Looking For Better Gold Prices (GLD, SGOL, GGN, NEM, GDX)

Gold needs a breather.  All of the same reasons that gold ran from $900 to $1200 are still in place outside of the catastrophic meltdown scenario on every investor’s mind in early 2009.  Greece and other PIIGS news comes and goes. The story of a rapid rise in interest rates comes and goes, the argument for owning hard assets versus paper assets comes and goes, the argument that the US and other large nations will see hyperinflation comes and goes, and the argument that world currencies are devaluing rapidly against asset values comes and goes.  Still, gold needs a breather.  That puts the SPDR Gold Shares (NYSE: GLD) and the ETFS Physical Swiss Gold Shares (NYSE: SGOL) in direct focus, but we also want to look at Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN) and Newmont Mining Corporation (NYSE: NEM) as two other beneficiaries for when gold rises along with the Market Vectors Gold Miners ETF (NYSE: GDX)

There is a technical call from our affiliate Adam Hewison at INO.com, who you have seen here calling the gold bull since $900.00 and before.  Adam is calling for a selling engulfing pattern If gold gets under and stays under $1,150.30 per ounce.  Kitco.com currently shows the gold market around $1,154.00 and the low seen today was $1,151.20 per the quote.  If that breaks, Hewison outlines how that would be near-term bearish even though he thinks gold is headed higher long-term.  A report on Kitco.com from the Economic Times also says there are no near-term driving catalysts for gold to move higher.

If investors want a longer-term play on gold and hard assets, there is Gabelli Global Gold, Natural Resources & Income Trust (NYSE: GGN) that could be bought on pullbacks.  This is not a pure-play, but the closed-end fund offers significant gold and other commodity exposure plus income that is rarely seen in gold investing.  Sam Collins wrote at OptionsZone.com that the Gabelli gold play has provided a steady dividend return, as well as a way to participate in major metals mining stocks and said that ultimately this could run into the mid-$20’s from under $19 currently.  We took a look into this one and determined that its $0.14 dividend has been paid out almost every month since 2005, which gives this a yield of close to 8.8%.  This invest at least 80% of its assets in equity securities of companies principally engaged in the gold industry AND the natural resources industries, so it is not a true pure-play in gold.  Still, who the hell said gold can’t pay a dividend?

Newmont Mining Corporation (NYSE: NEM) is close to a pure-play in gold with proven and probable gold reserves of about 91.8 million equity ounces and an aggregate land position of approximately 33,400 square miles at the end of 2009.  The at-market value of that full gold without discounting for time value, error, associated costs, and a hundred other issues comes to about $105 billion.  With a $26 billion market cap today based on a $53.36 stock price, this stock was under $20.00 back in 2001.  This has only paid a total of almost $3.00 in total dividend income the entire since the start of the year 2000, so income payments are not a prime goal here.

Then there is the Market Vectors Gold Miners ETF (NYSE: GDX), which a diversified closed-end fund that lists Newmont as over 10% of its total allocation and lists the top 3 holdings as having 40% of the weighting of the entire GDX.  That at least offers a diversified fund for the global gold mining majors.

Whether something needs a breather or whether it will get a breather are two entirely different arguments.  The NASDAQ never needed to hit 5,000 to a high of 5,132 in March of 2000, but it did.  As far as how fast a bull market bubble can pop, keep in mind that by the end of May 2000, just two short months, the NASDAQ went all the way back down to 3,042.  By the end of 2000, the NASDAQ was back under 2,500 to close the year out at 2,470.52.  Take a look at your screen now for a NASDAQ quote…. we are just challenging 2,500 again and that is after a major bull market of the last year.

We are looking for a pullback in gold.  The charts look like a breather is needed.  Hopefully a pullback will come, and that in turn will help keep the inflation hawks in the cages.

JON C. OGG