs, it seems to us theres a very good chance Royal Gold will soon do the same, putting it at close to $30 per share. Agnico Eagle (AEM) has already surged past its recent highs, heading for two other nearby landmarks a closing high of $15.55 per share which it reached on March 16 … and then $16.52 which it hit in November of last year. With gold bullion going through the roof, these seem to be within easy reach; and when they are surpassed, Agnico Eagle could go on to much higher levels. This mining company, with properties in Canada, the U.S. and Mexico, has proven reserves of 5.1 million ounces of gold, not to mention silver, zinc and copper all metals that are flying high right now. Meanwhile, mutual funds that Larry has recommended, such as Scudder Gold & Precious Metals Fund (SGLDX) and The Tocqueville Gold Fund (TGLDX), have also jumped nicely in recent days, giving shareholders some impressive open gains.
This is true for major and minor oil companies, oil service and exploration companies, coal mining firms, and others. Weatherford International (WFT), for example, has already recouped over half its recent loss and could soon make new, all-time highs. Weatherford is the fourth largest oil services company, surpassed in size only by Schlumberger, Baker Hughes and Halliburton. The company operates in 100 countries across the globe and is a great way to play the next move in energy. Enerplus (ERF), Oil Service HOLDRS (OIH) and the Energy Select SPDR (XLE) are following a similar pattern. While gold and energy stocks are well followed, some other natural resource companies, with equally good or better potential have been off the radar screen of most investors. This is especially true of smaller, foreign companies which well tell you about in just a moment. But its also true for some big names that have been languishing.
Alcoa is the worlds largest aluminum producer, controlling 13% of the worlds smelting capacity and 24% of the bauxite reserves, the key ingredient for the production of aluminum. Right now, theres still a big discrepancy between aluminum prices and this stock, implying much more potential appreciation before the stock catches up.
Three Kinds of Diversification Everyone talks about diversification among different industries. But thats just not enough. There are also two other forms of diversification that most investors overlook. First, as youve just seen, its important to diversify beyond traditional stocks and add other asset classes to your portfolio not only fixed-income investments, but also natural resources. This is especially true today with most stocks still vulnerable but with natural resource prices going through the roof. That doesnt mean you have to invest in physical commodities or futures. You can accomplish essentially the same diversification by buying the exchange-traded funds, stocks or mutual funds that reflect those markets directly or indirectly. Second, its a good idea to buy stocks showing a diversity of price patterns some that are already at new highs (like GLD), some that are recovering nicely from a correction (like Royal Gold and Weatherford), and some that have been beaten down in recent months (like Alcoa). Third, for money you can afford to invest more aggressively, it makes sense to diversify beyond just the big names that Wall Street is following. Thats why Sean Brodrick is up in Canada right now, visiting some of the smaller companies hes most excited about. Ive asked him to report to us daily, and so early this morning, he just sent me this e-mail.
Dear Martin, Larry, and Money and Markets readers, Do I like Vancouver! I had a steak last night that was the size of half a cow and red enough to moo. The coffee is excellent. And its more a necessity than a luxury in November weather shrouds the city in a charcoal-gray fog the kind of fog that sticks its fingers down your collar and creeps down your spine. But that cold cant dampen the excitement I feel here, a buzz that seems to have faded from Wall Street. Wall Street is getting too cautious in a depressing, bean-counter kind of way. In Vancouver, they know there are still giant deposits of gold, silver, copper, nickel and more, just waiting to be found. So optimism and excitement bubble through this city. Today was gold and silver day for me. Along with the silver mining company I interviewed in the morning, I interviewed a genuine gold prospector today (Mr. S). Stubborn and tough as a mule, he nonetheless exudes the optimism of his breed. Pessimists arent miners, he told me. His company is taking the approach of buying up old mines that were worked out of visible gold in the old days before modern mining techniques. One of the companys properties, in Mexico, was worked as long ago as the days of the Conquistadores. Is there gold there now, invisible to the naked eye? Mr. S. sure thinks so. And this got me to thinking about British Columbias gold rush. It was sandwiched between the California Gold Rush of 49 and the Klondike Gold Rush of 89. Some people were involved in all three. Its a wild story. It involves all the elements of a terrific action-adventure novel. Greed bloodshed lust Native Americans Chinese prospectors. The Native Americans knew about the gold long before the White Man, of course. Heck, it was scattered around for the taking, and when it was buried, they could dig it out with iron spoons. But then some white men found gold on a sandbank in the Fraser River in the 1850s, and the race for gold in British Columbia began in earnest. The Hudson Bay company first found the gold and succeeded at keeping it quiet for a while. Then Hudson Bay sent 800 ounces to San Francisco to be assayed. Whoops! San Francisco, in that day, along with being a den of villainy, drunkenness and riff-raff, was filled with idle miners who had either blown their fortunes from the 49 gold rush or never found one. At news of the yellow metal, 25,000 men set out from San Francisco for the wilds of British Columbia. Even before they got there, trouble broke out. The story goes that Indians came into a gold camp under a flag of truce and then slaughtered the unsuspecting miners while their backs were turned. Modern-day historians doubt it was that cut-and-dried. But true or not, one thing the story provided was an excuse to kill the Native Americans who lived on ground the miners wanted to mine. Greed, blood and gold have intertwined throughout history; British Columbia would prove to be no different.
Big Winners and On the miners came. More gold was found at a place called Cariboo — even richer than the first strike at Fraser. Thousands of men lined the rivers, panning for gold, and digging up every hopeful inch with wild abandon. Fortunes were made and usually lost. Sometimes they were lost with real style. Big winners who became losers include Billy Barker, Michael Costin Brown and John “Cariboo” Cameron.
John Cameron then married a beautiful woman, Margaret Sophia Groves, and she had a baby daughter just in time to take her to Cariboo, where Cameron wanted to try his luck. The baby died on the trip. Meanwhile, Cameron bought $2,000 worth of candles and sold them for $10,000 in the mine fields. That was a surer profit than he could have probably made with gold itself, and a reminder that you can do just as well in pick-and-shovel makers than gold miners, (something Ill be sure to include in my Red-Hot Canadian Small-Caps). A bitterly cold winter set in. Sophia had another baby stillborn and then Sophia died as well. Cameron became obsessed with the mine, working at it night and day. And sure enough, he struck paydirt. Cameron was rich, but he was also heartbroken. He wanted to take his wife home for burial, so he hired miners to work three shifts, 24/7 to get the gold out soon as possible. Then he took her home, pickled, in a tin coffin. The story doesnt end there. Cameron invested his money in everything from steamships to timber, and lost it all. He married a new wife, came back to the gold fields, and met with no success at all. He died flat-broke. Enter China Other people were having luck in the gold fields, including the Chinese prospectors. Yes, even back in the 1850s, the Chinese were hot on the trail of Canadian resources. By 1863, there were some 4,000 in the Cariboo region. They were only allowed to work areas abandoned by the white miners. But surprising their detractors, Chinese miners were both more disciplined and persistent. They invented the panning machines used to separate gold from mud. And they had some big strikes, even in the abandoned mines. It turns out that the good ol boys just werent looking hard enough. Back to The Present This brings me back to the prospector that I just interviewed. He says thats exactly what his company is doing — looking for gold where others stopped looking. And I think hes going to be hugely successful, much like some of the toughest, most persistent Chinese prospectors did back in the 1850s. But there are several key lessons to learn from the past: Lesson #1. Greed may lead you to riches. But keeping them is another matter entirely. For that you need prudent management and financial planning. Lesson #2. A disciplined, scientific approach to investing, carefully removing the wheat from the chaff, is equally important. Lesson #3. You dont always have to invest in the companies that extract the gold, the oil or other natural resources from the ground. You can do equally well with those that service the industry. Lesson #4. Booms can end busts, and the boom I told you about did just that. British Columbia sank into an economic depression once the gold ran out. But I think British Columbias current boom has a long way to go. Demand from India and China is still ramping up. Have you seen the price of gold? Have you seen the price of silver? They are rockets on the launch pad. In the meantime, I just spent the day with …
I cant wait until tomorrows interviews. I fly back Thursday just in time for Thanksgiving dinner. Then, while my family is finishing up the turkey, Ill be picking out THE most exciting opportunities from my research, wrap up my reports, and send them out to subscribers to my Red-Hot Canadian Small-Caps first thing Monday morning, assuming market conditions are OK. So readers who are interested need to be on board by Sunday night. Otherwise, they may miss out. (Click here for details.) See you then! Sean About MONEY AND MARKETS MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved. |
Just in the last few days, gold stocks, which had suffered a modest correction, have taken off and are now flying high, making a beeline for their recent highs.
Energy Stocks Are a Step
Alcoa Aluminum (AA), for example, was beaten down substantially in recent months, but with aluminum prices surging rapidly, the stock has now begun a potentially dramatic comeback.
Greed, Blood and Gold
Cariboo Cameron gets my vote for the most amazing mix of good and bad luck. Hed already made a good strike in the California gold rush with his two brothers. They then heard about the strike on Frasers River, went north and hit it big again, returning with $20,000 between them, a sizeable sum.
